Shabda Gyawali on Nepal’s Investment Landscape: Exploring Bonds and Beyond

[00:00:01] Namaste and welcome to PODS by PEI, a policy discussion series brought to you by Policy

[00:00:19] Entrepreneurs Inc.

[00:00:20] I am Khushi Hang and in today's episode, PEI colleague, Pragati Karki is in conversation

[00:00:26] with Shabta Gewali on Nepal's investment landscape, exploring bonds and beyond.

[00:00:31] Shabta is the investment director and a partner at Dolma Impact Fund, the largest private

[00:00:36] equity fund focused on Nepal.

[00:00:38] He leads the investment team at Dolma, overseeing deal origination, transaction execution, regulatory

[00:00:45] approvals and post-investment management.

[00:00:48] He is actively involved in sectors such as healthcare, renewable energy and technology.

[00:00:53] He holds a BA in economics from Colorado State University and an MBA in sustainable

[00:00:58] entrepreneurship from the same institution.

[00:01:01] Pragati and Shabta discuss Nepal's investment sector with a special focus on the market

[00:01:05] for bonds.

[00:01:06] They observe the dominance of equity-based investments and explore alternative FDI mechanisms

[00:01:12] and the potential for green bonds for financing renewable energy projects.

[00:01:17] Drawing from his own observations, Shabta shares insights on the restrictiveness of

[00:01:21] Nepal's bond market and Nepal's weak credibility in this scene.

[00:01:25] We hope you enjoy the conversation.

[00:01:27] Namaste, this is Pragati Karki.

[00:01:33] Namaste, this is Shabta Gewali.

[00:01:36] Welcome to the show, Shabta.

[00:01:37] It's lovely to have you here.

[00:01:39] Thank you for having me.

[00:01:41] So let's dive into our conversation.

[00:01:43] So Nepal's pool of investment, especially in energy sector is heavily focused on equity

[00:01:48] and the majority of these investment in hydro powers required a large amount of debt

[00:01:53] that is 70 to 75 percent and which are usually equity-based, which is by issuing

[00:01:59] shares and giving ownership to the investor, which doesn't seem ideal.

[00:02:03] So to begin with, based on your experience and observation, can you illustrate what

[00:02:08] the Nepali investment sector looks like and what different type of fund does Nepal's

[00:02:12] investment sector constitute?

[00:02:14] And do you see a shift?

[00:02:16] Sure. So, you know, regardless if it's equity or debt, Nepal needs a lot of investments, right?

[00:02:24] If you look at the figures from last year, Nepal attracted 58 million FDI.

[00:02:32] If you look at the data from this year, the first nine months, then so far, according to

[00:02:36] Central Bank, Nepal has attracted around 48 million dollars.

[00:02:42] Whereas, you know, the study says that just to meet the sustainable development

[00:02:46] goals, Nepal needs around seven to eight billion dollars annually.

[00:02:51] So we need a lot of money, be it equity or be it debt.

[00:02:57] Having said that, you know, what we have seen, especially from foreign investment,

[00:03:01] is we have seen projects that are 100 percent owned by foreign entities having both

[00:03:05] equity and debt, but projects where there are local promoters.

[00:03:10] What we have seen is there is a mix of both equity and debt that is coming in.

[00:03:14] So like you said, we need a lot of money for development here in Nepal.

[00:03:18] So what are some alternatives, FDI mechanism that Nepal can explore to fund its projects?

[00:03:24] You know, if you look at Nepal, right, so Nepal is not a to-go destination for

[00:03:29] foreign investment. You know, it's a small, relatively small country.

[00:03:34] We don't have strong economic fundamentals.

[00:03:38] So Nepal needs to bank on few things that Nepal has.

[00:03:44] Right? One of the things that Nepal can tap into is climate finance.

[00:03:50] In climate finance, what I see is there a lot of money going into climate finance

[00:03:54] for climate change adaptation as well as mitigation.

[00:03:58] So Nepal can tap into that pool of money to invest in infrastructure projects

[00:04:05] as well as projects that will help Nepal to be more adaptable on climate finance.

[00:04:12] So we need to tap climate finance.

[00:04:14] So how do we tap climate finance?

[00:04:16] So that's another issue that we need to think about.

