The ongoing process of selling some of the shares of two public sector undertakings to the employees and the general public and the planned divestment of the government’s equity in the Nepal Stock Exchange Ltd are encouraging signs at a time when the supply of shares exceeds the demand by far. This supply-demand mismatch was considered one of the factors that made it easier for some unscrupulous investors to manipulate share prices. However, without other effective measures in place, market manipulation cannot be checked. This initial public offering (IPO) will also pull in a significant amount of money for the cash-strapped government, as it is unsuccessfully fighting to rein in its ballooning budget deficit. For the eager investors, offers of shares and debentures by several private companies will also represent huge investment opportunities this year.

The fully state-owned Nepal Telecom (NT) is selling Rs.1.5 billion’s worth of shares in two phases of equal amounts — first to its employees and directors, and then to the general public. This represents the biggest-ever public offering of shares in Nepal, and accounts for 10 per cent of NT’s total equity. Similarly, the Agricultural Development Bank, Nepal, another state-owned entity, is offering five per cent of its equity to its borrowers. Savvy investors are also reported to be urging borrowers, by making available cash to them, to apply for shares on condition that they will have to sell the stock to them, though at a certain profit, when it is listed. All this indicates a strongly bullish mood among investors in company shares.

NT is no doubt selling its shares according to the Company Act. However, one oddity is striking. It is distributing its shares worth Rs.750 million, with the par value of Rs.100 each, among its employees at 10 per cent discount. It is but natural that the employees should get some facility in share subscription. On the contrary, the ordinary subscribers are reported to have to pay much more, up to Rs.600 per share, on the grounds that NT has made a profit for three years in a row. This heavy subsidy for the employees comes at a pretty heavy public cost, running to several billion rupees. This legal provision of share allocation, therefore, needs to be reconsidered for the sake of equity. Given the demand, the agricultural bank’s shares, which are to be floated soon are likely to be snapped up. Nevertheless, the sale of 10 or 30 per cent equity shares will not make much difference in the way the organisations are run. The public needs to hold majority stakes for this to happen. The concept of ‘strategic partner’ has also been floated — this means selling the single largest block of shares to one buyer to give him a controlling interest in the company’s management. But to ensure this, 15 or so per cent of single equity ownership is enough, as a look at the ownership structures of most big and successful public companies around the world can testify. In the name of finding a ‘strategic partner’, the vast percentage of ownership in state enterprises must not be transferred to some big business, as Nepal has a bitter experience with this policy.