Regulating Pre-IPO in Nepal: A Framework for SEBON and Nepse Lightning

In Nepal's rapidly evolving capital market, the term "Pre-IPO" has often been associated with informal and unregulated share trading. However, with the introduction of the Securities Issuance and Trading Regulations for SMEs, 2081 (2025), the Securities Board of Nepal (SEBON) has begun formalizing a pathway for growth-stage companies—such as Nepse Lightning (assuming)—to bridge the gap between private ownership and a public listing.

Below is a structured framework outlining how SEBON can effectively regulate pre-IPO placements to foster innovation while protecting investors.

1. Defining the SME "Pre-Listing" Zone

Under the new 2081 regulations, companies with a paid-up capital of up to NPR 250 million can enter the dedicated SME platform. For a company like Nepse Lightning, SEBON’s first regulatory lever is clearly defining the "pre-listing" phase:

Operational History: Companies must have at least one full financial year of operations before becoming eligible to register securities for an IPO.
Public Offer Size: SMEs are required to offer between 30% and 49% of their issued capital to the public. Pre-IPO placements must be structured carefully to ensure these thresholds are not breached prior to the formal public offer.

2. Formalizing Private Placements (The 50-Person Rule)

A critical regulatory boundary in Nepal is the 50-person limit. Under Section 29(1) of the Securities Act, 2063, any entity intending to sell securities to more than 50 individuals must conduct a formal public issue.

Illegal Pre-IPO Trading: SEBON has explicitly warned that buying or selling shares under the "pre-IPO" label through unauthorized social media channels or informal networks is illegal.
Regulated Fundraising: For companies like Nepse Lightning, SEBON can mandate that any pre-IPO fundraising involving fewer than 50 investors be formally recorded with the Office of the Company Registrar (OCR) as a private placement. This ensures transparency in the cap table well before the IPO prospectus is drafted.

3. Institutional Anchors and Lock-in Periods

To ensure market stability for smaller and technology-driven firms, SEBON has introduced mandatory institutional participation for SMEs:

Strategic Allocations: Prior to an IPO, 15% of shares must be purchased by Qualified Institutional Investors (QIIs) and 5% by the merchant banker.
Three-Year Lock-in: Unlike the main market’s one-year lock-in period, these institutional pre-IPO stakeholders are subject to a three-year lock-in from the date of allotment. This mechanism discourages "pump-and-dump" behavior and ensures long-term commitment during the company’s early public years.

4. Transitioning Through Specialized Investment Funds (SIF)

Rather than permitting direct retail "pre-IPO" sales, SEBON encourages capital raising through Private Equity (PE) and Venture Capital (VC) funds regulated under the Specialized Investment Fund Rules, 2075.

Professional Management: For Nepse Lightning, raising pre-IPO capital through a SEBON-licensed PE or VC fund represents the most compliant approach. These funds are professionally managed, must maintain a minimum capital of NPR 150 million, and are limited to 200 sophisticated unit holders.
Ease of Exit: Proposed policies for 2082/2083 (2025/26) aim to ease exit mechanisms for these funds, allowing more efficient divestment after the investment term ends. This creates a clearer and more predictable "pre-IPO to IPO" lifecycle.

5. Transparency and "Tech-Ready" Disclosures

SEBON can further regulate the pre-IPO phase by strengthening disclosure and reporting requirements:

Mandatory Audits: Companies must adopt Nepal Financial Reporting Standards (NFRS) and provide audited financial statements for at least the immediately preceding fiscal year.
Ongoing Reporting: Once the IPO process begins, companies are required to submit quarterly and annual reports highlighting key financial and operational indicators.

Conclusion

For example, for Nepse Lightning, a SEBON-regulated pre-IPO pathway is not about informal share sales, but about institutional readiness and regulatory discipline. By staying within the 50-investor limit, leveraging PE/VC funds for growth capital, and preparing for the SME platform’s specific lock-in and disclosure requirements, companies can successfully navigate the transition from a private startup to a publicly listed enterprise in Nepal’s capital market.