Kathmandu, March 6:

Only three transactions in government development bonds have taken place since their inception in December 2006.

To generate funds from the public, the government floated development bonds worth Rs 4.95 billion and listed them at Nepal Stock Exchange Ltd (NSEL) for secondary market trading in December last year, whereas three commercial banks listed their debentures a year ago and three more listed debentures just two weeks ago.

A conservative tendency of keep holding on to the bonds by institutional investors like banks and finance companies and a lack of understanding about the bonds’ safe and longterm value among common investors have defeated the very purpose of floating the bonds by the government.

Trading in commercial banks’ debentures have also remained idle at the NSEL floor, despite the total volume of the listed debentures having already crossed Rs 1.71 billion.

Market insiders say that the income tax difference for an individual and an institution is the main the reason, which is preventing ‘cross trading’ of bonds between individuals and institutions.

The tax on interest earned from bonds for an individual is fixed at six per cent, while it is 15 per cent for the corporate or institution.

Among the bonds and debentures listed at NSEL, most of them pay interest at a range of 5.5 to seven per cent per annum and the maturity period is between five to seven years. They pay interest at an interval of six months and the principal amount after the maturity period expires.

Rewat Bahadur Karki, general manager at NSEL, admitted that there is a need to change some income tax provisions and bondholders’ conservative tendency of keep holding on to the bonds. “Some measures should be taken to give flexibility in trading of bonds at the secondary market,” he added.

Commercial banks like Nepal Investment Bank has floated debentures worth Rs 500 million (Rs 300m + Rs 200m) and Rs 366 million by Himalayan Bank Ltd.

Bank of Kathmandu has Rs 200 million, Everest Bank Ltd Rs 250 million, Nepal SBI Bank Rs 200 million and NIC Bank Ltd has Rs 200 million.

Talking to The Himalayan Times, Pramod Bhattarai, deputy general manager at NSEL suggests that correction on some of the income tax provisions as well as addition of some convertible features like conversion of bonds into equity shares after the maturity period will attract more investors to bond trading.

Bonds & debentures

• Govt development bond Rs 4.95bn

• HBL Rs 366mn

• NIBL Rs 300m & Rs 200mn

• Nepal SBI Bank Rs 200mn

• NIC Bank Rs 200mn

• EBL Rs 250mn

• BoK Rs 200mn

(Listed at NSEL)