Govt bonds fail to attract subscribers

KATHMANDU, MAY 10: 

Government bonds meant for the general public are facing a difficult time in getting even fully subscribed despite the attractive yields on offer.

The recent batch of Citizen Saving Bond 2074 worth Rs 1.41 billion — that will mature in five years in April 2017 and which is being sold at 9.5 per cent coupon rate — got applications worth only Rs 126.5 million in the stipulated period of 15 days.

“The low number of applications for the bond meant for the general public shows that the public are indifferent towards acquiring government bonds despite them being a risk-free investment that yields high returns,” informed an official at Nepal Rastra Bank (NRB)’s Public Debt Management Department.

The rest of the unsubscribed bonds will be mopped up through some other debt instruments fixed 

by Open Market Operations Committee (OMOC). The public is more inclined towards equity investment in spite of the high risk quotient and low returns. 

The recent oversubscription of Janata Bank Nepal’s primary issue of shares demonstrates that the public are still obsessed with equities despite the uncertainty regarding the performance of stocks in the secondary market.

“Issuing bonds meant for public is a costly business for the government while instruments such as treasury bills and development bonds bring more money and are easily purchased by financial institutions,” pointed out the official. 

According to the central bank’s public debt calendar, the central bank is expected to sell treasury bills worth Rs 16 billion, development bonds worth Rs 16 billion, national savings bonds worth Rs 5 billion, 

citizen saving bonds worth Rs 1.4 billion and foreign employment bonds worth Rs one billion, over the period of the year. 

Bonds are considered to be almost risk-free investment instruments as they are backed by the government’s assurance of repayment. Even if the nation’s economy dwindles, the government can pay back the borrowed amount by minting more money, thus, investors always get back what they have invested. 

But share investment is always a subject to market risks and there is no assurance of returns. Moreover, in the recent issues, the government has also jacked up coupon rate to as high as 10 per cent for the bonds meant for public investment. 

In addition, bonds are also tradable at Nepal Stock Exchange (Nepse)’s trading floor. But not one single bond has been traded at the secondary market so far. There are 16 different development bonds worth Rs 22.4 billion listed at Nepse. 

“There is no charm for bonds among investors and they are more concerned with trading stocks because there is little awareness regarding bonds,” pointed out president of Stock Brokers Association of Nepal Anjan Raj Paudyal.

Another bond meant for the public –– foreign employment bond –– has also not been received well by migrant workers, the target beneficiaries. Last year, only about 10 per cent of the total issue worth Rs five billion got subscribed.