NEPSE & Stocks/Right Shares (Haqprada Share) in Nepal: Eligibility, Math & Action
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NEPSE & Stocks
Module 03: Fundamental & Technical Literacy
Right Shares (Haqprada Share) in Nepal: Eligibility, Math & Action
Understand how right share offerings work in Nepal, how to apply at NPR 100 par via MeroShare, the mathematics of price adjustment, and the costly danger of forfeiting your rights.
01.What is this?
A Right Share is a capital-raising mechanism where a listed company gives its existing shareholders the statutory "pre-emptive right" to purchase newly issued shares at a heavily discounted face value of NPR 100 per unit before offering them to the external public. Common among hydropower companies repaying bank consortium debts or insurance companies meeting mandatory minimum capital thresholds set by the Nepal Insurance Authority (NPR 5 Arba for life insurers, NPR 2.5 Arba for non-life insurers), right shares require shareholders to actively commit new cash to claim their entitlement.
02.Why does it matter?
Unlike bonus shares (which are completely free), right shares cost you real money: NPR 100 per share. If a company announces a 1:1 right issue and you own 500 shares, you must deposit NPR 50,000 via MeroShare to exercise your rights. If you ignore the notice or lack the cash to apply, your existing shares will still be diluted by NEPSE’s price adjustment on book closure! Forfeiting your right shares without selling your holding prior to book closure is the fastest way to lose capital on NEPSE.
03.How does it work?
Step 01
Right Issue Ratio Declaration
The company announces its proposed right ratio (e.g., 1:0.65 or 65% rights) to raise capital for project expansion or regulatory compliance.
Step 02
SEBON Approval & Book Closure
After SEBON grants final approval, the company sets a book closure date. Only investors holding shares on the final trading day prior to this date qualify.
Step 03
Price Adjustment by NEPSE
On book closure morning, NEPSE resets the opening market price using the weighted average adjustment formula.
Step 04
Application Period via MeroShare
The issue opens for 21 to 35 days. Log in to MeroShare -> "Apply for Issue" -> "Right Share" -> Enter units and approve payment via C-ASBA.
Step 05
Auction of Unsold Units
Any units left unclaimed by existing shareholders are pooled and sold via competitive sealed-bid auction at a minimum bid of NPR 100.
04.Visual Learning & Comparison
Financial Outcome: Applying vs Forfeiting a 1:1 Right Share
Scenario
Action Taken
Cash Spent
Post-Adjustment Portfolio Value
Net Profit/Loss
Before Book Closure
Own 100 shares @ NPR 400
NPR 0
NPR 40,000
Baseline capital
Investor A (Applies for Rights)
Pays NPR 100 for 100 right shares
NPR 10,000
200 shares @ NPR 250 = NPR 50,000
Break-even (NPR 50k value - NPR 50k invested)
Investor B (Forfeits Rights)
Fails to apply via MeroShare
NPR 0
100 shares @ NPR 250 = NPR 25,000
-NPR 15,000 Permanent Capital Destruction!
The Nepal Context & Regulatory Reality
05.How does it apply in Nepal?
In Nepal’s hydropower sector, many promoters heavily leverage bank loans to construct run-of-river plants. Once commercial operation dates (COD) begin, companies frequently issue right shares to pay down high-interest bank consortium debts. Always investigate whether the right share capital is being used to retire expensive debt or being squandered on unproductive projects.
Regulatory Note: Statutory tax brackets, regulatory fees, and monetary caps reflect current official practice and are subject to periodic amendment in annual Nepal Finance Acts and NRB circulars. Always verify the latest gazetted directives before financial execution.
06.Practical Real-World Example in Nepal
Manish, 26, civil overseer in Hetauda
NPR 45,000 / month
Lost NPR 33,000 simply by ignoring a right share book closure notification
The Situation:
Manish owned 300 shares of a hydropower company trading at NPR 320 (portfolio value NPR 96,000). The company announced a 1:1 right share. Manish ignored the email and SMS alerts from CDSC because he was busy with site work and did not want to spend NPR 30,000.
The RisePaisa Strategy:
On the book closure date, NEPSE adjusted the stock price down to NPR 210: (320 + 100) / 2. Because Manish never applied for his 300 right shares, his 300 shares were now worth only 300 × NPR 210 = NPR 63,000. He suffered an immediate loss of NPR 33,000 without realizing it! Had he sold his shares before book closure or applied for the rights, his capital would have remained intact.
Sunil's 1:1 Right Share Dilemma: Applying with NPR 50,000 Cash vs Selling Before Book Closure
Goal & Dilemma: Protecting his capital in 500 shares of a hydropower company trading at NPR 350.
Option A: Hold through book closure but fail to apply for the right shares because cash is tightCatastrophic Permanent Loss
Price drops to NPR 225 on adjustment; his 500 shares drop from NPR 1,75,000 to NPR 1,12,500-losing NPR 62,500 permanently!
Option B: Sell all 500 shares at NPR 350 two days before book closure if cash is unavailableCapital Preserved & Recommended
Locks in the full unadjusted market price of NPR 1,75,000 in cash, completely avoiding the post-rights dilution drop.
Decision Takeaway: Never hold shares past book closure unless you have the cash ready to apply for your full right entitlement.
07.Advantages & Limitations
Key Advantages
Allows existing shareholders to acquire additional equity at par value (NPR 100), regardless of higher market price.
Helps capital-intensive companies (hydropower, insurance) retire expensive commercial bank debt and strengthen balance sheets.
Maintains your percentage ownership stake in the company, preventing dilution from outside parties.
Submitting right share applications via MeroShare C-ASBA is digital, secure, and fee-free.
Limitations & Risks
Requires real out-of-pocket cash commitment: NPR 100 per share must be funded from your bank account.
NEPSE mathematically adjusts the stock price downwards on book closure, penalizing investors who fail to apply.
If you do not apply, your eligible rights are forfeited without compensation and auctioned to third parties.
Issuing right shares increases total equity units, which dilutes EPS unless new projects boost profitability.
08.Who Should Use This (And Who Should Avoid It)
Ideal For:
Long-term shareholders with available cash who believe in the company’s management and future project cash flows.
Investors looking to average down their acquisition cost per share in fundamentally sound companies.
Caution / Avoid If:
Investors who lack cash to apply at NPR 100 per unit (must sell before book closure to avoid price adjustment losses).
09.Financial Formula & Step-by-Step Calculation
Mathematical Model
NEPSE Right Share Price Adjustment Formula
Padjusted = \frac{Pclose + (R × 100)}{1 + R}
Variable Breakdown:
Pclose
Last Traded Price (LTP)
Closing price of the stock on the last trading day before book closure.
R
Right Ratio
Ratio of right shares offered per existing share (e.g., 1 for 1:1, 0.5 for 1:0.5).
100
Par Issue Price
The statutory face value of NPR 100 per right share in Nepal.
Your unclaimed rights are forfeited. The company pools all unsold shares and sells them to the public through a sealed-bid auction (लिलामी). You receive zero compensation.
Currently, NEPSE does not have a formal trading mechanism for "Renunciation of Rights" (हक हस्तान्तरण बजार). You must either apply for the shares yourself or sell your underlying equity shares before book closure.
No. In initial right share issues, you can only apply up to your exact eligible ratio. However, during the subsequent public auction of unsold rights, you can bid for as many units as you desire.