An expert in share market regulations told Himal Khabar: “This is a straightforward case of insider trading. There is no question about it.”
Sarbottam Cement had signed an agreement with Global IME Capital to handle the IPO in March in the presence of SEBON officials, but the process has been delayed till later this month.
Nepal’s manufacturing companies, especially in the construction and hydropower sector are currently riding a wave of market confidence. Another compnay, Shivam Cement, recently went public clocking a similarly strong stock market performance.
The revelation of insider trading has been greeted by outrage on Nepal’s social media, and is likely to erode people’s growing trust in the stock exchange, with many commentators and financial analysts equating the secondary market with skulduggery, insider trading and outright theft.
‘Are board members allowing suspicious companies to release shares under the temptation of illicit rewards?’ asked one social media post. Another went: ‘Is the share distribution process transparent?’ Yet another said: ‘Have finance bosses, chiefs and sales executives rigged the process to earn favourable shares for themselves?’
The share market had been anticipating a surge, riding a wave of investment interest of the Nepali public in the manufacturing and construction sectors. But the reports of insider trading confirm the public’s suspicions of hanky-panky, and are expected to dampen the stock market.
Moreover, moving forward, companies wishing to list their IPOs via book building will be cautious of possible behind-the-scenes dealings.
The irregularity in Sarbottam Cement share offering is not the first of its kind, with the Securities Act 2007 violated previously. In 2014, investors at Citizens Investment and Employees Provident Funds were caught exchanging investment with the Upper Tama Kosi Hydropower with shares for themselves in return. The regulations were subsequently overhauled and loopholes plugged.
The Upper Tama Kosi and Sarbottam Cement cases are similar in the sense that they were both examples of graft, wherein two parties are believed to have exchanged confidential information for personal profit.
Given the impunity that is rife in Nepal’s political and business spheres, the Sarbottam issue will further damage the reputation, trust and transparency of the share market, hurting an already moribund economy.
Stock exchange legal expert Amrit Kharel is clear about the rules: “Three generations of the family members of a person with inside information about an initial public offering are barred from benefiting from any transaction, It is not just unethical, it is considered insider trading. And if any member of staff of SEBON is found to be violating this, they are liable to prosecution.”
Links to Himal Khabar series on this subject:
Translated by Kaustubh Dhital