[00:04:19] So there are a lot of investments that are happening through green bonds.

[00:04:23] So green bonds could be one of the instruments, as well as there are other

[00:04:28] impact investing funds, investors,

[00:04:31] EHG investors that are willing to lend, invest in countries like Nepal

[00:04:37] to help Nepal or any other developing country with climate finance and climate change.

[00:04:42] So you talked about green bonds and within the bond market,

[00:04:46] green finance is a growing concept that focuses on raising capital

[00:04:50] for projects with environmental benefits.

[00:04:53] Can you briefly touch upon what green bonds are and how can Nepal leverage

[00:04:57] the green bond market to finance renewable energy projects apart from hydro and solar?

[00:05:02] So what are green bonds?

[00:05:04] So green bonds are financial instrument that is used or airmarked

[00:05:10] to invest in environmental friendly projects.

[00:05:13] So it's a debt instrument. It's similar to any other bond.

[00:05:16] It's a debt instrument that is raised where the money that is being raised

[00:05:22] would be invested in green projects.

[00:05:25] When I say green projects, projects that are environmentally sustainable.

[00:05:31] And so your other question was where can green bonds channelize to

[00:05:38] apart from hydro power and solar?

[00:05:40] To start with, you know, I've not seen from a private sector initiative

[00:05:44] that a green bond has been raised and been started investing in,

[00:05:48] you know, even in hydro or solar. Right.

[00:05:52] So I think, you know, if Nepal or Nepali private companies are able to raise green bonds,

[00:06:00] most probably it's going to go and be invested in hydro power projects or solar projects.

[00:06:05] I'll give you a rational why too. Right.

[00:06:08] You know, green bonds, the investors who have invested in green bonds,

[00:06:13] at the end of the day, they are also investors.

[00:06:15] They might not be looking at very high returns, but they are looking at returns.

[00:06:20] So if you look at the renewable energy space here or projects that are environmentally friendly here,

[00:06:25] that has market track record is hydro power and slowly solar. Right.

[00:06:31] So just to give an example, if you invest in a hydro power company with a PPA with NEA,

[00:06:37] even if the hydro power project is made, then NEA pays the bill

[00:06:42] for the energy that the hydro power company sells.

[00:06:45] And that the money that you get from NEA is used to pay back the investors,

[00:06:51] either through coupon or to pay the principal back.

[00:06:54] So this I think we should start with hydro first.

[00:06:57] And once we have a clear track record, especially for the international investors,

[00:07:00] then we might be starting exploring other renewable energy sectors.

[00:07:06] So like you said, bonds can definitely be a great alternative, especially for energy sector.

[00:07:11] They can be treated as green bonds and Nepal can tap into climate finance.

[00:07:16] But you also know that Nepal has a very restrictive market.

[00:07:20] So therefore, investors are a bit reluctant to consider Nepal as an investment destination.

[00:07:26] So why do you think investor don't find Nepal as a viable or a favorable investment destination?

[00:07:32] You know, Nepal, as I said earlier, Nepal is not a well-known investment destination. Right.

[00:07:38] And I think why it's not a well-known destination is we have not marketed enough.

[00:07:42] You know, we need to go out there and market Nepal's potential,

[00:07:45] the projects that we have, the returns that you can get, you know.

[00:07:48] And yes, sure, we can create a report or a marketing deck

[00:07:52] and then present it to the investor, potential investor.

[00:07:56] But the biggest marketing tool Nepal will have is to have an existing foreign investor

[00:08:03] to show their track record.

[00:08:05] You know, a foreign investor who have come in Nepal have invested in green projects here

[00:08:10] and the returns they have got. Right.

[00:08:12] So that would be the biggest track record.

[00:08:14] Another thing that why Nepal has not been an attractive investment destination

[00:08:19] is that we need to do more of economic diplomacy.

[00:08:23] We need to, you know, our embassies around the world needs to be mobilized

[00:08:28] to help market out the projects, be it private sector projects or the government projects.

[00:08:33] What we also need to do is, you know, we need to have investment summits

[00:08:37] not in Kathmandu but somewhere else.

[00:08:39] Probably it's Dubai, be it Delhi or somewhere else.

[00:08:42] So that's where you will see more investors coming in.

