“International financial institutions with an A+++ rating can now apply to the Finance Ministry to issue such bonds,” said Ram Sharan Pudashaini, spokesperson of the ministry.
The decision follows the budgetary provision of the current fiscal year regarding arrangements for the issuance of rupee bonds by international financial institutions.
The Asian Development Bank (ADB) and the International Finance Corporation (IFC) have been showing an interest in issuing such bonds. Local currency bonds are issued to attract both local and foreign investment as they help in long-term financing.
The Finance Ministry said in a press release that the money raised by issuing bonds should be spent on developing the country’s hydropower, agriculture, road and tourism infrastructures.
Opening the door to foreign financial institutions is also expected to help develop the country’s bond market. 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.
Meanwhile, any international financial institution wishing to issue rupee bonds 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.
“The ministry will then present the proposal to the cabinet for the final approval on whether to allow the issuance of bonds,” said the ministry. 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 Pudashaini.
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 Pudashaini.
However, he said other terms and condition including the size of the bonds would be determined on a case-by-case basis.
Institutions like the IFC have along been requesting the government to introduce a working guideline on the matter urgently. Recently, Valentino S Bagatsing, resident representative - head of office of the IFC in Nepal, had commented that they were awaiting the guidelines for the last 16 months.
The IFC, which has already issued such bonds in 30 countries, is interested in doing so in Nepal, which is expected to help generate the necessary resources for the country’s infrastructure sector, such as hydropower.
The IFC has said that it has held talks with a few local banks to underwrite the bonds it desires to issue. The ADB sent a proposal to the finance ministry two years ago demanding various concessions by which to issue local currency bonds.
The ministry expects that the issuance of local currency would help collect huge capital within the country for the big and priority projects. Pudashaini said this would also help mobilise domestic resources, which will reduce the dependency on foreign loans.
source: the kathmandu post,9 Oct 2013
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