Govt to ease way for local currency bonds

KATHMANDU, AUG 22 -

Tax exemption, simplification of the registration process and permitting issuance of local currency bonds even through third parties are a few of the measures the government has been mulling to enable international financial institutions to issue local currency bonds.

The government has been considering inserting these measures in the guideline it is preparing in line with the announcement in the budget about allowing highly rated international financial institutions to issue local currency bonds.

Local currency bonds are issued to generate resources for investing in big infrastructure projects in the country.

International Finance Corporation (IFC), the private sector arm of the World Bank Group, and the Asian Development Bank (ADB) have long been expressing an interest in issuing such bonds. As demanded by these donors, the Finance Ministry has prepared a draft guideline including these issues.

The ADB, in its conditions, has sought exemption of value added tax, transaction tax and stamp duties, among other fees. The ADB had also put forward other conditions such as confirmation that the tax exemption would apply to any amount payable by the ADB or paid to the ADB from transactions that may be undertaken in connection with Nepali currency bonds.

Such bonds would not be subject to withholding, specifically allowing the ADB and its agents to make interest payments to bondholders on a gross basis without deduction for any withholding tax; the ADB would not be required to disclose its financial transactions to any regulatory authority; and the ADB would not require registering the bonds under any security laws and regulation of Nepal.

Although the initial draft talked about simplifying the registration despite the demand one of the donors for no registration requirement, the draft has talked about allowing the issuance of bonds through local parties even without registration in Nepal.

“Discussions will also be held with Nepal Rastra Bank, the Securities Board of Nepal and the Insurance Board to finalize procedural matters to enable the issuance of local currency bonds,” said the official.

Recently, the IFC had urged the government to introduce the guideline as soon as possible saying it had been waiting for it for the last 15 months to issue bonds.

The IFC, which has already issued such bonds in 30 countries, is interested in doing so in Nepal which is expected to help generate necessary resources for the country’s infrastructure sector such as hydropower.

The IFC has said that it has held talks with a few local banks to underwrite the bonds that it wants to issue.

Source: The Kathmandu Post