Nepal Opens a New Door for Companies to Raise Capital in Foreign Markets — But Major Questions Remain

The Government of Nepal has amended Rule 41(A) of the Securities Registration and Issue Regulations, 2073 (Fourth Amendment), creating a new legal pathway for Nepali companies to potentially raise capital through foreign capital markets.

Under the amended provision, a Nepali organized institution may, after obtaining approval from the Securities Board of Nepal (SEBON) and Nepal Rastra Bank (NRB), issue bonds, debentures or other securities in foreign currency in an overseas capital market.

At first glance, the amendment appears to be an important step toward expanding capital-raising opportunities for Nepali companies. However, the new provision does not mean that a Nepali company can immediately conduct an IPO or issue securities in any foreign country.

There are still significant regulatory, disclosure, compliance and market-related questions that need to be addressed.

What Does the New Foreign Securities Issuance Provision Say?

The amended provision broadly allows a Nepali organized institution to issue securities in a foreign capital market, subject to approval from Nepal's securities regulator and the central bank.

The key provisions include:

• The issuance must be between 10% and 85% of the company's issued capital, subject to the applicable conditions.
• Foreign currency received through the issuance must be invested in Nepal.
• The company cannot issue shares by adding a premium.
• Trading of securities issued under this provision will be conducted according to the system prescribed by the relevant stock exchange.
• The minimum trading unit for such securities will be 1,000 shares.

This is potentially significant for Nepal's capital market and companies looking for alternative sources of capital.

However, the amendment should not be interpreted as an automatic permission to launch an IPO in another country.

FAQ: What Does the New Rule Mean for Nepali Companies?

1. What is the impact of this amendment?

The amendment creates a legal framework from Nepal's side for a Nepali company to potentially issue bonds, debentures or other securities in a foreign capital market.

However, obtaining approval in Nepal alone is not sufficient.

If a Nepali company wants to issue securities in a foreign country, it must also comply with the securities laws, regulations and approval procedures of that particular country.

For example, a company seeking access to a major international market would have to comply with the requirements of the relevant foreign securities regulator and stock exchange.

Therefore, this amendment should be viewed as an enabling provision, rather than an automatic authorization for an overseas IPO.

2. Who is likely to buy these securities?

One of the most important potential investor groups would be Non-Resident Nepalis (NRNs) and Nepalis living abroad.

The amendment could create a mechanism through which Nepalis residing overseas can participate in securities issued by Nepali companies through foreign markets, subject to the rules of the relevant jurisdiction.

This could potentially create a new channel for mobilizing capital from the Nepali diaspora.

3. What is the significance of the new provision?

The biggest significance is that Nepal has now created a regulatory pathway for a Nepali company that wants to explore foreign capital markets.

Previously, the absence of a clear domestic legal framework could itself create a barrier.

But the new provision does not eliminate foreign regulatory requirements.

A company would still have to satisfy the laws, regulations, listing requirements, disclosure obligations and procedures of the foreign jurisdiction where the securities are proposed to be issued.

In simple terms:

Nepal's approval is necessary, but it is not sufficient.

A company cannot simply announce an overseas IPO and start selling securities without completing the required foreign regulatory process.

4. How difficult is it to issue an IPO in a foreign market?

Issuing securities in developed foreign markets can be significantly more complex and expensive than issuing securities in Nepal.

Markets such as the United States, United Kingdom and Singapore have sophisticated regulatory and disclosure frameworks.

For example, companies accessing markets regulated by bodies such as the U.S. Securities and Exchange Commission (SEC), the Financial Conduct Authority (FCA) or Singapore's Monetary Authority of Singapore (MAS) may face extensive requirements relating to:

• Financial disclosures
• Accounting standards
• Auditing
• Internal controls
• Corporate governance
• Risk disclosures
• Prospectus preparation
• Legal due diligence
• Investor disclosures
• Financial reporting
• Verification of information
• Audit trails
• Underwriting and book-building procedures

In many developed markets, regulators do not necessarily impose the same type of direct "merit regulation" based on minimum profitability, EPS, DPS or net-worth thresholds.

Instead, the emphasis can be heavily placed on transparent disclosure and allowing investors to assess the risks and financial prospects themselves.

Book runners, underwriters, institutional investors and other market participants can then evaluate the company's financial condition and investment prospects.

However, meeting these disclosure and compliance standards can be costly and technically demanding for a Nepali company.

5. Will foreign investors invest in securities issued by Nepali companies?

The possibility exists, but attracting large-scale foreign investors could be challenging.

International investors generally consider much more than a company's EPS, net worth, profitability or dividend history.

They may also evaluate:

• Foreign exchange risk
• Currency convertibility
• Country risk
• Political and regulatory risk
• Corporate governance
• Liquidity
• Market depth
• Exit opportunities
• Accounting and disclosure standards
• Company's growth prospects

For a foreign investor, investment returns are affected not only by the company's performance but also by currency movements.

Therefore, the relatively weak and volatile nature of the Nepali rupee could become an important consideration for international investors.

