Govt set to propose ADB rupee bonds


    ADB-GatesThe government has been preparing to send a proposal to the Cabinet to allow the Asian Development Bank (ADB) to issue local currency bonds worth Rs 50 billion.

    On May 20, the ADB had submitted a proposal to invest the resources collected from the bond issuance in various hydropower projects.

    With the country facing a huge funding gap to develop the country’s poor infrastructure sector, the bonds planned to be issued by international financial institutions are expected help generate much-needed resources.

    Finance Secretary Suman Sharma said a minister-level decision has already been taken. “Probably, the proposal may be forwarded to the upcoming Cabinet meeting,” he said on Wednesday evening.

    Last April, International Finance Corporation (IFC), the private sector arm of the World Bank, got the green light to issue bonds worth $ 500 million in Nepali rupees. IFC and the ADB had expressed interest to issue bonds at the same time four years ago.

    The ADB said that it could take four to six months to issue the bonds once it receives the necessary approvals from the government and other relevant regulators, the legal documents are completed with the prospective borrowers and after the necessary due diligence is completed.

    “However, for the first issuance, a buffer of one to three months’ additional time may be required,” stated the ADB.

    According to the Finance Ministry, the ADB has proposed to invest in eight hydropower projects including Upper Modi, Upper Modi A, Upper Trishuli I, Lower Solu, Lower Balephi, Kali Gandaki Govan, Tamakoshi III and Super Trishuli Hydro Electric Project.

    However, a senior ADB official said that they were indicative projects and that the list had yet to be finalised. The multilateral donor has proposed investing in these projects within the next seven years. It said that this was a preliminary estimated time line which was subject to the timing of the final government approval and other subsequent processes involved in issuing the bonds.

    “Several factors may change this estimate including completion of satisfactory due diligence and securing proper ADB approval for each project, actual Nepali rupee disbursement needs, favourable bond market conditions, requisite regulatory approvals/exemptions, and the ADB’s ability to properly manage Nepali rupee liquidity, among others,” the ADB said.

    According to the ADB, the potential buyers of the bonds are expected to be mainly commercial banks and institutional investors such as insurance companies and funds. “Since banks and financial institutions (BFIs) have excess liquidity, they have been asking repeatedly when IFC and ADB will issue local currency bonds,” said Nawaraj Bhandari, joint secretary at the Finance Ministry.

    ADB said that the interest rate on the bonds would depend on market conditions, primarily the benchmark yield curve of government treasury bills and other factors such as the ADB’s transaction costs.

    The government had issued a guideline on local currency bonds in October 2013 allowing AAA-rated international financial institutions to issue rupee bonds. As per the guideline, the money raised from the bond issue should be spent on developing the country’s hydropower, agriculture, road and tourism infrastructures.

    Source: The Kathmandu Post