Government allows foreign financial institutions to issue rupee bonds

The government has finally given a green signal to the international financial institutions to issue local currency bonds that is expected to help finance long-term infrastructure projects in the country.

Though terms and condition including size of the bonds would be determined on a case-by-case basis, international financial institutions with a high level of credit rating from international credit rating agencies can now issue bonds in Nepali rupee, the Finance Ministry said in its statement.

The issuing authority must, however, have A+++ credit rating to apply, the ministry said, adding that the money raised by issuing the local currency bonds should be invested in development activities in the country like hydropower, agriculture, road and tourism infrastructure. “The Finance Ministry has also asked the interested international financial institutions to apply for local currency bonds with specific objective of bond, potential areas of investment, main investor, value, maturity period, coupon rates, interest spread and schedule for issuance of bonds.”
The ministry will present the applications to the cabinet, which will give final approval to issue local currency bond, according to the 10-point guideline that was approved by the ministry today.
The existing securities law will govern the bond issue, and like the local financial institution, the foreign financial institutions should also publish their prospectus to assure investors about the security of their investment, the guideline said, adding that the bond issuer can pay interest on half yearly basis through their local agent or market makers. “The international institutions are provided income tax exemption but if they issue the bonds through local agents, the agents are subject to tax compliance according to the law of the land.”
The bond issuer can repatriate their profit according to the law of the land, the guideline said, adding  that the can take short-term loans from the domestic banks as bridge funding provided the fund raised from bonds is inadequate for the investment in the project. “They can also deposit their money in banks for a year to manage their fund.”

Asian Development Bank (ADB) and International Finance Corporation (IFC) – that has already issued such bonds in 30 countries – have shown their interest in issuing local currency bonds that is expected to attract both local and foreign investment.

The IFC has also held discussion with local banks to underwrite the bonds

Likewise, the ADB had sent a proposal to the Finance Ministry two years ago demanding various concessions to issue local currency bonds.

Bond will help mobilise domestic resources reducing the dependency on foreign loans, apart from helping grow the domestic bond market.
Despite around two decade long secondary market trading history, Nepal Stock Exchange (Nepse) has not yet seen the trading of bonds. But the entry of foreign financial institutions is expected to help develop the bond market.