[00:08:45] Third thing that we also need to do is probably leverage our NRN community.

[00:08:52] You know, NRNs are the ambassadors for Nepal.

[00:08:55] What they tell to the potential investors will matter and weigh more than what we write in a report.

[00:09:04] I think it's very interesting how you consider NRNs to be important stakeholders.

[00:09:09] And this got me thinking, who else can be key stakeholders involved

[00:09:13] in facilitating Nepal's entry into international bond market?

[00:09:17] Sure. So earlier, and I skipped this introduction, that Dolma Impact Fund

[00:09:22] or Dolma Fund Management is also trying to raise a green bond.

[00:09:24] We've been doing some early work and we have made some traction on green bonds.

[00:09:29] So we are trying to raise green bonds to help Nepali energy projects.

[00:09:34] We plan to list this green bond somewhere in Europe.

[00:09:38] We have not finalized the jurisdiction yet, but the work is going on.

[00:09:42] Just to answer your question, like who are the key stakeholders involved

[00:09:45] if somebody's trying to raise a green bond or, you know,

[00:09:49] who are the key stakeholders in the international bond market?

[00:09:53] So talking from experience, there are a lot of stakeholders that are involved.

[00:09:56] Starting with institutional investors.

[00:09:59] So institutional investors means investors who are interested to buy that bond,

[00:10:05] you know, the buyer of the bond.

[00:10:07] You know, so you need to cater to investors who are actually wanting to invest in a bond

[00:10:14] which proceeds from the bond will go to finance or refinance energy projects in Nepal.

[00:10:19] So you need that international investor.

[00:10:21] The second thing you need is, you know, you would need an investment banker.

[00:10:26] To raise a bond, you need regulatory approvals.

[00:10:29] You need to find the investors that you want.

[00:10:32] You need to pitch to them.

[00:10:33] So there are various things that investment bank will help you do it.

[00:10:36] So you need an investment bank too.

[00:10:39] The third is, you know, guarantee service providers.

[00:10:43] So what the investors are concerned about, even if they are willing to invest in green projects,

[00:10:49] is what happens if any AD falls?

[00:10:52] What happens if there's a payment delay or payment is not possible

[00:10:57] if the government or central bank decided not to allow to repatriate money?

[00:11:04] So you need like guarantee service provider, right?

[00:11:07] And to raise a bond in a country like Nepal where there's no sovereign credit rating,

[00:11:12] the cost of capital is very high.

[00:11:13] So you need to find, you know, concession capital somewhere

[00:11:17] to make sure that you reduce the cost of capital so that there will be some interest.

[00:11:23] You know, then if you're raising a bond, you need a bond certifier, credit rating agency.

[00:11:27] Then you would need approval from government of Nepal and central bank.

[00:11:30] So a lot of stakeholders involved.

[00:11:33] Like you mentioned, Nepal needs a good credit rating

[00:11:36] for having the credibility to attract more investment, right?

[00:11:40] So there was an attempt made to obtain a credit rating back in 2019

[00:11:45] before that year's investment summit, but Nepal failed to do so due to time constraint.

[00:11:50] Can you briefly touch upon the need for good credit rating while issuing bonds?

[00:11:56] So what is a credit rating?

[00:11:58] So it's just like a person going for a job interview.

[00:12:00] So the first thing that you, when you apply for a job,

[00:12:04] the first thing that you send to a potential job is your CV.

[00:12:09] So credit rating is just like a CV, you know, what has been your past experience?

[00:12:15] You know, what are your skills, right?

[00:12:18] Where did you get your education?

[00:12:19] What was your track record?

[00:12:21] So these are the things that a potential employer will look at.

[00:12:24] So credit rating is just like that, right?

[00:12:26] So credit rating is a CV for a country that is trying to raise money from outside world.

[00:12:33] So why is it important to have a good credit rating?

[00:12:36] So when you have a good credit rating, what happens is your cost of capital goes down.

[00:12:40] So you'll have a lower cost of capital.

[00:12:42] So if you are planning to go raise a bond, then you know,

[00:12:46] you will have to pay less money, right?

[00:12:49] To raise that money.

[00:12:50] So it's just like interest.

