--By TC Correspondent 

 

Nepal government has paved the way to international institutions with triple-A credit rating to issue local currency bonds. 

 

The Finance Ministry recently decided to allow institutions with reliable international credit rating to issue local currency bonds. The World Bank’s private sector arm IFC and Asian Development Bank (ADB) have shown interest in issuing local currency bond. 

 

The decision follows the budgetary provision of the current fiscal year regarding arrangements for the issuance of rupee bonds by international financial institutions.

 

“The local currency bond supports the efforts of the government and authorities to deepen domestic capital markets in the country,” said an official at the Ministry of Finance. Such markets are an important source of local-currency funding to engage broader private sector in development projects through micro, small and medium enterprises and other essential economic sectors, he added. 

 

We envisage that the country will have several international issuers coming to the market who can propel the investment climate, he said. 

 

Presence of international issuers will have positive impact in overall investment scenario, said chief economic advisor at the ministry Dr Chiranjibi Nepal. Investors can invest in more secure manner when internationally trusted organizations issue bond, he said. “The implementation of decision will also help to formalize economy since people start to invest in bond instead of hiding currency at home or in banks.” 

 

Local currency bonds are issued to attract both local and foreign investment as they help in long-term financing. The money raised by issuing bonds should be spent in big projects like developing the country’s hydropower, agriculture, road and tourism infrastructures, according to the Ministry 

of Finance. 

 

Opening the door to international issuer will also help develop the country’s bond market, which is still in nascent stage, according to the ministry. At present, bonds account for 34 percent of the total debt instruments in the country. Currently, total domestic debt amounts to Rs 207 billion raised from treasury bills and different types of bonds.

 

Potential issuers who want to issue bonds in Nepali rupee must apply to the Finance Ministry specifying the objective of issuing them, potential areas of investment, the main investor, value of the bonds, maturity period, interest rate and timetable, according to spokesperson Ram Sharan Pudasaini.

 

“The ministry will then present the proposal to the cabinet for the final approval on whether or not to allow the issuance of bonds,”  he added. 

 

As per the 10-point guideline endorsed by the ministry, the bond issuance should be carried out as per the existing legal provisions related to securities.

 

In order to assure investors about the security of their investment, the bond issuer has to publish prospectus of the institution that is issuing the bond. The issuer can make the payment of interest to investors on half yearly basis through their local agent or market makers, the guideline says. It has given income tax exemption to the international institutions issuing the bonds. “But if they issue the bonds through local agents, the agents are subject to tax compliance,” said Pudasaini.

 

The guideline has also the given the bond issuing institutions to repatriate profit as per the country’s existing law.  They have also been allowed to take short-term loans from the local banks as bridge funding provided the fund raised from bonds is inadequate for the investment in the project.

 

They have also been allowed to deposit their money in banks for a year to manage their fund. “This provision was made to utilize the fund they have until they invest in certain projects,” said Pudasaini.