KATHMANDU: Nepal’s capital market has for years run almost entirely on equity trading, with bonds and debentures treated as a peripheral instrument used mainly by banks and insurers.
The Securities Board of Nepal (SEBON) has now drafted the Debenture Registration and Issuance Regulation, 2026, to replace the framework it has used since 2016, and has opened it for public feedback before finalizing the rules.
The move sits inside a broader plan, the Capital Market Development Roadmap 2026, which sets out to turn Nepal’s stock-dominated market into what the regulator calls a multi-product capital market, with a functioning corporate bond segment as one of its central pillars for the current fiscal year.
What exactly is this new regulation and why has SEBON brought it in now?
The draft is called the Debenture Registration and Issuance Regulation, 2026, and it is meant to replace the debenture-related provisions of the older Securities Registration and Issuance Regulation that SEBON had relied on since 2016. The regulator’s own justification, published alongside the draft, ties the timing to two overlapping policy documents.
The Capital Market Development Roadmap 2026 sets a goal of shifting Nepal’s market away from being almost entirely equity-driven toward a multi-product structure that includes a functioning bond segment. Similarly, SEBON’s own policy for the current fiscal year specifically commits the regulator to developing a corporate bond market as a way of deepening the capital market, improving liquidity and strengthening risk management.
The board has said plainly that Nepal’s debenture market needs to become more diversified, competitive and transparent. Reaching that goal requires clearer and more modern rules than the ones currently in force, ones that would let organized institutions beyond banks and financial companies raise long-term capital through debentures as well.
Under what law does SEBON have the authority to issue this regulation?
SEBON is issuing the draft under the powers granted to it by Section 116 of the Securities Related Act, 2007, with the approval of the Government of Nepal.
That section of the Act allows the board to frame detailed regulations covering the registration and issuance of securities. This regulation narrows that authority specifically to debentures and bonds.
It sets out the conditions, procedures, fees and institutional roles involved when a company, bank, insurer or international financial institution raises money in Nepal by issuing debt securities to investors.
What does the regulation define as a “debenture”?
Under the draft rules, a debenture covers any debt instrument, whether described as a debenture, a bond, or something else, that a company issues to acknowledge a loan it has taken, regardless of whether that loan is backed by collateral.
The definition is deliberately broad enough to capture straightforward corporate bonds as well as more specialized instruments, and the regulation separately allows companies to issue variants such as green bonds, social bonds and sustainable bonds, provided SEBON approves the specific conditions attached to each.
The regulation provides two routes for issuing debentures: the private circular method and public issuance. Under the circular method, the company directly approaches a limited, pre-identified group of investors through letters, phone calls, SMS or other electronic communication. It cannot publicly advertise or promote the offer.
A public issuance, by contrast, is open to the wider investing public and requires greater disclosure, including a prospectus and other regulatory requirements.
What must a company prove before SEBON will let it register and issue a debenture?
The regulation sets out a detailed checklist. The issuing company must have completed its statutory audit and held its annual general meeting and that audited financial statement must have been approved by the AGM. Its directors and major shareholders must not be blacklisted by the credit information center, and the company must have obtained a credit rating specifically for the debenture it intends to issue.
The company must have an agreement with a SEBON-licensed debenture trustee. It must also obtain any other government approvals required for its business before issuing the debenture. The founders must have fully paid the share capital they committed to, and the company must have at least Rs 1 billion in paid-up capital.
If SEBON has previously penalized the company’s major shareholders or directors for a debenture-related offence, at least three years must have passed since the penalty was completed. Any debentures previously issued by the company must also have no unresolved breaches of their terms.
Is there a limit on how much debt a company can raise relative to its equity?
Yes. The regulation caps the debt-to-equity ratio at 70:30 for any company issuing debentures under these rules, meaning debt cannot exceed roughly two and a third times the value of the company’s own equity capital.
The regulation sets different rules for secured and unsecured debentures depending on the type of issuer. Banks, financial institutions, insurance companies and entities established under special laws can issue either secured or unsecured debentures.
Other corporate bodies, however, can issue only secured debentures, meaning the debt must be backed by specific collateral rather than the company’s general creditworthiness.
What are the two distinct routes for issuing debentures under this regulation?
