What is IPO? A Complete Beginner's Guide to IPO in Nepal

If you are new to the Nepalese share market, one of the first terms you will hear is IPO. IPO is a popular way for ordinary investors to become shareholders of a company. In Nepal, thousands of investors regularly apply for IPOs through the Mero Share platform.

But what exactly is an IPO, why do companies issue it, and how can an ordinary person invest in one?

Let's understand IPO in simple terms.

What Does IPO Mean?

IPO stands for Initial Public Offering.

It is the process through which a private company offers its shares to the general public for the first time.

When a company wants to raise money from the public, it can issue a certain number of shares. People who purchase those shares become shareholders of the company.

For example, suppose a company decides to issue 10 lakh shares to the public at Rs. 100 per share.

The company can raise:

10,00,000 × Rs. 100 = Rs. 10 crore

The investors who receive those shares become part-owners of the company.

Why Do Companies Issue IPOs?

Companies need money to expand their business, build new projects, repay debt, purchase equipment, increase production or meet other financial requirements.

Instead of borrowing all the money from banks, a company can raise capital from the public by issuing shares.

The money raised through an IPO can therefore help the company grow its business.

What is the Price of an IPO?

In Nepal, many ordinary public issues are offered at a face value of Rs. 100 per share, although the issue price can differ depending on the type and structure of the offering.

For example, if an IPO is issued at Rs. 100 and an investor applies for 10 shares, the investor needs:

10 × Rs. 100 = Rs. 1,000

The amount is initially blocked from the investor's bank account through the ASBA system.

Does Applying for an IPO Guarantee Shares?

No.

Applying for an IPO does not guarantee that you will receive the shares.

If the number of applications is greater than the number of shares available, shares are distributed according to the applicable allotment process.

For example, if 20 lakh people apply for an IPO but only 5 lakh applicants can receive shares, many applicants will not receive any shares.

The amount blocked for unsuccessful applications is released according to the applicable process.

How Can You Apply for an IPO in Nepal?

Investors generally apply for public issues electronically through Mero Share's My ASBA system.

To apply, you normally need:

• A Demat account
• A Mero Share account
• A CRN number from your bank
• Sufficient funds in your bank account

After logging into Mero Share, you can select the available issue, enter the number of shares you want to apply for and submit the application.

What Happens After IPO Allotment?

After the IPO allotment is completed, successful applicants receive shares in their Demat accounts.

The shares can then be held as an investment or, after the company is listed and trading becomes available, sold through the secondary market.

IPO vs Secondary Market

The IPO is part of the primary market.

In the primary market, investors purchase newly issued shares from the company.

In the secondary market, investors buy and sell shares that have already been issued and listed on the stock exchange.

For example:

IPO: Company → Investor

Secondary market: Investor → Investor

Is IPO Risk-Free?

No.

An IPO should not automatically be considered a guaranteed profit opportunity.

After a company is listed on the stock exchange, its share price can rise or fall depending on market conditions, company performance, investor sentiment and many other factors.

Therefore, investors should understand the company and the risks involved instead of applying simply because an IPO is popular.

Final Thoughts

IPO is one of the easiest ways for beginners to get introduced to Nepal's share market. It allows companies to raise capital from the public while giving investors an opportunity to become shareholders.

However, receiving an IPO does not guarantee profit. The value of the shares can change after listing.

Before investing, beginners should understand important concepts such as Demat, Mero Share, NEPSE, EPS, P/E ratio, book value and dividends.

Once these basic concepts are understood, navigating Nepal's share market becomes much easier.