One of the more interesting news items last week was the probable de-listing of 25 companies by the Nepal Stock Exchange (NSE). The share certificates of such companies will be worth less than monopoly money-they can't be sold or used for any financial transactions, such as getting a mortgage. But what the exact fate of the shareholders will be, nobody knows. When Nepali companies' shares began to be traded in 1994, it was welcome news. Finally, there was desperately needed pluralism in the market. New opportunities for investment were created and smaller investors did benefit. However, the lack of proper monitoring and regulations turned a globally acclaimed system of channelling investment into little more than a farce. Larger, more reputed companies stayed away from the market, fearing trouble-mongering shareholders, while opportunist promoters made a good killing, taking advantage of a dormant regulator and a slew of wannabe shareholders with barely any knowledge of how markets work. Which is why it isn't surprising that the exercise didn't work too well-our economy is saddled with liquidity of over Rs 25 billion and an estimated annual remittance of over Rs 50 billion begging to be invested.
What makes matters worse in Nepal is that what is, after all, a capitalist, corporate concept has been infected with a pathetic sort of quasi-socialism. Just attend a shareholder's meeting, if for no reason othern than to have some cheap entertainment. Shareholders are busy engaged in coaxing the company they supposedly own either to give them dividends that make no financial sense, or to give them some-any-other incentive. The matter of lunch is not such a big deal any more-many hours of dedicated agitation have made it the norm. Now shareholders spend the meetings demanding everything from gift bags to reimbursement of their transport expenses. There are many opportunities for happy sociological observation. Perhaps business schools should make attending and writing up shareholder meetings as case studies a required part of the curriculum.
The other, slightly more serious issue that dominates these meetings is the relentless demand for bonus shares. Bonus shares are primitive system of capitalising the reserves of a company and distributing them as free shares. This system remains in only a few countries, including in South Asia, where adjustments in the account books result in changes in the market value of shares. Yet our shareholders believe bonus shares enhance the value of their investments. Our laws need to work in accordance with international norms of valuation and pricing.
Finally, we turn our attention to the matter of the so-called "public shareholders" on company boards. This is a great opportunity to watch democracy in action. Shareholders turn voters, and sit happily, awaiting ardent wooing by people who want to be directors of the company. Sure, minority shareholders' stakes need to be protected, but the way these elections proceed, with everyone making sweet to get a nomination and campaigning frenetically, one wonders whether the proportions of the exercise are not somewhat exaggerated. And why these people don't display similar ardour in real political life.
So, dear readers, this new year let us not forget that companies float their shares to the public to raise funds, not management capability. Let us shareholders ask only for accurate documents and work on those, rather than get embroiled in the day-to-day affairs of the firm. It would help, the Beed agrees, if our laws recognised non-voting shares that would provide a higher rate of return. It would also help if regulatory bodies realised that the inefficiency in the Nepali stock market does do anyone any good.
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