Here is a mistake that costs Nepali investors real money every year, quietly. A bank you hold announces a right share. You see “1:0.5” in the news, do not understand it, assume it is some technicality for big players, and do nothing. The book closure date passes. A few weeks later your portfolio value in Meroshare drops, and you blame the market. It was not the market. You diluted yourself by ignoring an offer that was made specifically to you.
The IPO FPO rights share difference is not academic trivia. These three look similar on a ShareSansar headline (all are “share issues,” all go through Meroshare, and all involve the par value of NPR 100), and they get conflated constantly. But each one does something different to you as a shareholder. One is your entry ticket. One is the company selling more of itself to the whole public. One is an offer made only to you, where doing nothing has a price. Understanding which is which is the difference between protecting your stake and watching it shrink.
This piece is about that distinction. Not the textbook definitions you can find anywhere, but what each issue forces you to decide.
Start with the one number that ties them together: par value
Every ordinary share of a Nepali company has a face value, or par value, of NPR 100. This is the legal sticker price set in the company’s books. It matters because it is the reference point for almost every issue you will see.
An IPO at “par” means shares are sold at NPR 100. A rights share, in practice, is almost always offered at NPR 100 too, regardless of where the stock is actually trading in the secondary market. An FPO is where this breaks: an FPO is usually sold at a premium, meaning NPR 100 plus an additional amount on top.
Keep that NPR 100 anchor in your head. The whole story is really about who gets to buy at what price relative to it and what that does to everyone already holding the stock.
IPO: your entry point, and it does not dilute you (you are not in yet)
An IPO, an Initial Public Offering, is the first time a private company sells shares to the general public and gets listed on NEPSE. Before the IPO, the company was owned by promoters and a closed group. The IPO opens the door.
For most ordinary companies in Nepal, IPO shares have historically been sold at par, NPR 100 per unit, through the C-ASBA system you access via Meroshare. You apply, and if the issue is oversubscribed (it almost always is), allotment happens by lottery. We have covered the mechanics of that lottery in detail in our guide to how IPO allotment actually works in Nepal.
The pricing picture is shifting, though. Larger or already-profitable companies can now price an IPO above par through book building, a process where institutional investors bid to discover a price first, and the general public is then offered shares at a set discount to that institutional price. So an IPO is no longer automatically a “buy at 100” event. Read the offer document.
The key point for the dilution question: an IPO does not dilute you, because you are not yet a shareholder when it happens. It dilutes the original promoters, who now share ownership with the public. For you, an IPO is simply a decision about whether to enter at the offered price. Nothing more, nothing less.
FPO: the company sells more of itself, usually at a premium
A Follow-on Public Offering, or FPO, is when a company that is already listed issues a fresh batch of shares to the general public. The company is public already; it just wants to raise more capital, so it goes back to the open market.
The pricing is the interesting part. Unlike a par-value IPO, an FPO is typically priced at a premium. SEBON allows a company to set an FPO price above NPR 100 if it meets the criteria, and the price is justified using a defined set of methods: capitalized earnings, net worth per share (book value), the 180-day average closing market price, and discounted cash flow. The logic is fair enough. If the stock trades at NPR 600 in the market, selling new shares to the public at NPR 100 would be a gift to new buyers at the expense of existing ones. The premium narrows that gap.
Does an FPO dilute you? It can. New shares are created and sold to the wider public, so the total share count rises and the company’s profit is now divided across more shares, which pressures earnings per share. If you are an existing holder and you do not buy into the FPO, your slice of the company gets smaller. The premium pricing softens the blow compared with a par issue, but the dilution effect on your ownership percentage is real if you sit it out.
In Nepal, FPOs are less common than IPOs and rights issues, and they are usually done by sizeable, profitable companies whose shares trade well above par. When you see one, treat it as a normal investment decision on the merits of the price offered, not as something you are entitled to or obliged to take.
Rights share: the offer made only to you, where doing nothing has a cost
This is the one that catches people out, so slow down here.
A rights share is additional shares offered only to existing shareholders, in proportion to what they already hold, almost always at par value of NPR 100. It is not open to the general public. The company is raising capital, but instead of going to the whole market, it comes to its current owners first and says: you can buy more, at NPR 100, to keep your stake intact.”
The ratio tells you how much. A 1:1 rights issue means one new share offered for every share you hold. A 1:0.5 means one new share for every two you hold. When Nepal Finance went out with a 1:1.25 ratio, a holder of 100 shares could apply for 125 new shares at NPR 100 each. The ratio is published with the offer.
