IPOs in Nepal: What I Check Before Hitting "Apply"

In Nepal, applying for IPOs is almost a national hobby. A new issue opens, the family WhatsApp group lights up, and everyone applies for 10 kitta on Mero Share without really knowing what the company does. Some families apply in five or six names.

I get it. It's cheap (Rs 1,000 for 10 kitta at Rs 100 each), it's easy, and for years IPO shares often listed well above Rs 100. Getting an allotment felt like winning a small lottery.

But that habit has taught many people the wrong lesson: that IPOs are free money. They're not. Here's how I think about them.

First, how IPOs work in Nepal

An IPO (Initial Public Offering) is when a company sells shares to the general public for the first time. The process usually goes like this:

The company gets approval from SEBON (Securities Board of Nepal) and publishes a prospectus (offer document).
An issue manager handles the process and announces the opening and closing dates.
You apply through Mero Share (using ASBA). The amount gets blocked in your bank account.
If the issue is oversubscribed, which popular ones always are, allotment is done by lottery. Lucky applicants usually get the minimum 10 kitta.
Unsuccessful applicants get their blocked amount released.
After allotment, the shares are credited to Demat accounts and the company eventually gets listed on NEPSE, where trading begins.

There are also reserved quotas in many issues, for example for locals in project-affected areas (common in hydropower), employees, mutual funds, and Nepalis working abroad. Check the prospectus to see whether you're eligible for any of them.

Things worth remembering

Applying doesn't mean you'll get shares. Popular issues are oversubscribed many times over, and most applicants get nothing.
Getting shares doesn't mean profit. Some IPOs have traded below their issue price after listing, and some have stayed there for a long time.
Your money is blocked in your bank account until allotment is done, so don't apply with money you need that week.
Past IPO gains don't predict future ones. The days when almost every IPO doubled on listing were tied to specific market conditions. Those conditions change.

What I actually read in the prospectus

The offer document is long, often more than a hundred pages, but you don't need to read every page. I look for:

What the company does and how it makes money. Can I explain it in two sentences?
What it will do with the money it raises. Building something new? Paying off loans? Something vague?
Recent financials. Is it profitable? Is revenue growing? How much debt does it carry? Are the numbers audited?
Net worth per share. How does it compare with the Rs 100 you're paying?
The "risk factors" section, which most people skip. The company is legally required to tell you what could go wrong. Read it.
Who the promoters are, and what their track record looks like.
The credit rating, if one is given. It's not a guarantee, but it's one more data point.
Lock-in periods for promoter shares. When those lock-ins end, a lot of shares can hit the market.

Extra questions for hydropower IPOs

Hydropower makes up a big share of IPOs in Nepal, so I've got a few extra questions just for them:

Is the project actually generating electricity yet, or still under construction?
If under construction, how much is done? Have there been delays or cost overruns?
Is there a power purchase agreement (PPA) with NEA? On what terms?
Is the transmission line ready, or is the project waiting for one?
How much debt does the project carry relative to its equity?
Has the area been affected by floods or landslides?

A project that's years away from generating and has already gone over budget is a very different investment from one that's been producing for three years.

Apply within your own plan

Even a 10-kitta application is still buying part of a company. Ask yourself:

Would I buy this company's shares at a fair price after listing? If not, why am I applying?
If I get allotted and the price falls below Rs 100, would I hold or sell?
How many companies in this sector do I already own? (See my post on diversification.)

It's perfectly fine to skip IPOs you don't like. You don't have to apply for every single one.

After allotment: don't forget

Check the result on Mero Share or the issue manager's website.
Once the shares are listed, the first days of trading can be very volatile. Prices can rise for several days in a row and then fall sharply.
If you sell, remember broker commission, capital gains tax and EDIS in Mero Share. My post on placing orders in TMS covers this.
Keep a record of your purchase price (Rs 100 per share for a standard IPO) for tax calculation later.

Red flags

Walk away if you see any of these:

Anyone promising a "guaranteed allotment" for a fee. Allotment is by lottery. Nobody can guarantee it.
Anyone asking for your Mero Share password to "apply for you".
Anyone telling you to take a loan to apply in multiple family members' names.
Fake IPO announcements circulating on social media. Always check the SEBON website or a known issue manager.
Links sent by unknown people claiming to be a "new IPO application portal".

Bottom line

IPOs can be a good way to get into solid companies at a fair price. But applying for an IPO is buying part of a company, so it deserves the same thought as any other share purchase. Read a little, understand what you're buying, and apply because you like the business, not because the WhatsApp group said so.

General information, not personal financial advice. Rules, rates and fees change, so check with the official source (SEBON, NRB, CDSC, IRD or the Nepal Insurance Authority) before you act. Have a question? Leave it in the comments.