Introduction
Nepal’s debt financing landscape is undergoing its most significant statutory overhaul in years. Three parallel developments are converging in 2026. The first is a draft amendment to the Public Debt Management Act, 2079 that would allow the sovereign to issue foreign currency denominated government securities for the first time. The second is an existing, and separately updating, legal framework under which international financial institutions may register and issue bonds inside Nepal through SEBON.The third is an established but ad hoc practice, tested by the International Finance Corporation (“IFC”), of multilateral development banks issuing Nepali rupee denominated bonds offshore under Cabinet level approval. Taken together, these developments show a deliberate policy shift toward market based external financing, alongside Nepal’s traditional reliance on concessional multilateral and bilateral loans.
NTII Partners’ full analysis of related project finance structuring options for Nepal, including debt sizing, security packages and lender protections, is set out in our Project Finance Guide (Nepal), available on our website.
1. Sovereign Debt: Towards Nepal’s First Foreign Currency Government Securities
Nepal’s external financing has come almost entirely from concessional loans, principally from the World Bank and the Asian Development Bank, which together account for more than 91% of Nepal’s external multilateral debt, with bilateral creditors making up the remainder.
The Ministry of Finance has circulated a draft bill to amend the Public Debt Management Act, 2079 for public consultation. The full text of Nepal’s enacted statutes is maintained by the Nepal Law Commission, and the finalised amendment, once passed, will be published there. The draft bill would introduce several changes. It would empower the Public Debt Management Office to issue government securities, whether by auction or by other prescribed methods, denominated in either domestic or foreign currency, and available for purchase by domestic or foreign individuals or entities. It would provide an express legal basis for the government to make share and loan investments, including in wholly or majority state owned public institutions, national priority public-private partnership projects, and intergovernmental organisations of which Nepal is a member, while excluding direct lending, alcohol and tobacco production, casinos, and foreign employment businesses. It would introduce thematic bond issuance, such as green, social or sustainability linked bonds, and hedging arrangements to manage exchange rate and interest rate risk. It would also move bond record keeping to an electronic system and strengthen penalties for collusive or false bidding.
The policy rationale is that domestic borrowing, while smaller as a share of the debt stock at 46.5% of total public debt as of mid-June 2026 against 53.5% external, is markedly more expensive to service. The government allocated roughly NPR 343.55 billion to domestic debt servicing in FY 2025/26, compared with only NPR 67.45 billion for external debt, even though total public debt stood at approximately 45% of GDP. A foreign currency sovereign issuance would let Nepal tap international capital markets directly for the first time, rather than relying solely on concessional multilateral and bilateral channels.
2. Bonds Issued by International Financial Institutions under the Securities Registration and Issuance Regulation, 2073
Nepali securities law already contains a dedicated chapter governing bond issuance by international financial institutions, and this chapter, not the draft 2083 Regulations discussed in Section 3 below, is the primary standing legal basis for an international financial institution to issue bonds inside Nepal today. Rules 28 to 37 of the Securities Registration and Issuance Regulation, 2073 (2016), issued by SEBON under the Securities Act, 2063 (2007), set out a complete procedural code under the heading “Provisions Relating to Issuance of Bonds by International Financial Institutions.”
Rule 28 permits an international financial institution to issue bonds once it has completed the procedure set out in that chapter. Rule 29 requires the institution to register the bond with SEBON before issuance. The registration application must include a copy of the Government of Nepal’s approval letter permitting the bond issuance, the institution’s audited financial statements and annual reports for the preceding three years, and details of the proposed bond. SEBON reviews the application, may request further information or clarification, and, once satisfied, notifies the applicant of the registration fee payable. The bond is then registered within seven working days of that fee being paid. Rule 30 separately requires the institution to appoint an SEBON licensed issue and sale manager for the issuance.
Rule 31 governs approval of the bond prospectus, which the issue manager submits to SEBON together with a filing fee of NPR 25,000, a copy of the agreement between the institution and the issue manager, the draft prospectus, a due diligence certificate from the issue manager, and any guarantee agreement. The prospectus must cover a prescribed list of matters, including the institution’s own profile, the bond’s terms, the purpose of the issuance and the intended use of proceeds, the tenure, interest rate and payment mechanics, allotment and listing arrangements, any appointed trustee, any bond issuances in other countries, credit rating information, guarantee details, minimum subscription levels, risk factors and mitigation measures, the target investor group, details of any issuance in multiple tranches, any bonds previously issued under this chapter, the opening and closing dates of the sale, and the institution’s complaint handling mechanism. The prospectus may be prepared in English, provided a Nepali language summary of its key points is separately published. At least 20% of the issue must be reserved for natural person investors, although any unsubscribed portion of that reservation may be sold to other buyers. Rule 32 requires SEBON to review the prospectus, direct any necessary amendments, and grant approval to publish within seven days of receiving a compliant submission.
Once approved, Rule 33 allows the institution to issue bonds in more than one tranche under the same approved prospectus, provided it notifies SEBON at least fifteen working days before each further issuance, discloses how the proceeds of the previous tranche were used and any changes to previously disclosed information, and publishes that information before the new tranche opens.
