Debentures a Dismal Affair

KATHMANDU, JUL 06 2010. The number of debentures being issued in the Nepali capital market is low compared to other instruments of capital financing. As of the present, only 11 companies have issued 16 debentures worth Rs. 5.46 billion to the public, according to the Nepal Stock Exchange (NEPSE).

Debentures are debt instruments through which a company collects money from investors with the promise that they would be repaid within a fixed period. The coupon (interest) can be paid annually or semi-annually. However, in Nepal, almost all the debentures issued so far pay interest on a half-yearly basis.

It is considered as a good source of financing for the companies and usually and even investors also benefit from it well with relatively higher interest rate.
Shri Ram Sugar Mills was the first company to issue debentures worth Rs. 93 million on Nov. 20, 1997. NIDC Capital Market was the issue manger for it. Himalayan Bank Rinpatra 2066 issued on June 18, 2002 has already been redeemed.

The Nepal Investment Bank Bond 2015 is the last debenture issued so far on June 16, 2009. The bank issued debentures worth Rs. 250 million lately with a maturity period of six years.
Prithivi Bahadur Pandey, chairman and chief executive director of NIBL, said the bank preferred to issue these instruments as they were the cheapest and best source of corporate financing.

Government-owned Nepal Electricity Authority tops the chart in terms of the total worth of debentures. It has issued this instrument only once but the amount of debentures stands at Rs. 1.5 billion.
Concerned stakeholders said people’s attraction towards debenture was not immense compared to shares as their maturity period remains limited.

As such, Gopal Kafle, spokesperson of Nepal Rastra Bank, said investors were not much interested as they could not own it as equity for a long time.

Though the maturity period of debentures usually remains from five years at minimum to more years set by the company. 

Nepal Rastra Bank’s directive to increase paid-up capital for banks and financial institutions might have lowered the number of debenture issuance in Nepal said, Niraj Giri, director of Securities Board of Nepal.  People go to initial public offerings and rights shares as they are equity as well.

Upendra Poudel, CEO of NMB Bank, said that people were not attracted to debentures at the moment as they were getting high interest rate on fixed deposits.

Among 11 companies issuing debentures so far, the year 2008 saw the highest number of debentures issued. The year saw seven companies issuing debentures worth Rs. 3.7 billion.

Among the debentures issued so far, the debenture of Siddhartha Bank Rinpatra 2015, is yet to listed on NEPSE.

Courtesy: www.ekantipur.com

Ms Bhushita Vasistha
Communication Officer,
Research & Development Department
Nepal Investment Bank ltd, Durbar Marg

 

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