The fight for a new stock exchange license is the biggest competition among Nepali corporate groups in recent times
If there is one topic that has dominated the Nepali corporate talks in recent days, then it has to be the fight for a license for a new stock exchange. The race to acquire a license for a new stock exchange has turned into the biggest corporate battle in recent times.
Except for a few, almost all big names of the Nepali corporate world including Non-Resident Nepalis (NRNs) are in the fray. There is one group comprising a powerful and politically well-connected commission agent and influential businesspersons, the other group comprises NRNs and business houses, and the third one is led by a media baron.
The licensing for a new stock exchange has been a high-stake game ever since the Securities Board of Nepal (Sebon) began the process. The entry of Ramesh Hamal as Sebon Chairman last year accelerated the process. Sebon on the second week of September 2022 amended the Securities Market Operation Regulation 2064 BS, paving the way for establishing the second stock exchange in the country.
As soon as Sebon invited applications for a new stock exchange, the controversy started with a section of the corporate group questioning the whole process, arguing that certain business groups are being favored. This led to a legal battle that stalled the process for more than five months. The licensing process finally resumed after the Supreme Court in the second week of April 2023 dismissed the petition.
Three companies are now in the race to acquire a license for the country’s second stock exchange. Himalayan Stock Exchange, National Stock Exchange, and Annapurna Stock Exchange have applied for a license after Sebon invited applications on April 13.
The major promoters of the Himalayan Stock Exchange are the Shanker Group and Deepak Bhatta Group, while former FNCCI presidents – Bhawani Rana, Pashupati Murarka, and Shekhar Golchha alongside Rajendra Khetan, Saurav Jyoti, Vivek Dugar, Kumud Kumar Dugar, and Amit Kumar More are also the promoters of the company.
The National Stock Exchange has been backed by NRN businesspersons, Agni Group, Kedia Group, and Reliance Group. The NRN businessmen Upendra Mahato, Jiba Lamichhane, Badri KC, and Kul Acharya are among the shareholders of this proposed stock exchange. Similarly, Deepak Timilsina, Mahesh Kumar Shrestha, Rishi Aggarwal, Ankit Kedia, and Ramji Regmi have been proposed as the board of directors of the National Stock Exchange.
The Annapurna Stock Exchange is led by a team of businesspersons led by the media and aviation tycoon Rameshwor Thapa. The Annapurna Stock has seven directors as Ganesh Kumar Shrestha, Mukti Bodh Neupane, Anil Sapkota, Prakash Kumar Shrestha, Shekhar Subedi, Balram Upreti, and Surendra Raj Wagle.
The way the political-businessmen nexus works in Nepal, it is hard to predict which group will get the license as all are politically well-connected. The way Deepak Bhatta managed to edge out rivals in the license issuance of the Himalayan Reinsurance, the country’s second reinsurance company, in 2021, many corporate people believe that the Himalayan Stock Exchange has an edge over the other two.
There was fierce competition among the top corporate houses during the license issuance for the second reinsurance company. While five reinsurance companies sought the licenses, it was Himalayan Reinsurance that came out as the winner. The company is promoted by Nepal’s leading business houses, namely Golchha Group, Shanker Group, Lucky Group, Ramesh Corp, Murarka Group, and KL Dugar Group, among others.
Who will come out as the winner of the much-talked-about corporate battle for the new stock exchange will be known within a month as the Sebon has already formed an evaluation committee to recommend the name. This contest is being observed closely as it is also expected to redefine the power equation in the Nepali corporate sector.
For the past 30 years, the Nepal Stock Exchange (Nepse) has been operating as the country’s sole stock exchange. Initially, it was established with working capital of Rs 35 million, with joint investments from the government, Nepal Rastra Bank, and the Nepal Industrial Development Corporation. At present, Nepse has a paid-up capital of Rs 1 billion and the government has a majority stake in the company.
While there have been talks of bringing strategic investors into the Nepse, the process has not moved ahead. A section of people including Nepse employees have also begun to question the whole licensing process for the second stock exchange. They claim that given the state of the capital market and the size of the population, Nepal does not need another stock exchange arguing that a country like India has only two stock exchanges.
However, capital market experts say another stock exchange is necessary for Nepal because the current market has not adequately safeguarded small investors, leading to organized groups being the primary beneficiaries of the market. “The Nepal Stock Exchange (NEPSE) has failed to implement new technologies and tools, which has adversely affected small investors,” said Mukti Aryal, a capital market expert.
“Despite the introduction of an automated trading system (TMS) by Nepse in mid-2018, it has received criticism for being outdated compared to advanced systems used in neighboring countries. Unfortunately, being a government entity, Nepse has encountered difficulties in improving its system. As a result, the capital market has remained underdeveloped. The lack of a pragmatic approach from both Sebon and Nepse, combined with policymakers’ indifference towards Nepse, has contributed to the sluggish growth of Nepal’s capital market,” added Aryal.
While the government is in full swing to provide a license to a new stock exchange, there is much confusion about the existence of Nepse, clearing house, and how the new stock exchange would operate.
According to Sebon Chairman Hamal, the rationale behind the second stock exchange is to foster competition in the capital market. “The companies listed on NEPSE can also be listed on the new stock exchange. A company can do business in both exchanges or get listed on just one exchange. Like the companies, brokers can also get registered for two different exchanges, or just one,” he said.
Although Aryal agrees Nepal needs another stock exchange, he says that the provision of dual listing will bring in many problems. “It is good to get listed on stock exchanges of two different countries. But being listed in two exchanges of the same country can bring problems like dual pricing,” says Aryal. According to Sebon, investors can use the same demat account to trade and invest in companies listed in the new stock exchange.