Right shares in Nepal: how to apply, and what happens if you don't.

The short answer

A right share is a chance to buy more of a company you already own, usually at Rs 100 per share. Apply through MeroShare within the issue window. If you do not, your stake shrinks and the market price of your existing shares is still adjusted downward after book closure. Unsold rights are auctioned to the public.

How a right issue works

A company that needs capital can go to its existing shareholders instead of the open market. It announces a ratio — 1:1, 1:2, 3:10 — and every shareholder is offered new shares in that proportion.

A 1:1 issue means one new share for every share you hold. Hold 200 shares, you may buy 200 more. A 3:10 issue means three new for every ten held: 200 shares gets you 60.

The price is almost always the Rs 100 face value, which is well below the market price for most listed Nepali companies. That gap is the point.

Book closure: the date that decides everything

Book closure is the cut-off. Hold the shares on that date and you are on the register, so you get the right. Buy the day after and you do not.

Right after book closure, NEPSE adjusts the market price. This surprises people every time, so it is worth being plain: the company has not become less valuable. It is simply divided into more shares now, so each share represents a smaller slice.

The formula in common use in Nepal is:

Adjusted price = (market price + (face value × right ratio)) / (1 + right ratio)

Take a share trading at Rs 400 with a 1:1 right at Rs 100. Adjusted price = (400 + 100) / 2 = Rs 250. If you took up the right, you now hold two shares worth Rs 250 each — Rs 500 — having spent Rs 400 plus Rs 100. You are square. If you did not, you hold one share that was Rs 400 and is now Rs 250.

That is the whole argument for paying attention to a right issue.

How to apply, step by step

1. Watch for the announcement. The company publishes the ratio, the book closure date and the application window through NEPSE and SEBON.
2. Make sure you hold the shares on or before the book closure date.
3. When the issue opens, log in to MeroShare and open My ASBA. The right issue appears alongside any open IPOs.
4. Select the issue, choose your demat account and the bank account the money comes from.
5. Enter the number of units. You may usually apply for less than your full entitlement, but not more.
6. Enter your transaction PIN and submit. The amount is blocked in your own bank account until allotment.

The mechanics are the same as an IPO application, so if you have done one of those this will look familiar. Our IPO application guide covers the ASBA flow in more detail.

The auction of unsold rights

Not every shareholder applies. Some miss the window, some do not have the cash, some hold small quantities they consider not worth the effort.

Whatever is left is auctioned to the public. The company invites bids, generally through sealed tender, and the shares go to those who bid highest.

For a buyer this can be attractive, because auctioned shares often clear below the prevailing market price. It is not free money though: you are bidding blind, without knowing what anyone else has offered. Bid too low and you get nothing. Bid too high and you have overpaid for something you could have bought on the open market.

Common mistake to avoid

Treating a right issue as optional because the shares cost extra money. The price adjustment happens to your holding whether or not you participate. Choosing not to apply is a real decision with a real cost, and it should be made deliberately — because you would rather deploy the money elsewhere, not because you did not notice the announcement.

Pro tip

After the rights are allotted, go into MeroShare and record them under My Purchase Source. Rights bought at Rs 100 pull your weighted average cost down, which means a bigger taxable gain when you eventually sell. Getting this into the system now avoids a scramble later — see the WACC guide.

Rights are often confused with bonus shares, which are free rather than purchased. The difference matters for both your cost basis and your tax, and is covered in bonus shares versus rights shares.