Banking News – Delays by the Nepal Securities Board (SEBON) in approving Initial Public Offerings (IPOs) have created an opportunity for intermediaries to promote illegal pre-IPO investment schemes, exposing retail investors to significant financial risks.

With the formal IPO approval process remaining stalled for an extended period, market observers say an unregulated parallel market for so-called pre-IPO shares has emerged, where companies and intermediaries are allegedly raising millions of rupees from the public through unauthorized offerings.

According to the Independent Power Producers’ Association, Nepal (IPPAN), many hydropower companies and other firms that submitted IPO applications nearly 28 months ago are still awaiting approval. The slowdown has been attributed to policy reviews under SEBON’s new leadership, scrutiny of more than 104 companies currently in the approval pipeline, and regulatory uncertainty surrounding investment group companies.

Taking advantage of the prolonged delays, intermediaries have reportedly been circulating promotional presentations and advertisements claiming that certain companies will soon launch IPOs, promising investors exceptionally high returns. The schemes are being promoted through WhatsApp, Viber, Facebook groups, and SMS, often using the names of well-known companies from sectors such as footwear, food manufacturing, cement, and hydropower.

However, investment experts caution that shares not approved by SEBON and not offered through Nepal’s official C-ASBA application system carry substantial legal and financial risks.

Following the rise in unauthorized pre-IPO promotions, SEBON has issued a public notice declaring such activities illegal and punishable under prevailing securities laws. Under Section 29(1) of the Securities Act, 2007 (2063 BS), no company may offer shares to more than 50 persons without prior approval from the regulator. Raising funds from hundreds of investors under the guise of pre-IPO offerings without regulatory approval constitutes a violation of the law.

Although SEBON has warned that companies and individuals involved in unauthorized public fundraising will face legal action, market participants say enforcement has so far remained limited.

According to SEBON officials, companies currently in the approval pipeline will be reviewed thoroughly, and only those meeting regulatory standards will receive approval. The Board expects the IPO approval process to resume towards the end of Shrawan or during Bhadra, after the ongoing evaluation is completed.

SEBON’s latest data show that 104 companies are currently awaiting IPO approval, seeking to raise more than Rs. 69.53 billion through public offerings. More than 50 of these applicants are hydropower companies, making the sector the largest contributor to the current IPO pipeline.