Ask ten retail applicants in Kathmandu why they applied for the last IPO and most will give you the same answer. Everyone was applying. The price looked cheap at face value. A friend said it was a good company. Almost none of them opened the prospectus.
That is the strange part. The document that tells you everything you need to judge an issue is free, public, and sitting on the SEBON website. And nearly nobody reads it. Part of the reason is that it is intimidating. A full Nepali IPO prospectus runs well past 200 pages, much of it dense legal and regulatory boilerplate. You do not have to read all of it. You should not even try.
To read an IPO prospectus in Nepal effectively, you skim for signal. There are five things that decide whether an issue is worth your money, and they sit in roughly five places in the document. Learn where they are, learn what good and bad look like, and you can size up most issues in twenty minutes. The glossy summary at the front is a sales pitch. The truth, as usual, is in the footnotes.
First, understand what a prospectus is supposed to do
Under SEBON rules, a prospectus must contain “full, true and sufficient information” so an investor can make an informed decision. That is the regulator’s standard, and it is the reason the document is so long. SEBON requires a long list of mandatory disclosures, reportedly running past 60 separate points, covering the company profile, audited financial statements, risk factors, use of proceeds, management and promoter details, and related-party transactions (SEBON; Law Alpine).
Keep one thing in mind as you read. The issuing company and its issue manager wrote this document, not SEBON. SEBON reviews it and sends it back for correction if disclosures are incomplete or projections look aggressive, but the words are the company’s words. A prospectus is, at bottom, a sales document with the truth buried in the disclosures. Your job is to find the truth and ignore the sales.
Here are the five places to look.
1. The financial statements and the earnings trend
Skip the marketing language about the company’s vision. Go to the audited financial statements at the back, along with the auditor’s report. Nepali issuers report under NFRS (Nepal Financial Reporting Standards), and the prospectus must carry audited financials (Nepal Laws).
You are not auditing the company. You are looking for a trend. Pull three to five years of revenue and net profit and line them up. Is profit growing, flat, or lumpy? One huge year followed by two weak ones is a warning, not a recommendation. Then check whether the profit is real. Compare net profit to operating cash flow over the same years. A company that books profit but never generates cash is a company you should question.
Look at what is driving earnings. A bank’s profit from core lending is durable. A profit spike from a one-time asset sale or a revaluation gain is not something you can extrapolate. For sector-specific issues the relevant ratios change: for a bank or finance company you want the non-performing loan ratio, the capital adequacy ratio, and the credit-to-deposit ratio, which we cover in the banking ratios that actually tell you something. For a hydropower issue the financials are almost secondary to the project economics, which is its own exercise in how to value a hydropower stock.
Good looks like steady or rising profit backed by cash, with no nasty surprises in the auditor’s report. Bad looks like a qualified audit opinion, a contingent liability the size of the company’s net worth, or earnings that exist only on paper. The footnotes to the accounts are where you find the contingent liabilities and the related-party leakage. Read them.
2. The use of proceeds, or what the company will do with your money
This is the single most revealing page in the document, and most people never reach it. The “objectives of the issue” or use-of-proceeds section tells you exactly why the company is raising money. SEBON requires it (Law Sagar).
There is a clean version and a worrying version. The clean version says the money funds something specific and productive: a new plant, a defined expansion, a project with a timeline and a budget. You can judge whether that plan makes sense. The worrying version uses vague language, “general corporate purposes,” “working capital,” “to strengthen the balance sheet,” with no detail. Vague use of proceeds usually means the company does not have a concrete plan, or has one it would rather not spell out.
Watch carefully for whether the proceeds are going into the business or out of it. If a meaningful chunk of the raise repays loans from related parties, or buys assets from the promoters, that is money leaving through the back door the moment it arrives. The use of proceeds, read alongside the related-party section below, tells you who actually benefits from this IPO. Sometimes it is the company. Sometimes it is the people selling you the shares.
3. The risk factors
Investors treat the risk factors section as legal throat-clearing and scroll past it. That is a mistake. SEBON is, by its own account, exhaustive in pushing issuers to list risks and contingent liabilities, and incomplete risk disclosure is one of the most common reasons a prospectus gets sent back for correction (Law Alpine). Which means the risks that survive into the final document are the ones the company could not avoid disclosing.
