Kathmandu. KATHMANDU: The Securities Board of Nepal (SEBON) has published a draft of the ‘Registration and Issue of Bonds Regulations, 2083’ with the objective of making the institutional bond market expansive, systematic and investor-friendly.

The proposed regulation aims at diversifying the long-term financial resources that are dependent only on the loans of banks and financial institutions through the capital market, creating additional investment instruments for institutional investors and creating a base for transparent and credible corporate bond market.

As per the proposal, the minimum paid-up capital of the company willing to issue debentures should be Rs 1 billion. The promoter will have to meet the criteria including that the share amount has been fully paid, the loan repayment has been continuous for the last one year, the audit and AGM has been held and the audited financial statements have been approved.

The debt-to-capital ratio of the institution should not be more than 70:30 while issuing debentures. Such a limit has been proposed to prevent financial risk by borrowing too much. However, this provision has been the subject of special discussion during the public consultation.

It is proposed that only banks and financial institutions, insurance companies, and institutions other than institutions established under special acts can issue secured bonds. Its purpose is to further strengthen the interests of bondholders and the protection of investments.

The debentures can be sold targeting a maximum of 50 eligible investors through the circular method. Such a medium has been proposed as the basis for developing a market for institutional and skilled investors.

The list includes corporate entities, financial institutions, mutual funds, merchant banks, retirement funds, employees provident fund, social security fund, insurance companies, banks and financial institutions, securities entrepreneurs, investment managers and companies with fixed capital.

It is proposed that the approval from the board, credit rating, prospectus, information dissemination, due diligence, appointment of issue manager and listing in the stock market will be mandatory while issuing debentures through public issue.

There is a provision to take the rating before issuing the bonds, to disclose all if there is more than one rating and to update the rating if there is a significant change in the risk profile. In addition, it is proposed to update the rating at least annually till the maturity period of the bonds.

A provision has been proposed that the bonds issued through the public issue should be listed in the concerned stock exchange. Bonds issued through circular method can be listed.

It has been proposed to establish a separate trading platform for the trading of listed debentures and to allow the bonds issued under the unlisted circular method to be traded through the OTC market.

The draft has also proposed the basis for issuance of green bonds, social bonds and thematic bonds related to sustainable development along with general institutional bonds.

Such debentures will have to meet the required criteria set by the board. This is expected to provide an opportunity for Nepal’s capital markets to expand towards sustainable and ESG-centric finance.

A provision has been proposed that the institution can issue bonds at one time or in more than one installment. It is proposed that the approved prospectus for one installment should be issued within two months and the periodic prospectus approved for more than one installment would be valid for a maximum of three years.

The draft has sought suggestions on minimum paid-up capital of Rs 1 billion, 70:30 loan-capital ratio, mandatory provision of secured debentures, definition of eligible investors, limit of 50 investors, credit rating, trustee, secondary market, OTC transactions, market makers, repo and thematic bonds, among others.

The Securities Board of Nepal (SEBON) has stated that it will give final shape to the regulations incorporating factual and appropriate suggestions received from the public consultation.