Eligibility is determined by the book closure date. Whoever holds the shares in their demat account before the book closure (the cut-off the company announces after AGM and regulatory approval) is entitled to the rights, in proportion to their holding. Buy the day after book closure, and you get nothing. This is also why book closure dates matter for timing your buys, a point worth understanding on its own.
You apply for rights through Meroshare, the same CDSC portal you use for IPOs, under the My ASBA section when the issue is open. If you have never set up access, start with our walkthrough on opening a demat and Meroshare account in Nepal. You enter the number of units you want (up to your entitlement), pick the demat account, and confirm with your CRN.
Now the part that actually matters. A rights share is the only one of these three where inaction costs you money. Here is why.
Why ignoring a rights share actively dilutes you
When new shares are issued, NEPSE adjusts the market price downward on the ex-rights date to reflect the larger share count. The market does not just hand you free value; it rebalances. The adjusted price is calculated roughly as the pre-closure market price plus the rights subscription contribution, spread across the enlarged number of shares.
Walk through what that means with numbers.
Say you hold 100 shares of a company trading at NPR 300. Your holding is worth NPR 30,000. The company announces a 1:1 rights issue at NPR 100. On the ex-rights date, NEPSE adjusts the price. Roughly: (300 + 100) divided by 2, which is NPR 200 per share.
Two paths now.
If you take up your rights, you pay 100 x NPR 100 = NPR 10,000 and end up with 200 shares at the adjusted price of NPR 200, worth NPR 40,000. You put in NPR 10,000, your holding rose by NPR 10,000. You are square. Your ownership percentage in the company is unchanged.
If you let the rights lapse, you still hold 100 shares, but they are now worth NPR 200 each, not NPR 300. Your holding is NPR 20,000. You did nothing wrong in your own eyes, yet you are NPR 10,000 poorer on paper than the investor who participated, and your percentage stake in the company has fallen because everyone who took up their rights now owns relatively more. That is dilution, and you chose it by default.
This is the single most common, most avoidable mistake retail investors make in Nepal. The rights offer exists precisely to protect you from dilution. Skipping it converts a neutral event into a loss of value and ownership.
“But I do not have the cash” is a real problem, and there is a partial answer
The honest objection: a big rights issue can demand serious money. A 1:1 on a large holding is a meaningful cash call, and not everyone has it sitting ready.
In principle, rights are transferable. A shareholder can subscribe fully, subscribe partly, or renounce (give up) the rights, and in many markets you can sell unsubscribed rights to someone else so you capture some value instead of letting them evaporate. The Kathmandu Post has argued in its columns that rights issues in Nepal are often used more to top up promoter capital than to reward minority holders and that the burden falls awkwardly on small investors who cannot always fund them.
The practical takeaway: If you cannot fund the full entitlement, fund what you can and look into whether the unsubscribed portion can be sold rather than lapse. Lapsing is the worst outcome. You get nothing and you still eat the price adjustment.
Putting the three side by side
Strip away the jargon, and the three issues answer three different questions.
An IPO asks, “Do you want to enter this company for the first time, at par or at a book-built price?” It does not touch you until you choose to buy in. No existing-holder dilution, because you are not an existing holder.
An FPO asks, “The company you may or may not own is selling more shares to the whole public, usually at a premium.” If you hold it and skip the FPO, your stake shrinks a little. If you do not hold it, it is just another investment to judge on price.
A rights share asks you, directly, as an owner: keep your stake whole by buying more at NPR 100 or watch it dilute. This is the only one where the default of doing nothing is itself a costly decision.
Notice that “premium” and “dilution” do not line up the way beginners assume. The FPO carries the premium price but the softer dilution. The rights share carries the cheap par price but the sharper dilution risk if you ignore it. Cheap to buy is not the same as safe to skip.
The verdict
If you remember one thing from the IPO FPO rights share difference, make it this: a rights share is not optional in the way an IPO is. An IPO and an FPO are invitations you can decline at no direct cost to an existing position (you simply do not buy). A rights share is a defense of a position you already hold, and declining it has a measurable price built into how NEPSE adjusts the stock.
So before you wave off the next rights announcement on a company you own, do three things. Check the book closure date, because eligibility hinges on holding it before it. Run the rough adjusted-price math so you can see the dilution you would absorb by sitting out. And if cash is tight, find out whether you can sell the rights rather than let them lapse into nothing.
The investors who quietly lose value on NEPSE are rarely the ones who picked the wrong stock. Often they are the ones who held a fine stock and let their rights expire, year after year, never connecting the portfolio dip to the choice they did not make. Do not be that holder.
This is analysis, not financial advice.
