Development bonds float free

Gopal Tiwari

Kathmandu, June 9:

Nepal Rastra Bank (NRB) floated primary issue of development bonds worth one billion rupees yesterday through auction which was heavily oversubscribed. The same bonds are to be traded through the stock market in an open out-cry system soon. With the introduction of

development bonds through the stock market, the selling of treasury bills to commercial banks is likely to be minimised which was being monopolised by the commercial banks alone.

The government is bent on collecting the needed resources by selling development bonds, which is in line with the 10th Plan and budget document announced during previous fiscal years. NRB had issued development bonds named 2010 ‘A’ through auction amounting to Rs one billion yesterday. According to NRB, the average development bond’s price was Rs 101.8087. It has been reported that the government got Rs 3.191 billion for the total bid price auctioned yesterday. Of the total 28 bidders, including institutions and individuals applied for development bonds, 13 got the development bonds, with 11 bidders for competitive and two bidders for non-competitive bidding, according to NRB.

In a bid to accumulate more revenues for the national coffer at a time when the annual budget is nearing, NRB issued development bonds through auction worth one billion rupees but the bonds were oversubscribed. It helped the government to collect cash amounting to Rs 18 million, according to the central bank. The lowest accepted offer was Rs 101.2525. Total 28 institutions and individuals applied for development bonds. Out of par value of Rs 100, the average bid price was 101.8087 with the highest bid price offered by bidders being Rs 102.3655. Tul Raj Basyal, executive director of Nepal Rastra Bank (NRB) at the Public Debt Management and spokesperson, told The Himalayan Times that based on the competitive bidding price, both the government and participants will benefit from realistic pricing of the government bonds. “The process will also generate further attractions to help promote both government and private sector bond markets in Nepal,” Basyal said. “This is going to help the country in generating long-term financial resources for financing sustained economic growth process in Nepal,” commented Basyal.

With the opening of bonds through auction, it is expected to help determine the actual rate of interest for the government on long-term bonds. This process helps to develop sound long-term securities market. It is an initiative to develop and deepen government bonds, he said. It would also help attract more investors into the capital market. Last week, development bonds worth Rs 500 million were auctioned, which were totally sold out. The development bonds will be transacted through stock exchange from this month, according to NRB. The one-year interest rate for development bond is five per cent, which is the liability of the NRB. But after the free trading of development bonds, the central bank can only pay 3.7 per cent interest on the same bonds. According to a source at the Central Bank, NRB is again going to issue development bonds worth Rs 1.5 billion soon. This may be a blow to commercial banks who depend on treasury bills to park their funds. Senior bankers need to take stock of this issue seriously as the free market competition might give them a bloody nose.