Debentures outnumber IPOs
KATHMANDU, MAY 23:
So far, the amount of corporate debentures issued in the capital market is almost double the initial public offerings (IPOs) held, this fiscal year.
Even though debentures are never traded in the secondary market, more and more debentures are making their way to the market. Five commercial banks have issued debentures worth Rs 2.9 billion in the capital market, till date.
Likewise, 12 financial institutions, including two commercial banks, one microfinance development bank, six development banks, two finance companies and one insurance company have launched IPOs worth Rs 1.97 billion.
Moreover, there are debentures worth almost Rs 1.5 billion in the pipeline that have either been already approved or are awaiting approval by the capital market regulator — Securities Board of Nepal (Sebon). Sebon has already approved Nepal Investment Bank’s debenture issue worth Rs 500 million which will be released in the market soon.
Likewise, Himalayan Bank has also applied for the approval of its debenture worth Rs 600 million — has even got it rated by the credit rating agency. Kist Bank and Citizens Bank International are also preparing to issue bonds.
On the other hand, by the end of the fiscal year, the capital market will also see large IPOs of Mega Bank worth Rs 699 million and Sanima Mai Hydropower worth Rs 105 million, among others.
As more and more commercial banks are opting to issue debentures to expand their lending capacity, debenture issues have overtaken the public offerings for shares.
“The pace at which debentures are being issued has gone up in recent times as banks are struggling to maintain enough liquidity to finance their lendings,” said share analyst Rabindra Bhattarai.
Banks seek to raise funds through debt instruments to maintain the capacity to extend loans. They have to maintain a core capital of not less than six per cent of total risk weighted exposure and total capital fund of not less than 10 per cent of its total risk weighted exposure. The debentures issued are included under Tier II capital — supplementary capital — of the issuing bank thereby increasing the bank’s capacity to float more loans.
In the last fiscal year too, debentures worth Rs 1.2 billion of three banks had hit the market. These debentures offered more than 10 per cent interest.
Debentures have their own loyal customer base, though small. The recent issue of Siddhartha Bank’s seven-year debenture had a hard time getting subscribed. The issue closing was extended by two weeks. However, Bank of Kathmandu’s debenture issue was fully subscribed within the given time. Both debentures offered eight per cent coupon rate for the seven-year redeemable bonds.
“As financial institutions have hiked interest to eight per cent, investors feel eight per cent rate for a tenure of seven to 10 years does not compensate enough,” said CEO of Nabil Investment and Banking Pravin Raman Parajuli.
Absence of secondary trading of bonds and debentures has also marred the prospect of bonds for small individual investors. There are almost five million units of bonds listed at Nepse but never traded. “We hope the secondary bond market will be stimulated once open-ended mutual funds are introduced,” added Parajuli.
Source: THT
