Minimum Paid-Up Capital of NPR 1 Billion Mandatory for Companies Issuing Debentures; Circular Procedure Issued for International Institutions
The Nepal Securities Board has released a draft proposal making it mandatory for listed companies wishing to issue debentures to maintain a minimum paid-up capital of NPR 1 billion. The draft includes provisions such as limiting the debt-to-equity ratio to no more than 70:30, requiring credit ratings to be obtained and updated annually, and a trustee license fee set at NPR 1 million, with a minimum paid-up capital requirement of NPR 100 million. It also mandates that publicly issued debentures must be listed on the securities market. Kathmandu, 8 Bhadra.
The Securities Board of Nepal has proposed that companies listed on the securities market maintain at least NPR 1 billion in paid-up capital when raising capital through debentures. The Board has prepared a draft titled ‘Debenture Registration and Issuance Regulations 2083’ and opened it for public suggestions. The draft aims to introduce transparency and organization in the processes related to institutional debenture registration, issuance, over-the-counter (OTC) trading, and trustee license procedures.
The draft proposes that the issuing institution must have a minimum paid-up capital of NPR 1 billion to issue debentures. It stipulates that the institution must have audited accounts approved by the general assembly, and foundational shareholders or directors must not have any blacklists or regulatory penalties. Additionally, it proposes that the institution’s debt-to-equity ratio should not exceed 70:30 upon issuing debentures.
Except for banks, financial institutions, insurance companies, or institutions established under special laws, others are permitted to issue only secured debentures. Prior to issuing debentures, companies must obtain credit ratings from authorized agencies and update these ratings annually throughout the debenture’s tenure. The draft also allows targeted sales to up to 50 qualified investors via letters, emails, or phone calls without a public advertisement.
Referred to as a circular procedure in the draft, it states that for the general public, a prospectus or periodic prospectus will be issued and publicly invited through sale managers only after approval by the Board. The approval for issuing debentures from the Board will be valid for three years. The nominal value of each debenture is set at a minimum of NPR 1,000. Arrangements concerning trustee appointments and associated fees have also been included. A trustee with a license is required to be appointed before any public issuance or circular method issuance. The trustee license fee is fixed at NPR 1 million, and the trustee must maintain a minimum paid-up capital of NPR 100 million.
Trustees will be responsible for protecting investors’ interests, monitoring collateral/security, and initiating legal action if terms are violated. The draft proposes that with government approval, international financial institutions will be able to issue debentures through circular or public issuance. Nepali institutions may also issue debentures in foreign currency on foreign capital markets with approval from the Board and Nepal Rastra Bank and invest the proceeds in Nepal.
The draft also states that green debentures, social debentures, and sustainable debentures can be issued with the Board’s approval on subject-specific debentures and transactions. Publicly issued debentures must be listed on the securities market, while unlisted debentures issued via the circular method may be traded on the OTC market.
