IPO allotment in Nepal: how the lottery actually works and why everyone gets 10 kitta

A friend asked the question that gets asked at almost every Tihar gathering once people start comparing kitta counts. She has been applying for every hydropower IPO for two years. Sometimes she gets 10 kitta. Sometimes she gets nothing. Once, on a smaller issue, she got 10. She has never received 50 or 100 or anything in between. "Why is it always 10 or zero? Are they cheating?"

Nobody is cheating. The 10-or-zero outcome is the predictable result of a specific SEBON rule designed to spread shares as widely as possible across the now ~6.8 million demat holders in Nepal. The mathematics of (10 kitta minimum) × (a few million applicants) ÷ (a few lakh available shares) forces a lottery, and the lottery has only two outcomes per applicant: in, or out.

This post explains how the allotment actually runs after you submit your ASBA application: the math behind why most applicants get exactly 10 or zero, how the CDSC lottery picks winners, the quota stack that decides what is even left for general public, and why "open more demats" stopped working after 2024.

The mathematics of "10 kitta or nothing"

Start with the rule. SEBON's allotment guidelines require that every successful applicant in the general public quota of a fixed-price IPO receive a minimum of 10 kitta (1 kitta = 1 share). If oversubscription is moderate, the rule reads pleasantly: distribute 10 to each applicant until shares run out. If oversubscription is severe, the rule becomes the headline constraint, because there are not enough 10-kitta blocks to go around.

The arithmetic for a typical Nepal hydropower IPO:

Variable	Value
Total demat accounts (as of mid-2025)	6,818,439 (Investopaper)
Active Mero Share users	4,102,409
Typical hydropower public-quota issue	10–30 lakh shares
Public quota share at 10 kitta per applicant	1–3 lakh winners max
Active applicants per popular IPO	2.5–4 million
Mathematical winner ratio	2.5%–12% of applicants

Plug in a real example. Super Khudi Hydropower issued 12,86,500 shares in Falgun 2082 and received 24,62,115 applicants requesting a total of 2,74,56,870 shares (a 21.34× share-demand oversubscription as reported by Bajar Ko Chirfar). Divide 12,86,500 by 10 kitta = 1,28,650 maximum winning applicants. Divide 1,28,650 by 24,62,115 applicants = ~5.2% winner ratio. Roughly one in 19 applicants got 10 kitta; the other 18 in 19 got zero.

Kalinchowk Hydropower, whose general-public window ran April 5–8, 2026 (Chaitra 22–25, 2082), issued 6,84,750 shares to the public quota and drew over 22 lakh applications, oversubscribed by roughly 38×. Even harsher math; even worse winner ratio.

The proportional alternative (giving every applicant a sliver instead of running a lottery) produces a different problem: 24 lakh applicants × even 1 share each would require 24 lakh shares, more than the entire issue. So either the floor is below 1 (which makes no sense for whole-share trading) or the rule has to cap the floor at a useful minimum. SEBON's choice is 10. The byproduct is the lottery.

How the CDSC lottery actually picks winners

The allotment is run by CDS and Clearing Limited on a computerized system, witnessed by a SEBON officer and the issue manager. The mechanism, per Share Gyan Nepal's process breakdown and Press Adda's detailed explanation:

1. All valid ASBA applications are loaded into a sequential list. Each application has a unique CRN (customer reference number) generated at the bank.
2. The system generates two random numbers at allotment time: a random starting number (where in the list to start) and a skip value (how many applicants to skip between picks).
3. The system iterates through the list with that start and skip, picking every Nth applicant. Each picked applicant is allotted exactly 10 kitta.
4. When the public-quota share count is exhausted, picking stops.

Two consequences:

• The outcome is uniform-random in expectation. Every applicant has the same probability of being picked, regardless of how large or small the application was. Applying for 100 kitta does not improve your odds versus applying for 10; the lottery treats each application as one ticket.
• The result is auditable but not reproducible after the seed is discarded. The random starting number and skip value are recorded, so an audit can re-run the draw on the same input list. Once SEBON archives the seed, the result is essentially a one-shot outcome.

Result files are published to Mero Share and the CDSC website within 3–10 working days of the IPO closing. Most applicants get the answer by SMS and email simultaneously.

The quota stack, before you even see the general public number

The "public quota" is the residual after several reservations are carved out. The headline issue size of, say, 20 lakh shares might leave only 12–15 lakh for the public lottery once the carve-outs are applied. The typical stack:

Quota	Typical %	Who it goes to
Mutual funds	~5%	Listed mutual funds, allotted on a pro-rata basis to the funds applying
Employees	2–5%	Issuer's own employees with at least 1 year of service
Foreign employment workers (migrant workers)	Up to 10%	Nepali workers abroad on documented foreign employment (per NepInsights 2026 rules)
Project-affected locals	Up to 10%	Residents of the issuer's home district, with a 3-year lock-in
General public	The remainder, typically 60–80%	Everyone else with a demat

The mutual fund and employee quotas almost always exhaust at higher hit rates than the general public lottery, which is why mutual fund investing is the indirect way to participate in IPOs without rolling the 5% retail dice. The migrant worker quota (currently with no lock-in) and the project-affected quota (with 3-year lock-in) are accessible only to qualifying applicants and reduce the general public pool further.

