Open the NEPSE board for almost any commercial bank and you will sometimes see two prices for what is, on paper, the same company. The ordinary share trades at one number. The promoter shares trade lower, sometimes dramatically lower. Same dividends, same voting rights, same balance sheet behind both. Yet the market quotes them as if they were different assets. They are, in a sense. And understanding why is the kind of thing the promoter shares auction NEPSE corner rewards, because this is where informed buyers find genuine mispricing and where uninformed buyers get stuck holding stock they cannot easily sell.
This is a niche most retail investors never touch. That is exactly why it is worth a careful look. The discount is real, the conversion rules are real, and so are the traps.
Two classes of the same stock
Start with the basic split. When a bank, finance company, insurer, or hydropower firm is set up in Nepal, the founders put in the initial capital. The shares they receive are promoter shares (sometimes written as “founder shares”). Later, when the company does its IPO, it sells ordinary shares (also called public shares) to the general investing public.
Here is the part that confuses people. Economically, the two classes are usually identical. Both promoter and ordinary shares carry the same voting rights and the same claim on earnings and dividends. A rupee of profit belongs to a promoter share exactly as much as it belongs to an ordinary share. So in a textbook world they would trade at the same price.
They do not. On NEPSE the two classes trade under separate codes, and promoter shares almost always trade at a discount to ordinary shares. For some banks that discount has been wide. Sharesansar and other outlets have noted promoter shares of large banks trading at roughly half the ordinary price in some periods. That is not a rounding error. That is the market saying these are not the same thing to own.
Why the discount exists
The discount is mostly about liquidity and who is allowed to hold the shares.
Ordinary shares are open to anyone with a Demat account. You apply, you get allotted, you can sell tomorrow on the floor. Promoter shares are not like that. Not everyone is qualified to buy them, and for banks and financial institutions the transfer of promoter shares runs through extra approval gates. The result is a thinner, slower market. Fewer eligible buyers means it is harder to sell quickly at a fair price, and illiquid assets trade cheaper. That is the core of it.
For banks and financial institutions (BFIs), the buyer of promoter shares is not just anyone. Promoter shares go to founders and their transferees, and a new promoter has to clear Nepal Rastra Bank’s (NRB) “fit and proper” test and the bank’s own criteria before taking a meaningful stake. NRB can refuse approval if the prospective promoter has a record of banking offenses, money laundering, fraud, or similar [VERIFY: confirm fit-and-proper grounds and refusal powers — BAFIA 2073 / NRB Unified Directives]. There is also a threshold rule. Buying or selling promoter shares in a BFI up to 2 percent of paid-up capital does not require informing NRB; above that, approval and disclosure kick in, and a holder above 2 percent cannot simply dilute down to 2 percent to dodge the rule.
So promoter shares are not free-floating in the way ordinary shares are. That friction is the discount.
There is a second, structural layer for banks. By law the promoter group must keep at least 51 percent of paid-up capital, with the public holding at least a defined minimum [VERIFY: confirm the 51% promoter floor and the public-share minimum — BAFIA / NRB directive]. That cap on how much can ever reach the public market reinforces the two-tier structure.
When promoter shares can become ordinary
The discount is not permanent for every company. Promoter shares can, under specific conditions, be converted into ordinary shares, and that possibility is the reason the discount is not infinite. Once a promoter share converts, it becomes a normal tradable public share and tends to move toward the ordinary price. That convergence is the prize.
But the conversion path is narrow and slow, and it differs by sector.
For BFIs, NRB has set hard conditions. The institution generally must have completed ten years of operation before promoter shares can be converted [VERIFY: confirm the 10-year operating requirement — NRB directive, Poush 19, 2075 / Investopaper]. Even then it is not a free-for-all. Reporting on the NRB directive describes a phased conversion: only a limited slice can be converted at a time, the conversion must be done in stages rather than all at once, and the 51 percent promoter floor must be preserved throughout, which caps how much of the company can ever sit in the public float. On top of NRB’s sign-off, the company has to pass a resolution at its annual general meeting (AGM), notify SEBON and NEPSE, and route the mechanics through CDSC.
Hydropower companies run on a different clock. Their promoter shares typically carry a shorter lock-in tied to listing, after which conversion is more straightforward than for banks [VERIFY: confirm hydropower lock-in length and conversion treatment — SEBON regulation; some sources cite 1 year from listing, others 3 years from IPO]. This is one reason promoter-ordinary dynamics look different across sectors and why you cannot apply a bank rule of thumb to a hydropower name.
Lock-in is the related concept worth nailing down. A lock-in period is a window during which shares cannot be sold or transferred. The general lock-in for promoter shares is often cited as three years from IPO allotment under the securities issue regulations, but sector rules layer on top: hydropower companies are commonly cited with a one-year lock-in from listing, and BFIs with a longer lock tied to commencement of operations [VERIFY: confirm the general 3-year lock-in, the hydropower 1-year-from-listing figure, and the BFI lock-in length — Securities Registration and Issue Regulation 2073, Section 38; Niti Partners / Mondaq 2026]. Get the sector and the start date wrong, and your entire timeline for when a discount might close is wrong.
