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Cabinet approves ADB local currency bond

The government today approved Asian Development Bank’s (ADB) Nepali rupee bonds worth up to Rs 50 billion to raise funds from the domestic market to finance various development projects including eight hydropower projects.

A Cabinet meeting’s decision today has made the ADB second international financial institution to receive permission from the government to issue local currency bonds to raise money that would fund private sector led mega projects.

The government had in April permitted International Finance Corporation (IFC) – a private sector lending arm of World Bank Group – to issue local currency bond, though it has not yet floated the bonds.

With the government’s decision, ADB gets a new opportunity to facilitate private sector investment in local currency that could also contribute to the development of domestic capital market.

The local currency bond is expected to reduce country’s dependency on dollar-denominated loan that increases country’s debt servicing due to stronger doller against Nepali rupee, as and when, local currency weakens.

Though, the local currency bonds are also seen as a tool to manage excess liquidity in the banking sector – as it is facing currently – the liquidity has seen volatility in recent years.

The international financial institutions willing to issue local currency bonds must follow the central bank’s internal debt calendar not to upset the domestic borrowing, according to the Finance Ministry.

However, local currency bonds will offer a new investment avenue for retail and institutional investors, according to bankers.

Earlier, ADB had been seeking permission to issue local currency bond since long but it officially sought permission to float the bonds in July.

The international institutions that seeks to issue local currency bonds, will have to follow the Securities Board of Nepal (sebon) regulation.

However, the board is yet to amend its regulation to let international financial institutions issue, list and trade their bonds in the secondary market.

The government has allowed international financial institutions – with AAA credit rating from global credit rating agencies – float local currency bonds last October.