ILLUSTRATION: KATMANDU JOURNAL
OF THE some 137 private-equity and venture-capital investments recorded in Nepal between 2012 and 2024, industry estimates suggest that only 11 have been fully exited. That is an exit rate of 8% across more than a decade of activity. In the private-equity markets of London, Singapore or Mumbai, where capital cycles through companies every four to six years and partners return money to their investors on a fairly predictable schedule, that exit rate would signal a market in serious distress. In Nepal the picture is more complicated and understanding why reveals something important about the constraints that make this market unusual.
Those exits are not evidence of 126 failed investments. Most of those investments are still held by their fund managers, performing and growing, waiting for the moment when selling becomes possible. The capital deployed in Nepal has not been lost. It has been lent, in effect, to a market that does not yet have the infrastructure to give it back. Private equity in Nepal is a one-way door, at least for now.
The door was always narrow. Nepal’s stock exchange, NEPSE, has never listed a pure-play technology company. It remains dominated by commercial banks, hydropower firms and insurance companies: none of which reflect the modern consumer, health or tech businesses that Nepal’s PE funds have been backing. A fund that invests in a logistics company, a hospital chain or a food delivery platform cannot easily take that company public on NEPSE and return cash to its investors, because the public appetite and index structure for those businesses do not exist. The traditional PE exit route (grow the company, list it on a stock exchange, sell your stake to public investors) is blocked by the architecture of the stock market itself.
Strategic sales to larger companies confer an alternative, and this route is beginning to open. The Katmandu Journal, in a February analysis, noted that Indian corporates flush with capital are increasingly scanning Nepal’s technology and financial services companies as acquisition targets. Chinese firms connected to regional connectivity activity are a separate pool of potential buyers in energy and manufacturing. But strategic sales in a market with no established mergers-and-acquisitions (M&A) culture, imperfect price discovery and a limited pool of informed buyers are slow and expensive to execute.
The full exits Nepal has recorded include secondary sales to other funds, management buybacks and occasional strategic acquisitions: all bespoke, all negotiated individually, none of them flowing through any regular mechanism.
The tax environment makes every exit more expensive than it needs to be. An onshore PE fund that sells an investee company pays 25% corporate tax on the income from that sale. This is not a specialised PE tax designed with the asset class in mind. It is the standard corporate income tax applied to a transaction that most developed markets treat differently from operating income, because the exit is the event that allows capital to recycle back into new investments. Nepal’s tax code does not distinguish between a factory selling physical goods and a fund selling an equity stake. The effect is to reduce the net return on every successful exit by a quarter before the money ever reaches investors.
Meanwhile regulatory shifts continue to shake the boundaries. Throughout the first half of this year, SEBON, the market watchdog, has focused on tightening its Specialized Investment Fund (SIF) Regulations, enforcing strict compliance tracking and financial solvency metrics, including mandatory paid-up capital minimums and a strict 2% fund-manager co-investment lock-in. While intended to institutionalize private capital and prevent quick-flip listings that dump volatile shares onto retail investors, the heavy compliance net has inadvertently made the IPO route to exit longer and less attractive for the wider ecosystem.
Worse, a shadow market has grown in the space where the formal exit route should be. Reports suggest that companies are actively attempting to raise capital from private investors before any formal regulatory approval through merchant banks and personal referral networks, promising investors that the shares will multiply when the company eventually lists. This is an unregulated pre-IPO market in which verified information is scarce, pricing standards are absent and investors have little recourse when the promised listing does not arrive. SEBON itself has clarified that “there is no legal provision for issuing pre-IPO shares in Nepal” yet the practice persists.
This grey market expanded rapidly because the formal public pipeline remains bottlenecked by chronic regulatory paralysis. While the late-2024 appointment of Santosh Narayan Shrestha as SEBON chairman briefly promised to clear the massive listing backlog, the regulatory body was thrown right back into leadership uncertainty when Shrestha abruptly resigned in April to “pave the way” for prime minister Balendra Shah’s newly formed cabinet. With the chairman’s seat vacant once more, the formal pipeline seized up, pushing the asset class further into illiquidity. Yet the difficulty of exit is the same difficulty that keeps less committed capital away, preserving the returns for those who stay.
Nepal’s PEVC market deployed a record $64m in 2024, an astonishing single-year allocation accounting for nearly 40% of all private capital committed in the market’s history since 2012. Nine funds deployed capital across dozens of companies during that wave. The risk capital keeps flowing in. The door at the other end, however, is still waiting for a permanent architect to build it. ■