The first route is the circular method, essentially a private placement. A company approaches a defined and limited set of eligible investors directly, through letters, phone calls, SMS or similar electronic communication, without any public advertisement, social media promotion or open marketing campaign.
The second route is public issuance, aimed at the general investing public, which requires a full prospectus, a licensed issue and sale manager, and a public call for applications published in a national newspaper.
Public issuance also requires the debenture to be listed on the relevant securities exchange for trading, while circular-method debentures may be listed but are not required to be, and can instead trade over the counter if they are not listed.
Who exactly can buy debentures issued through the private “circular” method, and how many?
A company using the circular method can approach no more than 50 eligible investors for a single issuance. The regulation specifies who qualifies as an eligible investor. The list includes listed companies, financial institutions established under special laws, insurance companies, banks, mutual fund managers and schemes, merchant bankers, and retirement and welfare funds established by law.
It also includes the Employees Provident Fund, Citizen Investment Trust, Social Security Fund, licensed securities brokers, dealers, issue managers, investment managers and market makers, as well as universities established under prevailing law.
Citizen Investment Trust. File photo
Private or public companies with at least Rs 500 million in capital and distributable reserves, based on their latest financial statements, are also eligible. Foreign corporate bodies meeting equivalent criteria under their own laws, foreign governments, bilateral and multilateral international institutions, and development finance institutions can also invest.
Individual investors, whether Nepali or foreign, are eligible if they are willing to invest at least Rs 10 million. Before any allotment, the company’s issue and sale manager must independently verify that each targeted investor genuinely meets these eligibility criteria.
How long does SEBON take to register a debenture and approve a public prospectus?
The registration itself moves fairly quickly. Once a company submits a complete application with the required documents, SEBON is required to register the debenture and issue a registration certificate within seven working days. Approving a prospectus for public issuance takes longer, because it involves substantive review rather than a formality.
The regulation sets a tiered registration fee based on the total value of the debenture being registered: 0.15 percent of the value for issuances up to Rs 10 billion, 0.12 percent for the portion between Rs 10 billion and Rs 20 billion and 0.10 percent for any amount above Rs 20 billion.
After the company submits its prospectus, SEBON can direct changes if it finds problems, and the company then has seven working days to resubmit an amended version, signed by all its directors. Once that amended prospectus is in hand, SEBON has fifteen working days to review it and, if satisfied, approve it for publication, sometimes attaching its own conditions.
If the company fails to submit the amended prospectus at all, its application is automatically cancelled. For periodic issuances, where debentures are offered in multiple tranches over time, the approved periodic prospectus remains valid for up to three years before it must be renewed.
What does it cost a company to register and issue a debenture?
There is a flat application fee of Rs 20,000 for registering a debenture. On top of that, the regulation sets a tiered registration fee based on the total value of the debenture being registered: 0.15 percent of the value for issuances up to Rs 10 billion, 0.12 percent for the portion between Rs 10 billion and Rs 20 billion and 0.10 percent for any amount above Rs 20 billion.
If a company has been rated by more than one agency, it must disclose every rating it received, not just the most favorable one.
Separately, getting a prospectus or periodic prospectus reviewed and approved costs a flat processing fee of Rs 25,000. These same fees apply equally to international financial institutions that choose to issue debentures in Nepal under the regulation’s separate chapter covering them.
Why is a credit rating required, and how often does it need to be renewed?
SEBON requires every company planning either a private circular sale or a full public issuance to obtain a credit rating from a licensed credit rating agency before it applies for prospectus approval, and that rating cannot be more than one month old at the time of application.
Securities Board of Nepal. File photo
If a company has been rated by more than one agency, it must disclose every rating it received, not just the most favorable one. The rating obligation does not end once the debenture is sold.
Companies must renew their credit rating annually for as long as the debenture remains outstanding. They must also obtain an updated rating if there is a material change in the company’s risk profile before a public issuance, or at any point afterward if the change could affect the debenture or the company’s overall credit standing. Every updated rating has to be filed with SEBON and published on the company’s own website.
What is a debenture trustee and why has SEBON made this role mandatory?
A debenture trustee is an independent, SEBON-licensed entity appointed specifically to represent the interests of debenture holders, and the regulation makes appointing one compulsory before any company can issue debentures through either the circular method or public issuance.
