NEPAL > What does Nepal Stock Exchange (NEPSE) and Bloomberg’s agreement mean for Nepali businesses?

On March 23, 2014 by Shikhar Bhattarai

Bloomberg

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The recent news of Bloomberg signing a deal with NEPSE (Nepal Stock Exchange) to “examine and disseminate information” is an incredible sign for Nepali enterprises in particular and Nepal in general. Nepali government has also been open and welcoming to attract foreign investmentment in Nepalese capital market. Below are major analyses as to why this news is very positive:

World’s positive outlook of Nepal and Nepalese companies – A for-profit company such as Bloomberg wouldn’t simply approach an institution without its own proper due-diligence. Obviously, seeing that investors have been increasingly showing interest in Nepalese equities, Bloomberg initiated the move. The article that appeared in Kantipur Daily mentions this as well – “It approached us after its clients asked for information about Nepal’s share market too”. The Udaya Group has also received numerous inquiries from foreign investors trying to find out ways to invest in Nepali public equities. All of this points to the fact that international investors have been eyeing Nepali companies very positively.

Exit opportunities for ventures – One of the main reasons why foreign investors shy away from investing in Nepali firms is because of its limited avenues for exit. For instance, a typical private equity firm would pour in capital, control company’s management, revamp or scale up an organization, then go public, potentially selling its ownership and making capital gain. Opening up of foreign ownership in secondary market means more potential buyers of secondary equity post exit as well as more interest for private equity for initial investments.

Pushes Nepali companies to become world class – Dissemination of information about local Nepali companies globally means that the world will be closely scrutinizing Nepali firms’ performances. Global ownership also means owners, boards and managements’ push for excellence. This motivates Nepal companies to be further efficient and continuously strive for better standards.

Technology and knowledge transfer – Ownership and management control of local companies by international investors may also mean introduction to world class management techniques and efficient resource planning systems exposing Nepali companies and talents to global business procedure leading to delivery of world class product and services that are globally competitive.

Assists towards further development of entrepreneurial eco-system – In the west, many startup companies go through a lifecycle in which it eventually becoming a public institution while earning tremendous wealth and prestige to the founder(s) and promoters. For instance, Facebook started in a dorm room, scaled with the help of venture backings, reached a global audiences then issued public shares. In Nepal, public technology companies are very rare, partly because local shareholders don’t value technology companies as much as banks, energy companies and manufacturing firms and thus Nepali investment banks are reluctant to work towards their initial public offerings (IPOs). The fact that eventual secondary market shareholders may be international investors with keen interest in technology, means a potential change in attitude from Nepali Investment Banks and potential flow of venture capital into entrepreneurial sectors.

Other positive economic effects – Opening up international investment in public equities means more inbound business travelers which also converts to added prospects for consumer service business and further tourism opportunities as business travelers usually take time to explore companies where they invest in and localities where the companies serve.

While obviously this is a long term process and much progress needs to take place in-order for Nepali enterprises to attract global investments, the news come as a great sign and in the right direction. I wouldn’t be surprised if fund managers all over the world are already circling Nepal as the next investment target.

For the news that appeared in Kantipur Daily, click here .
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