Monday, February 20, 2017

Understanding Equity Share Auction and Recent Trend in Nepal

Common stocks, also known as equity share (or equities) carry the ownership of the public entities. The holders of these securities share in the rising prosperity of the company. The holder of common stock entitles the voting right on any agenda that are presented on the annual general meeting of the company. On the other side of the coin the holder of common stock bears the ultimate risk associate with the entity. They are the residual claimants of the income. The common stocks are usually listed in the stock exchange and widely traded in the secondary market. A corporation whose stock is not publicly traded is said to be closely held. Their share might be traded via Over-the-Counter (OTC) market.

The Initial Public Offering (IPO) is the first step to distribute the equity share to the public. In Nepalese perspective IPO is offered in the face value. At this stage public bid their money for the equity share offered. In the case of under-subscription, the company who underwrite the share with the authority buys the unsubscribed share. However, in the event of over-subscription, the total number of share is allocated on pro-rata basis. If pro-rata basis is not possible because of the minimum number of share to be allocated, then the share will be distributed on lottery method, so that maximum number of investor can be benefited. The Nepalese law have clearly prescribed that 40% of total public issue should be kept aside for small retail investor. An investor holding an equity share is a partial owner of the organization.