The Ministry of Finance has prepared the final
draft of the local currency bond guideline, which, once introduced paves
the way for international financial institutions to raise funds from
the domestic market to finance various long-term development projects.
The guideline was prepared after conducting a comprehensive research for over a year and consulting various bodies like Nepal Rastra Bank, the Securities Board of Nepal and Nepal Stock Exchange, among others.
“The draft will now be forwarded to the finance secretary and the finance minister for approval,” a high-ranking official of the Finance Ministry said on condition of anonymity. It will then have to be endorsed by the Cabinet prior to its introduction.
Once the guideline is issued, institutions like the Asian Development Bank and International Finance Corporation, private sector arm of the World Bank, will be able to float bonds to raise funds from the domestic market instead of bringing them from abroad.
The financial resources collected by them will then be invested in various sectors such as hydropower, agriculture, roads, health and infrastructure.
“This will reduce the state’s burden in mobilising funds for development works, as international financial institutions will have to invest the money in priority sectors identified by the government. This will also reduce the risk of exchange rate fluctuation on funds borrowed by the government from abroad,” the official said.
Issuance of such bonds will also benefit various investors, as the guideline allows retail investors, non-resident Nepalis and institutional investors such as banks, insurance companies, Employees Provident Fund and Citizen Investment Trust, to purchase these securities from which fixed income can be earned every six months.
These bonds can also be used as security to obtain loans from various banks and financial institutions in Nepal and can be traded in the secondary market, like the stock exchange.
As per the guideline, only international financial institutions of which Nepal is a member or Nepal is party to an agreement signed with them will be permitted to raise funds from the domestic market, provided they have a high credit rating from a credible global credit rating agency.
If this eligibility criterion is met, they can file an application at the Finance Ministry by incorporating information such as objective behind issuance of bonds, potential investment sectors, investors, quantity of bonds to be issued, their maturity date and coupon rates.
“The ministry will have a final say on the quantity of bonds to be issued, schedule for issuance of bonds, their maturity period and interest spread — the difference between the cost of raising funds from the market and the cost at which the funds are made available to borrowers,” says the five-page guideline seen by The Himalayan Times. “Other disclosures should be made as per the Securities Act and monitoring-related works would be conducted by the Securities Board of Nepal.”
The guideline says that if institutions issue bonds themselves they will be extended tax rebate as permitted by the Income Tax Act. But if they have mobilised others to issue these securities then they will not be entitled to this benefit.
The draft also says that international financial institutions that need credit to cover expenses related to issuance of bonds can avail so through bridge financing facility. And after successful issuance of bonds, issuers can remit the income abroad in convertible currency, adds the draft guideline.
source: the himalayan times,2 Oct 2013
LINK
The guideline was prepared after conducting a comprehensive research for over a year and consulting various bodies like Nepal Rastra Bank, the Securities Board of Nepal and Nepal Stock Exchange, among others.
“The draft will now be forwarded to the finance secretary and the finance minister for approval,” a high-ranking official of the Finance Ministry said on condition of anonymity. It will then have to be endorsed by the Cabinet prior to its introduction.
Once the guideline is issued, institutions like the Asian Development Bank and International Finance Corporation, private sector arm of the World Bank, will be able to float bonds to raise funds from the domestic market instead of bringing them from abroad.
The financial resources collected by them will then be invested in various sectors such as hydropower, agriculture, roads, health and infrastructure.
“This will reduce the state’s burden in mobilising funds for development works, as international financial institutions will have to invest the money in priority sectors identified by the government. This will also reduce the risk of exchange rate fluctuation on funds borrowed by the government from abroad,” the official said.
Issuance of such bonds will also benefit various investors, as the guideline allows retail investors, non-resident Nepalis and institutional investors such as banks, insurance companies, Employees Provident Fund and Citizen Investment Trust, to purchase these securities from which fixed income can be earned every six months.
These bonds can also be used as security to obtain loans from various banks and financial institutions in Nepal and can be traded in the secondary market, like the stock exchange.
As per the guideline, only international financial institutions of which Nepal is a member or Nepal is party to an agreement signed with them will be permitted to raise funds from the domestic market, provided they have a high credit rating from a credible global credit rating agency.
If this eligibility criterion is met, they can file an application at the Finance Ministry by incorporating information such as objective behind issuance of bonds, potential investment sectors, investors, quantity of bonds to be issued, their maturity date and coupon rates.
“The ministry will have a final say on the quantity of bonds to be issued, schedule for issuance of bonds, their maturity period and interest spread — the difference between the cost of raising funds from the market and the cost at which the funds are made available to borrowers,” says the five-page guideline seen by The Himalayan Times. “Other disclosures should be made as per the Securities Act and monitoring-related works would be conducted by the Securities Board of Nepal.”
The guideline says that if institutions issue bonds themselves they will be extended tax rebate as permitted by the Income Tax Act. But if they have mobilised others to issue these securities then they will not be entitled to this benefit.
The draft also says that international financial institutions that need credit to cover expenses related to issuance of bonds can avail so through bridge financing facility. And after successful issuance of bonds, issuers can remit the income abroad in convertible currency, adds the draft guideline.
source: the himalayan times,2 Oct 2013
LINK
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