[00:12:52] So your interest cost goes down in a basic layman terms.

[00:12:55] You know, your interest goes down if you have good credit rating.

[00:12:59] The second thing is, you know, if your CV is good,

[00:13:03] then there might be a chance you are called for the interview.

[00:13:07] So it's similar like that.

[00:13:08] You know, the investor confidence goes up.

[00:13:12] Another thing is, you know, when you have a good credit rating,

[00:13:15] then your access to credit, you know, if Nepal has a bad credit rating,

[00:13:19] let's say if, let's compare two countries.

[00:13:21] So let's say for now, compare Bangladesh and Nepal.

[00:13:24] If Bangladesh has a better credit rating than Nepal,

[00:13:26] then there's a high possibility that somebody who just have a limited amount of money

[00:13:32] and is willing to invest in South Asia would probably invest in Bangladesh rather than Nepal.

[00:13:37] So it's important to have a good credit rating.

[00:13:40] I'll give you an example and I'll end this question.

[00:13:41] So if you look at the credit rating of our neighbors, India.

[00:13:47] So India's, so the benchmark that typically happens when you do a credit rating.

[00:13:51] So what is the cost of borrowing?

[00:13:53] So the 10-year government bond in India is around 7 percent.

[00:13:58] Whereas, you know, you hear a lot about what has happened in Sri Lanka.

[00:14:02] And if you look at the 10-year government bond, the rate is 13 percent.

[00:14:06] So it's almost double.

[00:14:08] So that's why it's important to have a good credit rating.

[00:14:11] So apart from credit rating, what can Nepal further work on to increase its credibility?

[00:14:17] That's a very good question.

[00:14:18] I think, you know, for Nepal to increase its credibility as a good destination for investment,

[00:14:26] I think a few things need to be done from a government level.

[00:14:28] Of course, there are things that the private sector is also asked to do.

[00:14:33] But from a government level, you know, one is ease of doing business.

[00:14:36] You hear a lot of news that it takes a lot of time and hassle to get your FDI approval.

[00:14:44] You know, things are definitely in through.

[00:14:45] I can talk from my first-hand experience when I started.

[00:14:49] So we have invested in around 16 companies.

[00:14:51] One of the company, in one of the company for the whole process to happen,

[00:14:54] it took us 13 months.

[00:14:57] And the last one, right before the investment summit, we got the approval within,

[00:15:02] you know, one and a half months.

[00:15:04] So things have improved a lot.

[00:15:05] Kudos to the people sitting in Department of Industry and NRB.

[00:15:11] But we need to improve a lot.

[00:15:12] It has to be the same day or next day, right?

[00:15:15] So one is ease of doing business.

[00:15:17] The second thing that I think which is also very important,

[00:15:20] and you hear a lot these days in international media is around taxation.

[00:15:25] So what government of Nepal needs to do is have a clear tax policy that is predictable.

[00:15:36] So that you know when an investor is coming, they know how much tax they are going to

[00:15:39] get charged.

[00:15:41] Not retroactive tax or unclear tax, but you need to know what, how much the government

[00:15:48] is going to charge.

[00:15:49] That's the second thing.

[00:15:50] We are also very poor at something called advanced ruling.

[00:15:54] So advanced ruling is if I'm unclear about tax, I go to the taxman and ask how much

[00:15:58] are you going to tax me?

[00:16:00] So we don't see a lot of advanced ruling happening.

[00:16:04] So if that practice can be more frequent, people would know more and have more clarity

[00:16:09] around the taxes.

[00:16:10] There are two more things.

[00:16:12] One is Nepal has signed double taxation agreements with a lot of countries, right?

[00:16:18] So those double taxation agreements need to be honored.

[00:16:24] And the last thing is, especially with investment in green projects, hydro projects, solar projects

[00:16:31] or any green projects, if you are, NEA is the buyer of the energy.

[00:16:38] The lot of questions gets asked around what happens if NEA fails?

[00:16:41] Will the government come back and rescue it?

[00:16:44] So these are the things that we need to work on to increase the credibility.

[00:16:48] You talked about what government needs to do to attract more investment in Nepal.

[00:16:52] But what role does the private sector itself plays while attracting investment in Nepal?

