Foreign employment bond fails

HIMALAYAN NEWS SERVICE

KATHMANDU: The Foreign Employment Bond has become a washout for the third consecutive year with very low subscription. The designated agents were able to sell only 8.6 per cent of the total bond issue despite an attractive coupon rate of 10 per cent per annum.

“We were able to sell foreign employment bonds worth only Rs 8.6 million of the total issue worth

Rs one billion,” said an official

at Nepal Rastra Bank (NRB)’s Public Debt Management Department. The issue had failed to get proper subscription in the last two fiscal years too.

The first foreign employment bond, issued in fiscal year 2009-10 had seen subscription worth Rs 4.6 million of the total issue of Rs one billion at 9.5 per cent interest. Likewise, last year too, bonds worth only Rs four million of the total issue worth Rs five billion were sold.

The repetitive failure of the bond to attract enough investment from the migrant worker community has been attributed to the absence of proper marketing channels. The failure of the last two batches had got NRB to look into diverse markets allowing even Non Resident Nepalis (NRN) and returnee migrant workers to purchase the bond instead of only focusing on migrant workers in Gulf countries and Malaysia.

The bonds were sold by six agents including remitters and one commercial bank to collect application and funds from the applicants. Earlier, the bond issuer had great expectations from NRNs, as migrant workers might not have much purchasing power due to limited income. “But not only migrant workers and returnees, NRNs also did not show much interest in purchasing the bonds even though it provided assured returns,” said the NRB official.

The limited targeting had excluded migrants in India where a large number of Nepali workers are working because none of the remittance company working in India applied for the agency. To push sales, NRB had even increased the agent’s commission to 0.65 per cent of the total amount for mediating the primary sale of the bonds.

The listless reception of the issues in the last two fiscal years had even made the central bank tone down the issue this fiscal year to

Rs one billion. The government bonds, which are meant for the general public, always face a tough time in getting fully subscribed despite attractive yields.

The recent issue of National Saving Bond 2076 ‘ka’ had set aside Rs 700 million worth of bonds for the general public but only saw bonds of about Rs 130 million being subscribed. The layman is missing out on booking good returns by investing in bonds due to lack of awareness about investing in government securities.

Primary dealership on cards

KATHMANDU: Nepal Rastra Bank (NRB) is mulling over starting a primary dealership system to sell government securities. “The central bank is planning to issue bonds then sell them at wholesale to primary dealers who will resell them to others to minimise the workload related to debt issuance and selling,” said an official at the NRB’s Public Debt Management Department. A primary dealer is a firm that buys government securities directly from a government with the intention of reselling them to others. The system is supposed to transfer the job of selling or auctioning the bonds to the primary dealer who will even quote rates and yield of the particular bonds.