KATHMANDU, NOVEMBER 10

The Securities Board of Nepal (SEBON) has issued 'Guidelines for Merger and Acquisition of Organised Organisations with Registered Securities, 2022' for proper management of mergers and acquisitions.

Investors have appreciated the board's initiative stating that the introduced mechanism has addressed their fundamental right to trade shares that were earlier halted for a long time due to issues during such activities in the market and that the new provision will contribute in proper management of merger or acquisition transactions.

According to Chhote lal Rauniyar, former president of Nepal Investors Forum, shareholders have been demanding such guidelines for a long time as many were not allowed to trade their shares for prolonged periods due to various issues and delay in mergers and acquisitions.

'Stock halt for a prolonged period when companies go for mergers or acquisitions is not in the best interest of the investors. Shareholders have faced grave issues in the past during such activities and have been demanding proper guidelines for a long time,' he said.

'The market is relatively stable at present and it will take time to grow due to the adverse effects of liquidity crunch, inflation, and increasing lending rates,' Rauniyar added.

Following the implementation of the guideline, one of the two or more organised organisations with registered securities in the board may cease to exist and be absorbed into the merging organisation or become a new organisation in line with the agreement between them under the prevailing laws.

As per the guidelines, the board of directors of the organisation that are in the process of merger or acquisition with registered securities will have to submit an application to the securities market and the central depository service provider with details of common shareholders of the merging organisations on the day of the agreement or the day after, to halt the share trading of common shareholders. Upon receiving the application, the securities market and the central deposit service provider organisation should make arrangements to immediately stop the transactions of the common shareholders of that organisation.

Likewise, the organised organisation with registered securities with the board or the share registrar of that organisation must provide the details of the basic shareholders to the securities market and the central depository service provider organisation immediately or the next day before the trading hours, if the securities are cleared or changed for any other reason.

Also, the securities market and the central depository service provider should update and arrange the details of the basic shareholders whose transactions will be suspended in their transaction system. With the implementation of the guidelines, the share trading of common shareholders will be halted for 15 days in the case of merger or acquisition to match the shares of the target entity, re-registration of securities, dematerialisation of securities, and listing.

Similarly, the directors, employees, and other related parties of the organised organisation may not disclose any information related to merger or acquisition unless there is a preliminary agreement. As mentioned in the guidelines, the organised organisation that has registered securities in the board cannot cancel the merger or acquisition process until the proposal related to the merger or acquisition is decided by the general meeting of the said organisations after the initial agreement. Similarly, the merger or acquisition of the organised organisation should be completed within six months after the initial agreement.

A version of this article appears in the print on November 11, 2022 of The Himalayan Times.