The role exists because individual bondholders, especially in a public issuance, have little practical ability to monitor a company’s finances or enforce the terms of the debenture on their own; the trustee does that on their behalf.
An entity cannot act as a debenture trustee if it has a direct or indirect financial interest in the issuing company or holds 10 percent or more of its shares.
To obtain a debenture trustee licence, an applicant must meet several requirements. It must have at least Rs 100 million in paid-up capital, based on its latest audited financial statements.
It must also have adequate office infrastructure and qualified, experienced staff. Its directors and senior officers must not have a history of convictions for criminal, banking, financial or money-laundering offences, or have been blacklisted.
The license itself costs Rs 1 million, and SEBON is required to decide on a complete trustee license application, approving or refusing it with reasons, within 30 working days.
Are there restrictions on who can act as a debenture trustee?
Yes, and they are built around avoiding conflicts of interest. An entity cannot act as a debenture trustee if it has a direct or indirect financial interest in the issuing company or holds 10 percent or more of its shares.
SEBON also retains a general discretion to reject any other entity it judges could compromise impartial, unbiased service to investors for any other reason.
Likewise, it cannot serve as trustee if the issuing company’s founders, directors, chief executive, company secretary or senior managers hold 10 percent or more of the trustee’s ownership.
A merchant banker, broker, business advisor or guarantor already involved in structuring or selling that same debenture issuance cannot also serve as its trustee, and no entity can receive any payment from the issuing company beyond its agreed trustee fee. SEBON also retains a general discretion to reject any other entity it judges could compromise impartial, unbiased service to investors for any other reason.
What powers and duties does the debenture trustee have to protect investors?
For secured debentures specifically, the trustee can analyze the issuing company’s project and management, independently value the pledged assets, and register the security in its own name on behalf of investors.
More broadly, trustees can demand periodic reports from the company, inspect its accounts and records to the extent needed to fulfil their duties, and direct the company to remedy any breach of its obligations, including instructing it to make overdue payments of principal or coupon interest to investors within a set time.
If a company defaults or heads toward bankruptcy, the trustee can take control of pledged assets, auction them if necessary, and use the proceeds to repay investors, and it can also represent investors’ interests in any legal proceedings the company becomes subject to.
For public issuances, the trustee has additional reporting duties. It must immediately notify SEBON of any breach it discovers.
It must also submit an annual report to SEBON within three months of the end of each fiscal year. The report must cover the number and nature of investor complaints, how they were resolved, and any delays or defaults in the payment of principal or interest.
Can debentures be traded after they’re issued, and where?
That depends on how the debenture was issued. A debenture sold through the private circular method may be listed on a securities exchange, but listing is optional, and if it is not listed it can still be traded over the counter under the rules that govern OTC markets.
The broker handling the transfer must verify that the buyer meets the eligibility criteria before completing the transaction.
A debenture sold through public issuance, by contrast, must be listed on the relevant securities exchange, and the exchange is required to build a separate trading platform for each of these categories. In all cases, debentures issued through the circular method can be transferred only to another eligible investor, not to the general public.
The broker handling the transfer must verify that the buyer meets the eligibility criteria before completing the transaction. Transferring or selling any debenture to a foreign investor additionally requires that foreign investor to already hold the necessary foreign investment approval under Nepal’s prevailing law.
Can foreign or international financial institutions issue debentures in Nepal under this regulation?
Yes, through a dedicated chapter written specifically for them. An international financial institution seeking to issue debentures in Nepal, whether through the private circular method or public issuance, must first obtain approval from the Government of Nepal.
Prime Minister’s Office. Photo: Bikram Rai
Its application to SEBON broadly follows the process for Nepali companies. It must submit a board decision authorizing the issuance, its financial statements for the last three years, and proof of payment of the required fees.
Just like domestic issuers, these institutions must appoint a licensed issue and sale manager and a SEBON-licensed debenture trustee before any public offer, and their prospectus can be prepared in English rather than Nepali.
The funds raised through such an issuance must be invested in Nepal. If the institution wants to issue debentures overseas in a foreign currency, it must obtain separate approval from both SEBON and Nepal Rastra Bank. The proceeds must still be brought into Nepal and invested in the country.
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