NIBL to launch corporate debentures soon

Nepal Investment Bank Ltd (NIBL) is the latest bank that has planned to launch corporate debentures in the capital market. NIBL will issue seven-year corporate bonds — Nepal Investment Bank Debenture 2077 — worth Rs 500 million at par value of Rs 1000, which will yield eight per cent interest. It will be issuing debentures after two years. It had issued bonds in July 2011 — seven-year bond at 12 per cent interest. The issue, to be managed by Nabil Investment Ltd, will be open from July 8 to 11. However, in case of under-subscription, the issue will be open till July 22. NIBL’s bond issue was assigned ICRA NP Issuer Rating A by the credit rating agency ICRA Nepal. Instruments with the particular rating are considered adequate-credit-quality, that is, the rated entity carries average credit risk. NIBL is the sixth bank this fiscal year to come up with a debenture issue. The six commercial banks will have issued debentures worth Rs 3.7 billion in the capital market, till date. Moreover, there are still two more debenture issues worth Rs one billion that have got their issues rated by ICRA Nepal. As banks are struggling to maintain enough liquidity to finance lendings, the pace of debenture issue has gone up in recent times. Since banks have to maintain a capital adequacy ratio of 10 per cent, debentures have become the go-to instrument when their capital seems to be flailing compared to risk weighted assets that are loans. The debentures issued are included under Tier II capital — supplementary capital — of the issuing bank, thereby increasing its capacity to float more loans. Despite the accelerated issuance of corporate bonds in the capital market, general investors are not interested in bonds. Most of the bonds issued are absorbed by other institutional investors such as financial institutions and insurance companies, among others. Moreover, even though there are 4.97 million corporate debentures worth Rs 4.97 billion listed at the stock exchange, there has not been any secondary trading of these bonds. Since a long time no new debentures have been listed at the stock exchange.