Sebon's new provision triggers selling pressure

KATHMANDU, April 26: Stock prices fell over the week despite well-received bank earnings, as rumors that a new provision on offloading of promoter shares through stockbrokers would trigger oversupply of shares created selling pressure.



The Nepal Stock Exchange (Nepse) index fell 10.7 points, or 2.06 percent, over the week to 508.36 points on Thursday, the last trading day of the week, after it emerged that the Securities Board of Nepal (Sebon), the securities market regulator, had allowed promoters of banks and financial institutions to offload their shares through stockbrokers.[break]



As per this provision, banks can now float at least 49 percent of their shares on the stock market as against 30 percent in the past. Although this provision of floating 49 percent of shares to the public was introduced in the past, promoters, previously, were allowed to offload these shares only after issuing offer documents, which costs couple of hundreds of thousands of rupees to produce.



The provision to sell promoter shares using offer documents is still intact. But recently the securities market regulator also allowed these promoter shares to be sold through stockbrokers.



“The opening of the new window to sell promoter shares has created panic, as many investors are worried this would flood the stock market with shares ultimately putting pressure on stock prices because of oversupply,” Stockbroker Anjan Poudel said.



However, Sebon Chairman Babu Ram Shrestha begged to differ. “Yes, the new provision has paved the way for promoters to sell their shares through stockbrokers,” Shrestha said. “But rumors that this would trigger oversupply of shares are completely baseless.”



He argued: “The daily trading volume at the stock market is about Rs 70 million to Rs 80 million, which shares of about 40 to 50 companies traded every day. This means average trading volume of every listed company hovers at around one million rupees. So even if promoters decide to float huge amount of shares, there would be no buyer and they will be forced to resort to offer documents as in the past to offload shares.”



Despite Sebon´s clarification, the damage has been done for the week and the biggest loser was sub-index of Commercial banks sector. Other sub-indices, except manufacturing and trading that make negligible contribution to market capitalization, also fell over the week.



Despite fall in share prices, weekly trading amount rose 4.22 percent to Rs 382.14 million because of selling pressure.

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