Where the rules are heading
Do not assume today’s mechanics are frozen. There is an active regulatory push to redraw how these two classes work.
CDSC has been working on a directive to assign separate ISINs and separate NEPSE trading codes to promoter and public shares, and reporting indicates the proposal would end the automatic conversion of promoter shares into public shares once the lock-in expires. The private sector has pushed back on parts of it. There is also a long-running policy argument, made in opinion columns, that Nepal should simply move to one class of shares and end the two-tier system entirely.
The point for an investor is not to memorize the draft. It is to recognize that the conversion assumption baked into a promoter share’s discount can be changed by regulators. If automatic conversion goes away, a promoter share you bought expecting it to one day “become ordinary” may not. That is a structural risk, not a price risk.
Auctions: the other discounted door into the market
The second way discounted stock reaches the market is the auction. This is separate from the promoter-ordinary question, though both are about shares arriving below the obvious price.
Shares come to auction for a few distinct reasons. The most common is unsubscribed rights shares. When a company issues rights shares to existing shareholders to raise capital and the issue is not fully taken up, the leftover shares are sold to the public through an auction rather than left unissued. Another source is ceased or forfeited shares, where an investor’s shares are seized, often for default, and then floated to the public. A third is the liquidation of matured mutual fund portfolios.
The mechanism is a sealed-bid auction. You decide a price and a quantity, deposit the full bid amount, and submit a sealed application through the issue manager. Bidders who bid at or above the cut-off price get allotted; everyone below gets their money back to their bank account. The reported minimum is typically 100 units, and the auction form has historically carried a nominal fee.
Why does this matter for pricing? Because auctions sometimes clear below the prevailing market price, especially when the auctioned quantity is large relative to demand or when investor attention is elsewhere. That is the opportunity. It is also the trap. In a sealed-bid auction you are bidding blind against everyone else, so overbidding to “make sure you get it” can leave you paying more than the floor price you could have got by simply buying on the open market. The discipline is to set a price based on the current market price and the supply on offer and to not chase.
For the mechanics of reading the open-market price you are bidding against, the NEPSE floorsheet is the tool to learn first.
A worked example, with the dilution most retail ignore
Take the unsubscribed-rights case, because that is where dilution hides. Say a company with paid-up capital of NPR 1 arba (NPR 1 billion) does a 1:1 rights issue at par (NPR 100). Existing holders who do not subscribe, and who do not sell their rights, get nothing for them. The unsubscribed shares go to auction. Whoever wins them at, say, a cut-off near or below market buys into the company at a price the loyal-but-passive shareholder effectively forfeited.
The shareholder who ignored the rights call did not just miss an offer. They were diluted. Their slice of the company shrank, and the value that leaked out went partly to the auction winner. This is the real, unglamorous arbitrage in this corner of NEPSE: it runs on other investors’ inattention. If you want the full mechanics of rights versus IPO versus FPO, see IPO, FPO and rights share, the difference.
Who can buy what, and the tax most people forget
Ordinary shares and auctioned public shares are open to any retail investor with a Demat and Meroshare setup. Promoter shares of BFIs are the restricted class, gated by NRB approval, the fit-and-proper test, the 2 percent disclosure threshold, and the 51 percent promoter floor described above. If you are an ordinary retail investor, the practical takeaway is blunt: you can chase the discount on a freely tradable promoter share where conversion is realistic, but you should not assume you can flip a bank promoter stake the way you flip an ordinary share. The exit is narrower than the entrance.
And whatever you buy, the tax does not disappear because the entry price was a discount. Capital gains tax on NEPSE applies to the gain, and the buy price for an auctioned or promoter share is your actual cost, not the market price you compare it to. Plan for it. See capital gains tax on NEPSE for how the gain is computed and withheld.
Because so much of this corner is bank and finance company stock, the company’s underlying health matters more than the discount. A cheap promoter share in a bank with a deteriorating loan book is not a bargain. Read the banking ratios that actually matter (NPL, CD, CAR) before you treat a discount as free money.
The verdict
The promoter-ordinary discount and the auction window are two of the few places on NEPSE where price and value visibly diverge for structural, rule-based reasons rather than sentiment. That is genuinely attractive. The discount on a freely convertible promoter share is, in effect, the market paying you to accept illiquidity and wait for conversion. The auction is the market occasionally clearing supply below the open price.
But the edge belongs to people who actually read the rules. The conversion clock, the sector-specific lock-ins, the NRB approval gates, the 51 percent floor and the live regulatory proposal to end automatic conversion are not footnotes. They are the difference between a discount that closes and a discount that traps you in stock you cannot sell. The uninformed buyer sees “same company, lower price” and stops thinking. The informed buyer asks when and whether that gap is allowed to close and at what cost to exit.
Buy the discount only when you can answer those questions. Otherwise, you are not arbitraging a mispricing. You are the mispricing.
This is analysis, not financial advice.
