NRB to look for alternative to bonds

KATHMANDU, NOV 30, 2012

The washed out performance of government debt instruments among the general public, despite attractive yields and low risk, has compelled the central bank to look for alternatives.

In the last four fiscal years, only about one-tenth of the total issue of public oriented bonds were subscribed.

From fiscal year 2008-09 till 2011-12, Nepal Rastra Bank (NRB) has issued Citizens Saving Bonds and Foreign Employment Bonds worth Rs 19.6 billion, of which bonds worth only Rs 2.75 million were subscribed.

“Since most people are unaware about the benefits of buying bonds, they are not inclined towards purchasing government securities as a form of investment, that is why the bond market in Nepal is almost non-existent,” said director of Public Debt Management Department of Nepal Rastra Bank Dr Gopal Bhatta.

“Only a small group of investors buy these bonds. Those that have realised the value of bonds are repeat purchasers and hold on to it,” Bhatta added. Bonds are fixed income

securities that are considered relatively risk free as people are lending to the government that rarely goes bankrupt. When banks have reduced the deposit interest rate to six per cent, bonds are still being offered at higher than nine per cent coupon rate for a tenure of four years or more.

Bonds worth only Rs 126.6 million were subscribed of the latest batch of Citizens Savings Bond worth Rs 1.41 billion issued this May. Likewise, another bond meant solely for the public — Foreign Employment Bond — also got scantily subscribed in the last three years.

This year too, of the issues worth Rs one billion, only Rs 8.6 million worth of bonds were subscribed.

Nepal Rastra Bank had even allowed Non Resident Nepalis to purchase the bonds with the hope of expanding participation which was in vain.

Such a pathetic subscription rate has made Nepal Rastra Bank consider about introducing a Primary Dealership System for the bonds that it issues.

In primary dealership, government securities are directly sold to entities known as primary dealers that buy bonds directly from the central bank to resell them, thus acting as a market maker of government securities.

These primary dealers bid for government bonds competitively and then redistribute them to their clients, creating the initial market in the process.

Nepal Rastra Bank is conducting a study regarding eligible institutions, their roles and responsibilities and privileges they will get.

“The primary dealership system is supposed to stimulate the bonds market and entry of more players in dealing with bonds will increase the participation of general investors in government securities,” pointed out Dr Bhatta.

“Bond yield calculation is slightly more complex than that of equities, hence bonds seem to be complicated for investors, but brokers can come to the aid of the investors on the matter,” said Dr Bhatta.

According to the president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Paudyal, there are no takers for bonds in the secondary market.

There are 16 different development bonds worth Rs 22.4 billion listed at Nepal Stock Exchange which has never been traded.

“Though government securities provide good returns on investment, the general public has not shown an interest in the bonds due to the lack of awareness regarding the issuance of bonds,” Paudyal said.

Source: THT

Halt in share trading of merging BFIs irks investors

KATHMANDU, FEB 16 - 2012

Investors have expressed concern over the ban by the Nepal Stock Exchange (Nepse) on the trading of shares of banks and financial institutions (BFIs) in the process of merging.

Financiers became anxious after Nepse halted trading in the shares of two dozen BFIs as the domestic financial market moves towards consolidation.

The provision of stopping share trading was introduced about four years ago when the market was on a bullish run. Officials of the Securities Board of Nepal (Sebon) said that they were aware of the situation and were discussing ways to address the issue.

“There are both pros and cons of this provision of halting transactions. We have realized that investors are affected when share trading is stopped,” said Niraj Giri, Sebon director. “But if trading is not stopped, there is a high possibility of market manipulation.”

Currently, almost all the BFIs have been authorized by their shareholders through their annual general meetings to find suitable partners and go for a merger if possible. And when they sign a memorandum of understanding (MoU) with a potential merger partner, trading in their shares are halted. This discourages investors from buying shares of potential merger partners as they cannot trade in the shares nor put them up as collateral for the duration of the merger process.

