Govt asks IFC for specifics on bond issuance
KATHMANDU, JAN 27 -
The government has asked the International Finance Corporation (IFC), which has applied for the issuance of local currency bonds, to specify the size of bonds, interest rate and projects in which the raised funds will be invested.
The IFC, which has long planned to issue Nepali rupee bonds to invest in Nepal’s infrastructure projects, including hydropower, had recently applied to the Ministry of Finance for permission to issue the bonds.
“As the application lacked details, we asked them to come up with specific details,” said Finance Secretary Shanta Raj Subedi. Talks are on between the two sides on the issue.
“They have informed us that the maximum size of the bonds issuance would be $500 million,” said Nawaraj Bhandari, chief of economic policy analysis division at the Finance Ministry. “They have promised us they would come with specific details shortly.”
According to Bhandari, the government has asked the IFC about the interest rate to be offered to the bond subscribers, lending rate, spread rate and projects in which the rised funds would be invested.
The IFC has also asked the government to treat the bonds as other government securities which could be used as monetary instrument for liquidity management, Bhandari said. “They have expressed concerns about taxation,” he said. “We have told them that the government is ready to provide tax exemptions as much as it can through a Cabinet decision under the existing legal system.”
The IFC applied for the permit after the government issued a guideline in October 2013 authorising the international financial institutions to issue local currency bonds.
As per the government’s guideline, any international financial institution with AAA rating could issue Nepali rupee bonds.
It has also fixed the areas where the raised funds could be invested. The areas include hydropower, agriculture, road, tourism and infrastructure.
Local currency bonds are issued to attract both local and foreign investments to help long-term financing. As banks and financial institutions have limited strength to finance the big infrastructure projects for long term, such bonds are expected to ease the financing problem for such projects.
As per the guideline, international financial institutions willing 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 submit the proposals for a Cabinet approval on whether to allow the issuance of bonds.
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, the guideline says. The bond issuing institutions can also repatriate profit as per the country’s existing laws.
Source: The Kathmandu Post
