Nepse plans new categorisation for listed companies

Nepal Stock Exchange (Nepse) has proposed new categories 'G' and 'Z' in the existing classification system — that has only two categories elite 'A' class and the rest into general 'B' class — of the listed companies.
The draft of Nepse's bylaws that is up for amendment and is seeking the approval of the capital market regulator, has included the new categorisation. According to the proposed plan, Nepse will include only those companies that are generating continuous profit, following good corporate governance, and regularly distributing dividends in class 'A'.
Likewise, 'B' class will comprise of companies that are doing well enough but slow on distributing dividends. Class 'Z' will include those companies that are doing poorly both in terms of financials and corporate governance, and keep getting into trouble with regulatory requirements.
Class 'G', which stands for 'General', will have companies that are newly listed and are not yet inducted into any other class. "We have submitted the proposed amendment to the bylaws to Securities Board of Nepal and this system will come into existence if it gives a green signal," said managing director of Nepse Shanker Man Singh.
There are 133 companies listed under class 'A'. Their shares are considered blue chip stocks at present based on classification as per Nepse's bylaws dating back to 1996. "The existing categories are very traditional and needs to be revised based on performance and corporate governance, if the stock exchange wants to really help investors take an informed decision," pointed out share analyst Rabindra Bhattarai.
To be inducted into the elite group, the current regulation requires the listed company to be in net profit for the last three years, have a net worth exceeding face value, have a minimum paid up capital of Rs 2 million, and be prompt with submitting annual reports.
The A-listers in the stock exchange mostly include financial institutions along with insurance companies, while there are only three real sector companies –– Chilime Hydropower, Nepal Telecom and Unilever Nepal.
Of late, trading of shares of class 'A' companies has been taking up a major portion of the total transactions at Nepse, exceeding 70 per cent of total trading per day.
"In the absence of credit rating agencies in the country and low financial awareness among investors, Nepse needs to classify the companies in such a way that a layman can easily assess the risks and benefits based on the company's standing and prospects," said Bhattarai.
Moreover, a more detailed categorisation will also keep pressure on the listed companies to be in the best group and improve performance to maintain good share prices, he added.