The trick is to separate boilerplate from substance. Every prospectus lists generic risks: market volatility, interest rate changes, regulatory shifts, competition. Skim those. Then hunt for the specific ones. A single customer accounting for most of revenue. A core licence up for renewal. Pending litigation. A dependence on one promoter for the whole business. Heavy foreign-currency debt at a company that earns in rupees. These company-specific risks are the ones that matter, because they are admissions.
Read the risk factors as a confession written under duress. A company that lists vague risks and nothing specific is either genuinely low-risk or has buried something. A company that names a real, concrete, uncomfortable risk is at least being honest, and an honest risk you understand is one you can price. The risk-factors page and the use-of-proceeds page together tell you more than the entire glossy summary at the front.
4. Promoter and related-party details, and the lock-in
Who runs this company, who owns it, and what are they doing with company money? The promoter and related-party section answers all three, and it is where the most uncomfortable facts live.
Start with the people. Look at the promoters’ background and track record. Have they built and run a real business, or is this their first venture into a sector they do not know? Then go to related-party transactions: deals between the company and its promoters, their relatives, or other companies they control. Some related-party dealing is normal. A lot of it, on terms you cannot verify, is a red flag, because it is the standard mechanism by which value quietly moves from public shareholders to insiders.
Then check the lock-in. Promoter shares in Nepal are typically locked in for one year, calculated from the date of allotment, with important exceptions; hydropower issues often run the lock-in from the listing date, and for banks and financial institutions it runs from the commencement of operations (Niti Partners). The lock-in is enforced through a flagging system at CDSC that automatically blocks any locked share from being sold, gifted, or pledged (Niti Partners).
Why does the lock-in matter to you? Because it tells you when insider supply hits the market. If promoters hold a large stake and the lock-in expires in a year, a wave of selling can arrive right when small investors least expect it. Knowing the lock-in calendar before you apply is the difference between being surprised by that supply and being ready for it. If you want the mechanics of who gets what at allotment in the first place, see how IPO allotment actually works in Nepal.
5. For premium and book-built issues, the valuation
A par-value IPO at NPR 100 is simple. You are buying at face value, and the only question is whether the company is decent. A premium or book-built issue is where you actually need to think, because here you can overpay.
For a premium issue, the company sells shares above the NPR 100 face value and must justify that premium. SEBON requires the price to be supported by recognized valuation methods, typically net asset value, discounted cash flow, and capitalized earnings, and the premium is capped, reportedly at no more than twice the net worth per share (Estartup Nepal). Your task is to read how the price was justified and decide whether you believe it. If the premium leans almost entirely on a rosy discounted-cash-flow projection with heroic growth assumptions, be skeptical. Cash-flow models can be made to produce any number you want.
For a book-built issue, the price is set by institutional bidders. Qualified institutions submit bids, and the cut-off price is the lowest price at which the shares clear (Money Mitra). Retail applicants typically buy at a discount to that cut-off, reportedly around 10 percent (Nepal Economic Forum). The signal here is what the institutions were willing to pay. They have analysts, and access the retail crowd does not. A wide gap between an optimistic floor price and a weak cut-off tells you the professionals were not impressed.
Good, in both cases, looks like a price grounded in current earnings and assets rather than distant projections. Bad looks like a premium justified by a story about the future that the financial statements do not support. If the difference between premium, book-built, and par issues is still fuzzy, start with the difference between IPOs, FPOs and rights shares.
The twenty-minute read
You do not need to be an analyst to do this. Open the prospectus on the SEBON site. Jump to the audited financials and trace the profit trend and the cash flow. Find the use of proceeds and ask whether the plan is concrete. Read the company-specific risk factors. Check the related-party transactions and the lock-in calendar. If it is a premium or book-built issue, read the valuation justification and the cut-off. That is it. Five sections, twenty minutes, and you will know more about the issue than almost everyone applying alongside you.
The verdict is simple. A prospectus is a sales document, and the people who wrote it want you to read the summary and apply. The summary is the least useful page in the book. The risk-factors section and the use-of-proceeds section, the two pages most applicants skip, are the two that tell you the most. Read those, check the financials and the promoter, and you will turn down issues you would otherwise have applied to on faith. That alone is worth twenty minutes. Whether you should apply to every IPO that clears, even after reading it, is a separate question we take up in should you apply to every IPO.
This is analysis, not financial advice.
