The new system will shorten IPO, share listing process
KATHMANDU, Nov 9: Securities Board of Nepal (Sebon) is implementing Applications Supported by Blocked Amount (ASBA) system on a voluntary basis from mid-January next year i.e. Magh 1.
The capital market regulator, however, plans to make it mandatory after few months.
In ASBA, investors' money equivalent to the subscription of initial public offering (IPO) or follow-on public offer (FPO) gets blocked until the allotment of the shares.
The decision to implement the ASBA is a part of the Sebon's initiative to modernize Nepal's capital and secondary market. Sebon officials contend that the implementation of the ASBA will simplify and shorten the IPO and stocks issuance process. Last year, it enforced full-fledged implementation of paperless trading system, known as central depository system, by displacing the paper-based trading system.
"We have decided to implement the ASBA system from the first day of Magh according to the Nepali calendar i.e. mid-January next year on a voluntarily basis. After studying pros and cons, we plan to make it mandatory from the month of Baishakh i.e. mid April next year," Rewat Bahadur Karki, the chairman of Sebon, told Republica.
Currently, money of investors is debited from their account as soon as they apply for the IPO or the FPO. The money is held by the issue manager until shares are allotted to the applicants.
"Apart from making the process convenient for investors, who face different hassles while applying for the IPO as well as getting their money back following the allotment, the IPO process will be shortened if the ASBA mechanism is implemented," said Karki. "While it takes at least 70 days now for a company to complete its IPO process, the allotment will be completed within 30 days once the ASBA comes into implementation," claimed Karki.
Karki further added that the bank and financial institutions (BFIs) will be invited to become the member of the system in which they will be instructed to block the money in the account of investors who authorize the issue manager to block their money while applying for the IPO or the FPO.
"We have consulted with bankers and they are also upbeat about the implementation of the ASBA. The system would be beneficial for the BFIs also as they can hold the money of their clients in their account for a certain period," he added.
Karki also said that the enforcement of the ASBA will also help the capital market regulator to reduce the timeframe to list primary shares in the secondary market.
However, merchant bankers say that there is a need to automate all backend processes for smooth operation of the ASBA. "There is no doubt that the ASBA will make things easier for investors. While this system is largely an automated process, there are activities and other processing parts of banks, stock exchange company and merchant bankers carried out manually," Praveen Raman Parajuli, president of Nepal Merchant Bankers' Association, told Republica.
"After implementing this system, our priority should be also to automate the backend process for smooth operation of the new system," he added.
What is ASBA?
Applications Supported by Blocked Amount (ASBA) is a system used in the initial public offering (IPO) and follow-on public offering (FPO) to block the applicant's money equal to the subscription in his bank account.
The money of the applicant for any issue is debited from his/her bank account only after the applicant is selected in the allotment. If the applicant is not selected in the allotment, the bank, upon the instruction of issue manager, will unblock the money.
While submitting the application form for the IPO or FPO, the investor will authorize the issue manager to block his/her money in the bank account for subscribing to the IPO/FPO. The system also ensures that the applicant investor has the amount of subscription in his/her account until the shares are allotted. For the system to work, the accounts of the investor should be on the bank that uses the ASBA platform.
According to Sebon officials, they would first invite bank and financial institutions to become part of the ASBA. However, investors, who do not have bank account that are not part of the ASBA, will not be able to subscribe IPO when this system is made mandatory by the Sebon. "Since we will enforce the ASBA as a mandatory system by taking into confidence all BFIs, this platform will absolutely work for all," said Niraj Giri, the spokesperson of Sebon.
The investors continue to earn interest on the application money even if it remains blocked in their bank account. Also they do not needs to bother about refund as the extent of the money required for allotment is taken from their bank account if shares are allotted to them.