Subscription has peaked at Nu 9.5B

Thukten Zangpo

The government raised Nu 3 billion (B) through the issuance of the sovereign bond allocated in a yield-based auction, according to the Royal Monetary Authority (RMA) notification on February 4.

The transaction was well received with more than 300 percent oversubscription and orders received at about Nu 9.5B, consisting of 15 subscribers: six financial institutions and nine individuals.

The RMA, on behalf of the government, offered the Nu 3B 10-year bond for subscription from January 21 to 31, 2022.

The annual coupon rate for the bond, as determined by the auction, was 3.49 percent. Fifteen subscribers will be paid an annual coupon (interest) rate of 3.49 percent on a half-yearly basis.

“The Ministry of Finance will pay the first coupon on August 4 this year and the second coupon on February 4, 2023, into the bank account that a bondholder has registered for receiving the payment,” stated the RMA.

The maturity date is on February 4, 2032, on which the principal amount and final interest will be paid.

The interest earned from the bonds is non-taxable for personal income tax. However, the interest income from the bond is taxable income (5 percent as tax deducted at source) for business income tax and corporate income tax-paying entities.

The sovereign bond issuance will support the government to meet fiscal financing requirements, develop capital markets, and mobilise funds for Covid-19 purposes.

This is the third time the government has offered bonds to the public. The government already raised Nu 3B in September 2020 and Nu 700 million (M) in January 2021.

The Covid-19 pandemic has required the deployment of large spending on emergency health response and relief measures for households and firms.

The government has spent Nu 2.59B (Nu 1.85B from the government and Nu 741.46M from external sources) for Covid-19 related activities, according to the State of the Nation Report, 2021.

With a total budget outlay of Nu 77.38B in FY 2021-22, the fiscal deficit was recorded at 8.60 percent of gross domestic product (GDP) at the end of December 2021, according to the Ministry of Finance.

The ministry also projected the fiscal deficit of Nu 15.59B which is 7.54 percent of GDP in the fiscal year (FY) 2022-23. The FY 2022-23 budget outlay is estimated at Nu 70.92B.

A government bond or sovereign bond is a debt obligation issued by the government to support government spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date.

As per Section 126 of Public Finance Act 2007, the Ministry of Finance can borrow money to finance fiscal budget deficits, to refinance maturing debt or a loan paid before the redemption date, to maintain credit balances in the bank accounts, and on-lending to state enterprise and other legal entities, on-lending to state enterprises and other legal entities, or any other purposes on approval of the Cabinet.