Experts said the merger process could be very long, and also there is no guarantee that the merger will materialize. “Investors have been talking to Nepse and the

companies whose shares they own for some solution, but nothing has happened. Under such circumstances, nobody would like to invest in shares,” said Sitaram Thapalia, chairman of the Nepal Investor Forum.

Earlier, there was no such provision of barring trading in the shares of BFIs headed for a merger. The ban was introduced after companies planning a merger started engaging in publicity stunts to increase their share prices and trading in the stock market. Stock analyst Rabindra Bhattarai said that this was a temporary regulation which had been brought for a specific reason in the past. “However, news of potential mergers or declarations doesn’t send share prices soaring these days,” said Bhattarai. “Therefore, against a backdrop where every tool used by the authorities to revive the stock market has failed, the restriction has become irrelevant.”

The rule has also created confusion among those involved in margin lending. If trading in shares pledged for margin lending is halted, investors might have to repay their loans at once. According to Sebon, the major thrust currently is to find a solution to this problem. Giri said that a probable solution would be stopping share trading only at the last moment or allowing the market and the companies themselves to decide when to stop trading.

Thapalia said that there should be a deadline for mergers; and if they don’t happen within the time limit, the ban on share trading should be lifted. Experts said that the regulator and the stock exchange should immediately lift the ban on share trading and allow the market, investors and listed companies to decide for themselves as is done in other countries.

Source: Kantipur

Bank staff involved in fake declarations leading to illegal indian currency (IC) withdrawals

Preliminary investigation has shown that employees of some banks have been involved in misappropriation of huge amount of Indian Currency (IC) in collusion with traders who produced fake customs' documents.

"Our initial finding suggests that bank staff assisted the business firms that produced fake demand drafts and customs declaration forms to abuse IC," said a source at the Ministry of Finance (MoF).

Officials of the Department of Revenue Investigation (DRI) who are investigating into the cases of IC misappropriation worth Rs 1 billion by eight firms confirmed that almost all customs declaration forms submitted to NIC Bank branch at Birgunj appeared to be fake.

"While studying the documents we found almost all transactions of IC through NIC Bank were based on the fake customs declaration forms," Shanta Bahadur Shrestha, director general of DRI, told Republica on Saturday. Shrestha said investigation team from DRI found that those firms produced 599 fake customs declaration forms to different banks. "However, we are still to calculate the total amount of IC misappropriation from those customs declaration forms," said Shrestha.

He said documents submitted in other banks are also suspected to be fake because the same firms are involved in transactions with those banks as well.

An investigation team that was dispatched by Nepal Rastra Bank (NRB) on Wednesday has already sought clarifications from six commercial banks through which eight firms in Birgunj managed to draw huge amount of IC by producing fake customs documents.

The NRB team led by Deputy Director Chet Prasad Upreti began investigations into the cases in Birgunj-based branches of NIC Bank, Nepal Investment Bank, Nepal Bangladesh Bank, Laxmi Bank, Everest Bank and Siddhartha Bank. Public sector bank, Nepal Bank Ltd is also under the scanner of the investigation after transactions from the bank worth Rs 8 million was found suspicious.

Those firms withdrew Rs 630 million from NIC Bank, Rs 11.8 million from Everest Bank, Rs 32.3 million from Laxmi Bank, Rs 7.7 million from Nepal Bangladesh Bank, Rs 60.4 million from Siddhartha Bank and Rs 16.4 million from Nepal Investment Bank. Those firms are also found to have opened accounts with Sunrise Bank, Nabil Bank, Global Bank and Bank of Kathmandu.

An investigation carried out by DRI had found Maxwell Computer, Shyam Galla Bhandar, Jaya Mata Di International, Digital World and GS Traders of producing fake customs documents to withdraw huge amount of IC from different commercial banks. Five proprietors of those firms have been taken into custody.

In other cases of suspected IC misappropriation, DRI has sealed Nitesh Brothers, Jaibaba Amar Nath and Gangotri Gallaghar in Birgunj and put Dinesh Gupta, proprietor of those firms, behind the bars.

Source: Republica