Government awards Fitch Ratings for Nepal’s sovereign credit rating

Fitch Ratings is going to start conducting the sovereign credit rating of Nepal soon. The government has picked American rating agency so that it can help pave the way to assess the creditworthiness of Nepal.
Revenue secretary Shishir Kumar Dhungana confirmed that the government has decided to select Fitch Ratings to determine the creditworthiness and risk assessment of the country. Nepal has been unable to attract more foreign direct investment (FDI) also due to lack of country ratings.
The country credit rating will not only provide foreign investors insights into the level of risk associated with investment but also help the government access capital from the international market on the basis of its creditworthiness as the sovereign credit rating determines the trustworthiness of the business environment and credit risk of a potential debtor, an individual, company, business, government or any other sovereign entity. The rating also gives potential investors an insight into the level of risk while investing in a country and takes into account political, social and financial risks. Risk ranking of a country is the primary factor that the potential investors look at before investing in any country.
Though, Moody’s Investor Services and Standard and Poor’s were also eyeing Nepal’s ratings, the Finance Ministry chose Fitch Ratings for the sovereign credit rating due to its technical and financial proposal,” he said, adding that the global credit rating agency will provide report and rating within 2 months after the signing of an agreement, if it gets all the necessary documents and information. “But it will take nearly 1 month to carry out homework before the ministry sign the agreement with Fitch Ratings.”
According to him Nepal will have sovereign credit ratings within 12 weeks. “Credit rating not only helps foreign investors measure the risk of the country either to invest or issue credit to it, but also provides an opportunity to review the progress and shortcomings in various aspects of the economy,” he said, adding that it will also put pressure on government to carry out necessary reforms to make sure Nepal will have better credit rating. Fitch Ratings conducts the credit rating of a country based on its macroeconomic, structural and governance indicators.
While assigning a rating, which can stretch from ‘AAA’ at the top – high quality – to D – defaulted – Fitch Ratings factors in various indicators like inflation rate, economic growth, foreign direct investment and external debt.
Fitch Ratings will carry out works related to the sovereign rating – to gauge Nepal’s credit worthiness – in coordination with the Department for International Development (DfID), United Kingdom. 

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.

Governor asks private sector to form Asset Management Company

Central bank has asked the banks and financial institutions to team up and form Asset Management Company (AMC).
"Since long the government has tried to form Asset Management Company, but has not been successful," said central bank governor Dr Yubraj Khatiwada.
"The banks and financial institutions should come forward and can form Asset Management Company as problems in the real estate sector have yet not been solved," he said, adding that the government could become partner in the private sector initiative.
Asset Management Company is a company that invests its clients' pooled fund into securities that match its declared financial objectives. It provides investors with more diversification and investing options than they would have by themselves. Mutual funds, hedge funds and pension plans are all run by asset management companies. They earn income by charging service fees to their clients.
Asset Management Company offers its clients more diversification because they have a larger pool of resources than the individual investor. Pooling assets together andpaying out proportional returns allows investors to avoid minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
Apart from Asset Management Company, the credit rating agency will also help boost the current market, the governor said, adding that one credit rating agency is in pipeline and the formation of Asset Management Company will help both capital market and real estate grow. Both the sector is passing through a difficult period currently.
"But real estate sector is picking up slowly, though it has its own internal problems that needs to be solved to expand," Khatiwada added.
Currently, the developers have started more housing and apartments projects not only in the Valley but also outside the Valley like Hetauda and Pokhara, where there is still demand according to the developers.
The government has also encouraged the developers to go outside the valley as the organised settlement is a must for the development of the districts that have higher economic activities.
The government has also asked the private sector to engage in the government-planned 10 big cities on the Puspalal Lokmarga that is under construction.

CRANE becomes Nepal's first credit rating agency

Finally Nepal has a credit rating agency.
Credit Rating Agency Nepal Pvt Ltd (CRANE) has become the first credit rating agency (CRA) to be registered in Nepal and will start operating from November.
CRA is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. The issuers of securities are companies, special purpose entities, state and local governments, non-profit organisations or national governments issuing debt-like securities that is bonds that can be traded on a secondary market.
A credit rating for an issuer takes into consideration the issuer's creditworthiness such as ability to pay back a loan and affects the interest rate applied to the particular security being issued. Prior to buying the securities, the public can get complete and reliable information about the instrument where one is going to pour in hard-earned money.
With the increasing domestic corporate world of especially financial institutions, such rating agencies are the need of the hour.
"Such rating agencies are self regulated and its not a compulsan rather a certifiaction that can boost the confidence of the investors and the company itself," said CRANE chairman Sujeev Shakya. CRANE will begin rating services for individuals, corporates, financial institutions and instruments issued by them. "It will provide a full range of international quality rating and grading services for individuals and organisations," he added.
CRANE has also signed a Memorandum of Understanding (MoU) with CARE Ratings -- India's premier rating agency Credit Analysis & Research Ltd. CARE Ratings is a full-service rating company that offers a wide range of rating and grading services across sectors. It has unparalleled depth of expertise and its methodologies are in line with the best international practices.
Recognised by Securities and Exchange Board of India (Sebi), Government of India (GoI) and Reserve Bank of India (RBI) CARE Ratings has completed over 6,256 rating assignments having aggregate value of about IRs 18,248 billion (till June 30), since its inception in April 1993.
CARE Ratings managing director D R Dogra hoped that the MoU would bring world class rating methodologies to Nepal and add a complete new dimension to the country's domestic financial and corporate world.
Shakya said it was a continuation of beed management's efforts to pioneer new businesses in Nepal. "We look forward to fill the void of a rating agency in Nepal and change the way business and financial transactions are conducted," he said.