As a result, it may be unrealistic to assume that the new provision will automatically bring significant new foreign capital into Nepal.

6. Could NRNs become the main investors?

This is one of the more realistic possibilities.

Nepalis living abroad already have a strong connection with Nepal and may have greater familiarity with Nepali businesses, companies and the domestic economy than completely unrelated foreign investors.

If an appropriate regulatory, trading and settlement mechanism is developed, overseas Nepalis could become an important investor base for such securities.

This could also provide a structured way to channel funds held abroad toward investment in Nepal.

7. Will this provision bring new foreign capital into Nepal?

Not necessarily.

The amendment creates an opportunity to raise capital abroad, but the actual amount of capital raised will depend on investor demand, the company's financial strength, regulatory compliance, valuation, market conditions and the rules of the foreign jurisdiction.

It is therefore too early to conclude that the amendment alone will result in substantial foreign capital inflows.

However, it could become useful as an alternative mechanism for mobilizing capital from NRNs and overseas Nepali investors.

8. Can a Nepali company immediately launch an IPO in the United States, UK or Singapore?

No.

The amendment does not provide automatic access to foreign stock exchanges.

A Nepali company would need to satisfy:

1. Nepal's regulatory requirements.
2. Securities Board of Nepal approval.
3. Nepal Rastra Bank requirements.
4. The securities laws of the target country.
5. Foreign exchange and taxation requirements.
6. Disclosure and accounting requirements.
7. The relevant stock exchange's listing rules, where applicable.
8. Prospectus and investor-protection requirements.
9. Auditing and legal due diligence requirements.

Therefore, foreign IPO issuance remains a complex process.

9. Can the company issue shares at a premium?

According to the amended provision described above, the company cannot issue shares by adding a premium.

This could have a major impact on how companies structure an overseas equity issuance and how the securities are valued.

The practical interpretation and implementation of this provision will be important for companies considering foreign capital raising.

10. What does the 1,000-share minimum trading unit mean?

The amendment provides that the trading unit for securities issued under this arrangement will be at least 1,000 shares.

This is an important operational detail because it can affect:

• Retail investor participation
• Trading liquidity
• Order sizes
• Market accessibility
• Settlement procedures
• Trading-system design

The practical impact will depend on how the relevant stock exchange and trading infrastructure implement the provision.

What Does This Mean for Nepal's Share Market?

The amendment is potentially an important development for Nepal's capital market.

Nepal's companies have historically depended heavily on domestic banks, debentures and the local equity market for capital.

A regulated pathway to access foreign capital markets could eventually provide companies with another financing option.

However, the success of this policy will depend on implementation.

The key question is not simply whether Nepal allows companies to issue securities abroad.

The bigger question is:

Can Nepali companies meet the regulatory, financial, disclosure and investor-confidence requirements of international capital markets?

That will determine whether the amendment becomes a meaningful source of capital or remains largely a theoretical opportunity.

Potential Benefits of the New Rule

The amendment could potentially provide several benefits:

1. Alternative Capital-Raising Channel

Companies may have another option besides relying entirely on Nepal's domestic capital market.

2. NRN Investment Opportunity

It could create a more structured avenue for NRNs to invest in Nepali companies through foreign markets.

3. International Market Exposure

Companies may gain exposure to international investors, institutions and financial-market practices.

4. Capital Market Development

The policy could encourage Nepal to gradually develop infrastructure and regulations connected with international capital markets.

5. Potential Repatriation of Funds

The mechanism could potentially help channel some funds held by Nepalis overseas back into Nepal, provided the regulatory framework is practical and investor-friendly.

Major Challenges Ahead

Despite the potential benefits, several challenges remain.

Foreign regulatory approval: Nepal's approval does not replace approval from the foreign jurisdiction.

High compliance costs: International securities issuance can require substantial legal, accounting, auditing and advisory expenses.

Currency risk: Foreign investors may be concerned about Nepal's currency and exchange-rate risks.

Liquidity: Investors need confidence that securities can be bought and sold efficiently.

Corporate governance: International investors generally expect strong governance and transparent reporting.

Disclosure: Companies may need to meet substantially higher disclosure and reporting standards.

Investor confidence: Regulatory permission alone cannot create investor demand.

Bottom Line

The amendment to Rule 41(A) of the Securities Registration and Issue Regulations, 2073 is an important step toward giving Nepali companies a possible route to access foreign capital markets.

But it is important to distinguish between permission from Nepal and actual access to a foreign securities market.

The new rule provides a domestic legal pathway. It does not automatically authorize a Nepali company to conduct an IPO or securities offering overseas.

The company must still satisfy the laws, regulations, disclosure requirements and market procedures of the foreign country.

In practice, NRNs and overseas Nepalis could potentially become a more important investor group than unrelated international investors.

The provision could therefore be useful not only as a capital-raising mechanism but also as a possible channel for bringing funds held by Nepalis abroad back into Nepal.

For investors and students of the Nepal share market, this is an important policy development to watch as Nepal's capital market continues to evolve.

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