Saturday, August 19, 2017

IPOs vs FDI - A paradox of Billions of Rupees!

Image Credit: Continental Currency
I have been watching out for investment opportunities in the Initial Public Offerings (IPOs) in Nepal through Share Sansar, a very useful source of information for potential investors. I would like to do a little bit of marketing here - I have enjoyed surfing through ShareSansar. Although not perfect, it has been one of the greatest source of investment information for me.


Huge Inflow of Money in IPOs

Now back to the issue of disappointment, every time an IPO kicks off, the issued shares are oversubscribed by many times. For an IPO worth 30 million rupees tens of thousands of people are pouring in hundreds of millions, hoping to secure their share of investment in the company launching IPO. However, because the shares are oversubscribed by more than 10 times in most of the cases, only some of those investors are allotted a meagre amount of shares, usually between 10 and 30, that also through a lottery system. SEBON (securities exchange board of Nepal) is trying to encourage investment and now onward, all the investors will be allotted 10 shares if possible, no matter how much they invest. Although, this increases the chances of securing shares, it greatly reduces the number of shares you can secure. Therefore, the investors end up getting less than 100 shares and with the new provision, allotment of more than 30 shares for an investors is highly unlikely.

Investment Paradox - Lesson from Primary Share Market

Although I am trying to generalise the scenario to make it simple, the reality is not much different. This scenario serves as an important lesson that Nepalese people themselves have a lot of money which they are willing to invest in businesses for future returns. However, the government officials and politicians still discuss about bringing in FDI (Foreign Direct Investment) in Nepal. This is what I call a paradox of billions of rupees. Some politicians are too much engrossed in endorsing bilateral trade agreements with various countries while others discuss about providing incentives to foreign entrepreneurs to start business in Nepal. Likewise, even when there is enough money within Nepal to accelerate ultra-large projects like Melamchi Water Project and Budigandaki Hydropower project through crowdfunding from the locals, the government is awaiting for meagre budget to be disseminated that delays the projects significantly. Crowdfunding such projects is a double target arrow, that can pin two problems. It can provide more investing opportunity to the people and reduce project completion time, especially due to financial reason, both at the same time.

Crowdfunding Regulation 

To cut things short, there are lot of potential investors who are enthusiastic on investing in businesses, preferably on the public limited companies. FDI might be important, but it is more important to mobilise the investment potential of our own citizens. Also there is another lesson here which we can explore. The kind of enthusiasm seen in the investors in IPOs and the share market can be transformed into crowdfunding practices if we can govern well. Share market is well regulated and governed by SEBON. Similarly, we need a new organisation which can mobilise crowdfunding for funding new projects while governing the associated risks and ensuring that the returns are transferred back to the original investors transparently and legitimately.

Once again, I do not advocate against FDI. I rather just want to ask a simple question: Are there enough investment opportunities for the Nepalese people? Why not create some opportunities to fulfil the investment zeal of Nepalese people while developing the nation?

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