[00:16:57] Sure, Nepal's private sector is as competitive, as competent any other private sector in

[00:17:05] any other country.

[00:17:07] But we don't show it.

[00:17:10] We don't market it.

[00:17:11] And unfortunately, probably one of the reasons why the international community or

[00:17:16] the international investors don't know about Nepal's private sector, private companies

[00:17:20] is that Nepal, Nepali companies or Nepali individuals are not allowed to invest abroad.

[00:17:26] So if I'm a clothing manufacturing company in Nepal who wants to open branches in,

[00:17:35] you know, US, Europe, India, China, then the current law says you are not allowed

[00:17:41] to invest outside Nepal.

[00:17:43] So probably that needs to be opened up for private sector to show their strength

[00:17:48] or their weaknesses, you know, how competitive we are.

[00:17:52] The second thing that the private sector needs to do is, you know, we need to have

[00:17:57] our accounting, our corporate governance at par or even better compared to companies

[00:18:05] around South Asia where you're getting money from the same usual suspect investors.

[00:18:11] The third important thing that has not been highlighted much in Nepal is environmental,

[00:18:17] social and governance.

[00:18:18] Right. So these ESG is a big topic, big thing these days when you're trying to

[00:18:25] attract investment.

[00:18:26] So we need to as we when I say we means Nepali private sector, we need to up our

[00:18:31] game on environmental, social and governance issues, also the health and safety issues.

[00:18:38] So those are some amazing insights, Shabda.

[00:18:41] Moving on, let's change gears and take a fireside approach to this issue and talk

[00:18:46] about the sustainability of these bonds.

[00:18:48] Starting with the basic cautionary aspect, currently Nepal's debt GDP ratio

[00:18:53] stands at 43 percent with external debt at 22 percent of the GDP, indicating a

[00:18:59] healthy status compared to the cautionary threshold of 50 percent.

[00:19:02] So my question is, given Nepal's current healthy debt to GDP ratio, what level of

[00:19:08] borrowing through bonds would be considered sustainable in the long run?

[00:19:12] And also, should we consider how Nepal's GDP significantly relies on remittance

[00:19:17] as we approach investors?

[00:19:19] So that's a very good question.

[00:19:21] And if you look at the recent trend that we have seen in Sri Lanka,

[00:19:26] Pakistan, a few countries in Africa where there was IMF bailout and

[00:19:32] everything, debt to GDP ratio was above 70 percent or some of the countries

[00:19:38] were even above 100 percent.

[00:19:39] Right?

[00:19:40] Like you said, Nepal's debt to GDP ratio is around 42 percent, or 41 or 42

[00:19:45] percent out of that.

[00:19:46] Twenty one percent is foreign debt and rest is local debt if you like.

[00:19:51] Even in that foreign debt, a lot of the debt that are coming from is from

[00:19:56] multilateral and bilateral agencies, our neighbors and big countries like

[00:20:01] US, Japan.

[00:20:02] So these are the debt providers.

[00:20:05] What Nepal has not done is it has not issued any commercial dollar nominated

[00:20:14] bond.

[00:20:15] So we are not in a, you know, we are not Sri Lanka or Pakistan in terms of,

[00:20:21] you know, like our debt to GDP ratio is too high.

[00:20:25] Having said that, you know, we should not be taking money, be it private

[00:20:30] sector money or be it from bilateral and multilaterals in projects if it's not

[00:20:35] feasible.

[00:20:35] So one thing that is very important for the regulators, the private sector to

[00:20:41] be cautious about is that, you know, if we are raising international bond that

[00:20:46] has probably done in dollars or even in rupees, then, you know, the project

[00:20:50] has to be feasible.

[00:20:52] You know, the project has to generate cash to pay off the debt.

[00:20:55] So that's where the focus should be.

[00:20:57] You know, debt in itself is not a bad thing.

[00:21:00] Right.

[00:21:01] But you need to be cautious where you're taking the debt.

[00:21:04] We do have some policies in place where we get policed by the central bank.

[00:21:09] If you're raising international debt, there are caps and ceilings that you

[00:21:13] cannot raise debt from international investors if your interest rate is more

[00:21:18] than this much or your tenure is less or more than X number of years.

[00:21:24] So, yeah.

