In an equity offering, primary shares, in contrast to secondary shares, refer to newly issued shares of common stock that are sold to investors. The cash generated from the sale of the primary shares, net of the gross spread, are transferred to the company.
For example, in December 2010, KATHMANDU: Chilime Hydropower Company floated 960,000-units of ordinary shares to the local people of Rasuwa district — where the company is located.
Claiming that they have a right to the ownership in the company that is operating in their district, the locals have formed an agitation committee and filed a case at the Supreme Court for their right to be the shareholders of the company.
According to the amended Securities Registration and Issuance Regulation – 2065, hydropower companies must float shares for the locals before they open the issue for general public. A company has to float a minimum of 30 per cent of the shares to the public and out of the 30 per cent, five per cent has to be set aside for the company’s staff, 10 per cent for the locals and remaining 15 per cent will be floated to the general public, the amended regulation said. However, the locals’ shares have a lock-in period of three years. They cannot sell the Chilime Hydropower shares within three years.
These are primary shares that are being offered to the local community who are effectively the shareholders, secondary shares will be sold to the general public at a later date.
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