The government has paved the way for the International Finance Corporation (IFC) to issue local currency bonds in Nepal. 

The Cabinet on Thursday endorsed the IFC’s proposal of issuing local currency bonds worth Rs 50 billion ($500 million) for a five-year period.

The IFC applied for the permit after the government issued a guideline in October 2013, authorizing the international financial institutions to issue such bonds. 

As per the government’s guideline, any international financial institution with AAA rating can issue Nepali rupee bonds. With the government’s approval, IFC will become first institution to issue such bond.

The guideline has fixed the areas in which the raised funds could be invested. The areas include hydropower, agriculture, road, tourism and infrastructure. The IFC has been allowed to invest the money raised through bond in hydropower, tourism and agro business.

The IFC has to complete the $500 million bond issuance by 2018. According to the Finance Ministry, the IFC, in its proposal, has given a detailed bond-issue calendar stating how much to issue in one particular year. The IFC office in Kathmandu said it would issue the bond as per the funding needs. The IFC has already issued such bonds in 55 countries. 

Given the country in urgent need for resources to funding long-term infrastructure projects, the issuance of IFC bond would help generate the required funds, say ministry officials. 

As banks and financial institutions in Nepal have limited strength to finance the big infrastructure projects for long term, such bonds are expected to ease the financing problem for such projects.

In order to assure investors about the security of their investment, the bond issuer has to publish prospectus of the institution that is issuing the bond. The issuer can make the payment of interest to investors on a half-yearly basis through their local agent or market makers, the guideline says.