[00:21:24] So borrowing in foreign currency comes with a lot of risk for Nepal,

[00:21:29] especially when it involves issuing bonds in foreign currency as Nepali

[00:21:33] rupees is pegged with the Indian rupee.

[00:21:35] This means any change in the exchange rate can make it very risky for

[00:21:39] Nepal.

[00:21:40] So my question is, how can Nepal make sure that it has enough foreign

[00:21:44] currency reserve to service its dollar denominated debts as there is a

[00:21:48] possibility for Nepalese currency to lose its value or depreciate?

[00:21:52] So, you know, you had another question earlier too that I forgot to answer is

[00:21:56] that, you know, the role of remittances.

[00:21:58] Right.

[00:21:59] You know, if you look at Nepal's foreign exchange reserve.

[00:22:03] So right now, I think it's around $14 billion.

[00:22:06] Two years ago when there was a panic, when panic button was pressed,

[00:22:11] it was around less than 7%.

[00:22:12] And usually the central bankers would press the panic button if it's

[00:22:16] less than 7%.

[00:22:17] Right.

[00:22:18] $14 billion for a $45 billion economy, it's a good amount of reserves.

[00:22:25] Be it remittances, be it foreign investment or be it domestic

[00:22:28] investment, the money needs to go to build sustainable projects,

[00:22:34] not just for consumption or projects that are not feasible at all where,

[00:22:38] you know, half-baked idea was developed into big infrastructure projects.

[00:22:45] You know, one is, you know, be it remittances, money from remittances or

[00:22:49] be it foreign investment, it has to be going into a feasible project that has

[00:22:53] good project planning.

[00:22:56] Another thing that you usually see in infrastructure projects is,

[00:22:59] you know, the cost overruns are because time delays.

[00:23:02] Time delays are due to not having a proper project plan.

[00:23:06] And during the construction something also happens, right?

[00:23:09] If it's a debt, then there's something called interest during

[00:23:11] construction that needs to be capitalized.

[00:23:14] That also, it's significant.

[00:23:16] It's north of 10%.

[00:23:19] So that cost also adds up.

[00:23:21] So the point I'm trying to make here is be it bond, be it remittances or be it,

[00:23:27] you know, how do you be less vulnerable regarding this too much

[00:23:31] foreign debt is that we need to have a stronger project planning,

[00:23:34] feasibility study, you know, engineering plan design.

[00:23:37] So we need to make more investment around that, right?

[00:23:41] I don't think it will be a prudent idea not to just because, you know,

[00:23:44] with the fear that, you know, Nepal is going to run out of foreign exchange

[00:23:48] reserves that we should not be taking foreign debt.

[00:23:52] But, you know, like I said earlier, it has to be, you know,

[00:23:55] the project has to be really feasible that earns its own cash to pay back.

[00:23:59] Another thing that is there are products that are available these days

[00:24:04] that helps to lower the cost to mitigate the foreign exchange fluctuation.

[00:24:10] So there are institutions like TCX, which was founded by

[00:24:15] development financial institutions to help countries like Nepal,

[00:24:18] like developing countries, to ensure and encourage them

[00:24:22] to take foreign investment or foreign currency loan

[00:24:25] and to see if the fluctuation, the foreign currency appreciation

[00:24:28] or depreciation and the interest rate volatility can be mitigated.

[00:24:32] So there are some products that are available in the market

[00:24:35] that can be tapped by the private sector or the private projects.

[00:24:39] On a bigger scheme of things, you know, there is something called

[00:24:43] Bridgetown Initiative.

[00:24:45] The whole idea about Bridgetown Initiative is how can developing countries

[00:24:49] like Nepal tap into climate finance to fulfill its need?

[00:24:54] And one of the components of Bridgetown Initiative is to provide

[00:24:58] foreign exchange guarantees by, you know, big multilateral

[00:25:03] like IMF or World Bank so that, you know, Nepal or countries like Nepal

[00:25:09] don't become too much vulnerable because of the foreign exchange fluctuation.

[00:25:12] So, like you said, one of the approach to mitigate risk

[00:25:15] of currency depreciation for borrowers is receiving exchange rate guarantee.

[00:25:20] And one of them are concessional exchange rate guarantee.

