IFC permitted to issue Rs 50 billion (US$ 500 million) in local currency bonds

The government has permitted the International Finance Corporation (IFC), a member of the World Bank Group, to issue local currency bonds of up to Rs 50 billion (US$ 500 million) for five years. A cabinet meeting on Thursday decided to allow the private sector lending arm of the World Bank to issue the bonds to collect resources for infrastructure investment on hydropower, agriculture and tourism.



Madhu Kuamr Marasini, joint-secretary at the Ministry of Finance, said banks and financial institutions (BFIs) and the private sector, as well as individual investors, can buy the bonds.

“IFC’s bond can draw money from the excess liquidity of BFIs and also from remittance and divert it to infrastructure development,” Marasini said.
The infrastructure sector, a backbone for any country’s economic development, has received little investment not only from the public sector but also from the private sector. “IFC’s financing for the infrastructure sector will also boost the confidence of the private sector and foreign direct investors about investing in this sector and also co-financing projects promoted by IFC,” Marasini added.

This is the first time a foreign organization has been allowed to issue bonds in Nepal. Officials said interest rates will be determined by the market. Investors have to declare interest rates while applying for the bonds but the spread rate for IFC will be according to Nepal Rastra Bank’s (NRB’s) spread rates for BFIs. IFC will issue the bonds by dividing them into different lots.

Officials said IFC should invest only in designated sectors. Local currency bonds are thought to be important for the cash-intensive hydropower sector as such bonds will be free from foreign exchange risk compared to foreign investments that demand power purchase agreements in US dollars.
Such bonds have worked wonders in many European countries in the infrastructure development front.

Economist Bishwambher Pyakuryal said the IFC bonds will be a reliable option for investors and can be a way out at the time of liquidity excess. “IFC is not concentrated on profit and its costs are calculated on the basis of operating costs only, thus giving the opportunity of better and assured returns,” Pyakuryal said.

However, he said the bonds alone will not perform miracles in the investment front as there are several other structural problems that remain to be addressed.

The government had issued a guideline on local currency bonds in October last year paving the way for foreign financial institutions to issue local currency bonds. NRB has issued a total of Rs 57 billion in bonds at different times and the private sector has issued debentures of Rs 1.1 billion so far.

IFC also recently issued a five-year Rs 20 billion bond to promote capital market development and encourage foreign investment in India. IFC has already floated such bonds in over 30 countries globally.