Real sector firms fail to lure investors

HIMALAYAN NEWS SERVICE

KATHMANDU: The Nepali capital market keeps pining for more real sector companies even though the stocks of the existing real sector companies fail to charm investors.

Trading of real sector stocks listed at Nepal Stock Exchange (Nepse) under the heading

of manufacturing, trading and hotels, comprises of about 0.16 per cent of the total shares listed under those subgroups. There are more than 86 million unit shares of the 26 companies listed under the three subgroups at Nepse.

In the last 90 days, only 141,408 million unit shares belonging to these companies were traded. Likewise, among the 26 companies, shares of only nine companies were traded in 2012. Among the real sector companies listed at Nepse, four hydropower companies and Nepal Telecom are the only companies that see their shares trade regularly.

The capital market regulator and Nepse have been trying to attract more real sector companies to get listed, blaming the dominating presence of financial intermediaries for the poor performance of the market as a whole.

“The increasing number of real sector companies is not enough for diversification of the stock market if the performance of the real sector

companies remains poor,

discouraging investors,” pointed out share analyst Rabindra Bhattarai.

“The regulators need to focus on listing quality companies instead of on the number of companies because when Nepse was established real sector companies had outnumbered financial institutions but now most of them have disappeared,” he added.

Among the listed real sector companies, shares of Unilever Nepal, Bottlers’ Nepal, three listed hotels and Bishal Bazaar Company were traded in the last three months.

Relative lack of transparency and minimal dividend distribution by real sector companies is a big turn off for investors.

“Financial institutions, insurance companies and telecommunication companies have strong regulators keeping a tab on them, but manufacturing companies lack that and are not big on transparency as well, so investors have a hard time trusting them,” said Bhattarai who is also president of Securities Research Center and Services.

Most companies prefer raising capital by borrowing from financial institutions instead of offering shares to the public as disadvantages of getting listed outweigh benefits.

The government has even announced in the budget for the current fiscal year that companies who get listed at the stock exchange will be entitled to a 10 per cent tax discount as an incentive.

The regulator — Securities Board of Nepal (Sebon) — had proposed an incentive package for diversified companies to get listed to be announced in this fiscal year’s budget

but due to the partial announcement it has been postponed, said chairman of Sebon Baburam Shrestha.

“Though we want more real sector companies to issue shares to the public, Securities Board of Nepal will only approve the public issue of companies that have good future prospects — both financially and in terms of corporate

governance — to save investors from losing money to fly-by-night companies,” Shrestha added.