[00:25:24] So how realistic is for Nepal to obtain concessional

[00:25:27] exchange rate guarantee and from whom?

[00:25:30] How realistic it is, you know, I don't know.

[00:25:33] Jury is still out and we are also trying.

[00:25:36] But there has been some examples in Nepal that has tapped into

[00:25:40] concessional finance, but we need to try, right?

[00:25:43] So we need to try and, you know, the investors or the multilateral,

[00:25:48] bilaterals who can create and provide this product are aware of

[00:25:54] this kind of problem that country like Nepal or projects in country

[00:25:58] like Nepal face.

[00:26:01] So they are trying to create this product to cater to us.

[00:26:07] I would not be able to say how much, how possible it is.

[00:26:12] But we should definitely try.

[00:26:15] So like you said earlier, whenever it comes to that,

[00:26:19] there is a certain kind of alertness that the debt demands,

[00:26:22] especially in recent years, like you gave example of Sri Lanka,

[00:26:25] Pakistan and some African nation, they are struggling to pay back

[00:26:29] the incurred amount.

[00:26:30] So how can Nepal ensure that this increased access in this commercial

[00:26:34] debt doesn't lead to an unsustainable debt?

[00:26:39] So probably I'll be biased, but, you know, for to tap into

[00:26:43] this kind of debt, it should start with energy project,

[00:26:47] especially hydropower.

[00:26:48] The reason why I say that is we have a market for that,

[00:26:53] you know, with this agreement with India that India is going to

[00:26:56] buy 10,000 megawatts.

[00:26:59] You know, let's assume that India actually buys it,

[00:27:03] which means there's a market.

[00:27:05] And when you know there's a market, then you also know that

[00:27:08] the cash is coming.

[00:27:10] So Nepal should start a case study with the green bonds,

[00:27:15] with the proceed from the green bonds would actually be used

[00:27:18] to build projects, energy projects, because there's a assured market.

[00:27:24] So that should be the case study.

[00:27:26] Yeah, so that's number one.

[00:27:27] Another thing that Nepal has to ensure is again,

[00:27:32] the feasibility aspect of it, right?

[00:27:34] It does not make sense to finance a project that is so big and

[00:27:39] cost heavy that it will not be feasible.

[00:27:41] So, you know, the precision of the feasibility of the project,

[00:27:45] the design aspect of it, the project planning aspect of it,

[00:27:48] the project management aspect of it has to be very strong.

[00:27:52] And the third part is, you know, every foreign investment or

[00:27:57] every foreign loan comes through the central bank and central bank

[00:28:01] already have mechanism in place where a foreign investor cannot

[00:28:05] lend at a rate that is too high.

[00:28:09] They have already capped the rate.

[00:28:12] So we talked about policies beforehand, like the double taxation policy,

[00:28:16] how Nepal has it.

[00:28:17] And apart from these kind of policies, how can Nepal strategically

[00:28:21] attract more bonds, especially in green bonds?

[00:28:24] Or what policies that Nepal needs to focus on to attract more green bonds?

[00:28:29] Yeah, so, you know, to attract more green bonds,

[00:28:33] one thing that's very important is the ESG disclosure and

[00:28:37] ESG aspect of it.

[00:28:40] So there are a lot of ESG investors these days, right?

[00:28:43] So if you look at green bonds data, you know, right now,

[00:28:47] in 2023, the total amount of green bonds that was raised was around

[00:28:51] half a trillion dollars.

[00:28:53] And by 2030, that half a trillion dollar will go into one trillion dollars,

[00:28:57] which is CAGR of 10 percent.

[00:29:01] So much money, not just in green bonds, but at climate finance,

[00:29:05] in the climate finance side of it, right?

[00:29:08] But a lot of the investors that are willing to invest in Nepal

[00:29:14] would require a strong and stringent environmental, social and

[00:29:18] governance disclosure.

[00:29:20] So let me explain that a little bit.

[00:29:23] If an investor was interested to invest in Nepal through a green ball or

[00:29:27] directly through climate fund, be it equity or debt,

[00:29:33] would look at a project or potential project and see what are the

[00:29:36] environmental consequences that project will have.

[00:29:39] Even if the project will have an environmental consequence,

[00:29:42] what are the mitigating factors?