Two recent cases, side by side

A real comparison from FY 2082:

IPO	Public quota shares	Applicants	Total demanded shares	Outcome
Super Khudi Hydropower (Falgun 2082)	12,86,500	24,62,115	2,74,56,870	21.34× oversubscribed; ~5.2% won 10 kitta
Kalinchowk Hydropower (Chaitra 2082)	6,84,750	~22 lakh	Not disclosed	38× oversubscribed; ~3% won 10 kitta

Notable patterns:

• Both were fixed-price IPOs at Rs 100 face value. Total at-risk per applicant: Rs 1,000 minimum (10 kitta × Rs 100). Maximum allowed: Rs 1 lakh per applicant for general public, though most retail investors stayed at the minimum.
• Hydropower IPOs draw disproportionate retail volume. The combination of a familiar sector, a perception of stable cash flows from power-purchase agreements, and government policy support keeps retail demand high. Microfinance and hotel IPOs typically draw 8–15× oversubscription; hydropower routinely clears 20× and often more.
• The applicant pool is concentrated. The same ~4 million active Mero Share users apply to almost every IPO. The marginal applicant per IPO is small; the base is what matters.

When an IPO is undersubscribed (rare but consequential)

Almost no Nepal hydropower or commercial bank IPO is undersubscribed. The pattern matters for small-cap manufacturing, tourism, and microfinance issues at the edge of investor appetite. The mechanism, per Lawalpine's IPO process guide:

• Every IPO must appoint an underwriter (merchant banker / capital house) at the prospectus stage.
• The underwriter commits to absorbing at least 50% of the issue if subscription falls short.
• The underwriter sells the absorbed shares post-listing through secondary market activity, often at a small discount to the IPO price to recover capital.

For the public applicant in an undersubscribed IPO, the math is uniformly friendly: every valid application gets the requested allotment in full (subject to the per-applicant cap), and the underwriter's role is invisible. The issue still lists. The only risk is the listing-day price, which can be soft if the broader market is reading the undersubscription as a thumbs-down signal.

What happens to your money along the way

The cash flow for the typical Rs 1,000 IPO application, per iporesult.org and TapNepal's IPO check guide:

1. Day 0: You apply through Mero Share linked to a C-ASBA bank account. Rs 1,000 is blocked in your bank account, not debited. You still earn interest on it during the block.
2. IPO closing day: Application window ends. Bank confirms the block, no other movement.
3. +3 to 10 working days: Result published. Winners' Rs 1,000 is debited and shares allotted. Non-winners' block is released; the cash unblocks.
4. +10 to 15 working days from result: ASBA refund / unblock completes for non-winners. The money returns to fully usable status.
5. +15 working days from result: Allotted shares credit to the winner's demat. Trading can begin once the issue is listed on NEPSE (typically 1–2 months from allotment).

For someone applying to 30–50 IPOs a year at Rs 1,000 each, peak ASBA-blocked capital is roughly Rs 30,000–50,000. Not a real opportunity cost given the interest-earning nature of the block, but worth thinking about for anyone with month-end cashflow tightness. The block does not prevent normal bank transactions; it only prevents the specific Rs 1,000 from being spent elsewhere.

Why "open more demats" stopped working in 2026

The historical hack of opening 4–5 demat accounts in the names of relatives (spouse, parents, siblings) and applying through all of them at every IPO worked until SEBON's 2024–2026 rule tightening. Per the NepInsights 2026 rules summary and a myRepublica report on SEBON's fake-application detection system:

• Multiple demats sharing the same bank account, the same source-of-income declaration, or PANs flagged as related-party are now automatically cross-checked.
• Applications above a certain threshold require a digital self-declaration of source of income within Mero Share.
• SEBON has estimated more than 10 million shares worth of fake subscriptions in past IPO cycles and is increasingly aggressive about rejection.

Two practical consequences for the honest retail applicant:

• Family-based scaling works only if everyone is genuinely a separate economic unit. A spouse with independent income and an independent bank-funded ASBA is fine. A nephew with no income whose application is being funded from your account is the exact pattern the system now catches.
• Future allotment may shift partly to proportional. SEBON has signalled it is exploring proportional models for very-high-volume retail IPOs. A proportional outcome would give every applicant a fractional share (rounded somehow) instead of a binary lottery outcome. The 10-kitta era may be over by 2027 or 2028; for now it is the rule that runs.

For deeper investing context, the right shares vs bonus vs cash dividend post covers what happens to your kitta after listing, and the NEPSE sectors decoded post covers which sectors typically reward IPO winners (hydropower listing-day patterns, microfinance valuation traps, etc.).

What you actually need to know

Three takeaways:

1. 10 kitta or zero is the rule, not a glitch. The minimum-10-kitta allotment plus 6.8 million demat accounts plus typical 12–30 lakh public quotas mathematically guarantees a lottery for any oversubscribed issue. No amount of application strategy changes this for the general public quota.
2. The mutual fund and employee quotas have better hit rates. Investing in a listed mutual fund is a back-door way to participate in IPO allotments without the binary lottery outcome; the fund's quota almost always fills, and the unit price reflects allotted gains.
3. Stop opening relatives' demats. SEBON's 2026 rules detect and reject the pattern. The penalty is not just rejection of that application; it is the start of a regulatory file that can affect future applications and demat eligibility.

This post is part of the Nepal Money Basics guide — the Invest the Surplus section.

For specific situations (a refund stuck past 15 days, a rejected application you think was wrongly flagged, mutual fund vs direct IPO sizing): email parjanya57@gmail.com.