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🇳🇵 Nepal /Economy & Trade

Nepal promoters resign to sell shares, exploiting lock-in loophole amid concern

From Kathmandu Post · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Promoters and directors in Nepal are resigning from listed companies to sell shares, exploiting a loophole that restricts sales for a year after leaving senior positions.
  • Experts and a Securities Board of Nepal official note an increase in this trend, which has spread beyond hydropower to other sectors.
  • Critics argue this practice weakens governance and execution, as investors rely on the prospectus and leadership structure, prompting calls to revise lock-in rules.

Promoters and directors of listed companies in Nepal are strategically resigning from their positions to sell shares, exploiting a loophole in existing regulations. The rule prohibits individuals in board or senior management roles from selling shares during their tenure and for one year afterward. This has led some insiders to step down to bypass the restriction period.

Some directors have been systematically resigning from their positions.

— Sebon officialDescribing the trend of company insiders stepping down to sell shares.

A Securities Board of Nepal (Sebon) official confirmed the trend's recent increase, noting that some directors are systematically resigning and even lobbying for IPO approvals for loss-making companies with the intent to sell their holdings later. While initially prevalent in the hydropower sector, market experts observe the practice has expanded to investment, manufacturing, processing, hospitality, tourism, and trading firms.

Some have even lobbied Sebon to approve IPOs for loss-making companies. They plan to eventually sell their holdings and exit.

— Sebon officialElaborating on the strategic maneuvers of some company insiders.

Former Sebon executive director Niraj Giri stated that the provision is being misused, and attempts to revise the three-year promoter lock-in period were unsuccessful. He highlighted that companies sometimes enter the market primarily to raise funds, enabling insiders to exit through share sales. Giri also pointed out that early exits by key promoters weaken governance, leadership, and expansion plans, as investors rely on the prospectus, business plan, and leadership structure when purchasing shares.

We had tried to revise the three-year lock-in even during my time at the board, but it was not possible.

— Niraj GiriA former Sebon executive director commenting on past attempts to reform the lock-in rules.

A 2023 Sebon study on hydropower companies, though not yet public, reportedly found that many promoters sell shares shortly after the lock-in period ends, indicating a lack of confidence in their projects' long-term returns. Giri suggested revising lock-in rules to allow gradual share sales during the payback period instead of abrupt exits, which he believes would better protect investors and company governance.

Now some promoters are misusing the arrangement.

— Niraj GiriExpressing concern over the exploitation of existing regulations.
DistantNews Editorial

Originally published by Kathmandu Post in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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