[00:29:45] Second thing we look at is social issues,

[00:29:47] like livelihood restoration plan, you know, resettlements.

[00:29:52] And the third thing that they will look at governance, right?

[00:29:55] So there are a lot of mandate that you'll get in ESG disclosures.

[00:30:00] We are not that strong in ESG disclosure.

[00:30:03] You know, there are few companies that have already started doing it,

[00:30:07] especially the companies which has either investment from private equity

[00:30:12] funds like Dolma or through development financial institution.

[00:30:16] But that disclosure adapting to policies and adopting to those

[00:30:23] policies is very important.

[00:30:25] And another thing that needs to be done, it's still a foreign concept,

[00:30:28] ESG.

[00:30:28] It has to be embedded in every company in Nepal,

[00:30:32] like either through policies and regulation as well as through the

[00:30:37] financial institutions.

[00:30:39] So that is very important.

[00:30:41] So to the last question, we only recently had the investment summit.

[00:30:45] So what was your observation?

[00:30:47] And is the narrative shifting from equity-based investment?

[00:30:50] Consider more diverse or strategic sourcing?

[00:30:52] Yeah, so my view on the recent investment summit,

[00:30:56] you know, it was a big event.

[00:30:57] I think 1,600 people attended it.

[00:31:01] One positive thing that I saw was the senior government official,

[00:31:06] politicians, private sector.

[00:31:09] They are very clear that Nepal needs to attract investment.

[00:31:13] You know, the same voice was heard in every panel.

[00:31:18] Where I think we could have done better is that, you know,

[00:31:21] I believe that the investment summit should be done somewhere outside Nepal.

[00:31:26] It might just be my personal view, but where you can attract investors,

[00:31:30] where genuine real investors will come in,

[00:31:35] where there is easy access to come in, like in a transit or, you know,

[00:31:40] you have easy flight routes.

[00:31:42] Could be Qatar, could be Singapore, could be Dubai,

[00:31:44] could be probably India too, right?

[00:31:46] So that's where the investment summit should be.

[00:31:49] What I saw or what I think was, you know,

[00:31:51] a lot of focus was given to multilateral and back.

[00:31:55] You know, but the point I'm trying to make here is,

[00:31:57] you know, it's good that they're getting the highlight.

[00:32:01] But the whole idea about investment summit is to attract investment,

[00:32:06] real commercial investments.

[00:32:07] So Nepal needs to graduate from getting investment

[00:32:10] from development finance institutions.

[00:32:13] You know, so that's I think the next investment summit.

[00:32:17] We should focus on attracting the real commercial investors.

[00:32:21] So we have reached the end of this discussion.

[00:32:23] Is there anything you would like to add before we part?

[00:32:26] Any thoughts?

[00:32:27] So I've been investing in Nepal since last 12 years.

[00:32:32] There are challenges, you know, but there are opportunities too.

[00:32:36] And things take time in Nepal, but it eventually gets done.

[00:32:39] You know, in terms of attracting investment,

[00:32:42] be it climate finance or be it just finance,

[00:32:46] is that we need to have a deadline approach.

[00:32:50] You know, the whole idea about why Nepal does not get any,

[00:32:55] like too many investments or too much investment

[00:32:58] is that we are slow at things.

[00:33:00] So we need to expedite.

[00:33:01] So if we can have a better deadline approach,

[00:33:06] time-bound project planning,

[00:33:08] then I think we'll do a good job in attracting investment.

[00:33:12] Thank you.

[00:33:14] So thank you so much, Shabda, for joining us

[00:33:16] and sharing your time, knowledge and experience.

[00:33:19] Thank you so much for having me.

[00:33:23] Thanks for listening to Pods by PEI.

[00:33:25] I hope you enjoyed Pragati's conversation with Shabda

[00:33:28] on Nepal's investment landscape, exploring bonds and beyond.

[00:33:32] Today's episode was produced by me, Kushihang,

[00:33:35] with support from Nirjan Rai and Ritesh Sapkota.

[00:33:37] The episode was recorded at PEI studio

[00:33:40] and was edited by Ritesh Sapkota.

[00:33:42] Our theme music is courtesy of Rohit Chakya from Zindabad.

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