Read as a whole, this chapter is the operative legal basis for an onshore, SEBON registered, Nepali rupee bond issued by an international financial institution and sold to investors inside Nepal. It is a distinct pathway from the offshore route used by IFC in 2019 and discussed in Section 4 below.
3. SEBON’s Draft Bond Regulations. Issuing in Foreign Capital Markets
SEBON has separately published a draft Bond Registration and Issuance Regulations, 2083, intended to replace the current bank and financial institution dominated bond market with a broader and more transparent institutional bond framework. The draft includes a minimum paid up capital threshold of NPR 1 billion for issuers, together with a 70:30 debt to capital ceiling, meaning bonds of up to roughly 2.33 times capital. It requires non-bank, non-financial-institution and non-insurance issuers to issue only secured bonds, backed by pledged assets, with an empowered bond trustee holding enforcement rights on default. It mandates annually updated credit ratings and immediate disclosure of any material change in risk profile. It sets out two issuance routes broadly comparable to IPO practice, namely a private placement to up to 50 eligible investors on a book building basis, and a public issuance by prospectus. It expressly recognises thematic green, social and sustainability bonds and a repo eligible secondary trading platform.
The draft also expressly provides that international financial institutions may issue bonds in Nepal, and that eligible Nepali companies may issue bonds in foreign capital markets, in each case with the approval of Nepal Rastra Bank (“NRB”) and SEBON. On the inbound side, this restates and modernises the existing regime described in Section 2 above rather than creating one from nothing. Its more significant addition is the outbound limb, an express route for Nepali companies to issue bonds abroad, which does not have a comparably detailed procedural counterpart in current regulation. Corporate Service Law firm in Nepal.
4. The IFC Precedent: Implementing Offshore Local Currency Bond
Ahead of any standing statutory regime for offshore issuance, Nepal has already permitted a multilateral development bank to raise Nepali rupee denominated bonds outside Nepal. In November 2019, the Cabinet approved IFC, the World Bank Group’s private sector lending arm, to issue USD 20 million of Nepali currency bonds outside Nepal. This was the first such approval granted to an international agency. According to reporting by the Kathmandu Post, IFC’s stated plan was to on-lend through two microfinance institutions, Nirdhan Utthan Bank and RMDC Laghubitta Bittiya Sanstha. A parallel, larger scale approval had been granted in 2015, permitting both IFC and the Asian Development Bank to each issue up to USD 500 million of local currency bonds inside Nepal, though those onshore issuances were never executed for lack of adequate loanable funds in the domestic banking system. Had they proceeded, that 2015 approval is the kind of transaction the Rules 28 to 37 registration regime described in Section 2 above was designed for, since it contemplated bonds sold inside Nepal.
The 2019 IFC bond was different in kind. Because it was issued and sold outside Nepal rather than registered and offered to investors inside the country, it fell outside SEBON’s onshore registration regime altogether. Legally, it instead sits on the purview of the Foreign Exchange (Regulation) Act, 2019 (1962 A.D.) (“FERA”), Nepal’s foreign exchange statute. Section 12 of FERA empowers Nepal Rastra Bank to issue directives, bylaws and notices to implement the Act, and NRB’s foreign loan circulars are issued for the purposes of FERA Sections 10A, 10B and 10C.
The practical result is that Nepal currently has two separate pathways for a multilateral institution to raise Nepali rupee funding, and they are not interchangeable. An onshore issuance sold to Nepali investors runs through SEBON registration under Rules 28 to 37 of the 2073 Regulation. An offshore issuance sold outside Nepal runs through Cabinet approval under the FERA framework, with no codified, generally applicable statutory clause naming multilateral institutions. SEBON’s draft 2083 Regulations, discussed in Section 3 above, do not appear to close that second gap, since their inbound IFI clause tracks the existing onshore regime rather than addressing offshore issuance directly.
5. The Broader Foreign Exchange and Foreign Loan Framework
Any debt financing structure concerning Nepal is governed by several further laws. The Foreign Exchange (Regulation) Act, 2019 (1962) is the parent statute. Its Section 3 requires a licence from NRB for foreign exchange transactions, and its Section 12 is the source of NRB’s subordinate rule making power. The Foreign Investment and Technology Transfer Act, 2075 (2019) (“FITTA”) permits, under its Section 11, a Nepal incorporated public company or authorised body, with NRB and SEBON approval, to borrow or acquire foreign currency by issuing bonds, debentures or other securities in a foreign capital market, provided the proceeds are invested in Nepal. A foreign invested company may separately issue securities within Nepal subject to prevailing securities law.
The NRB Foreign Investment and Foreign Loan Management Bylaw, 2078 (2021, as amended) governs the mechanics of foreign investment and foreign loan approval, recording and repatriation. The Nepal Rastra Bank Act, 2058 (2002) separately empowers NRB itself, under its Section 67 and with Government of Nepal approval, to issue debt bonds denominated in gold or foreign currency for its own reserve management purposes. This power is distinct from the sovereign or multilateral issuances discussed above.
Recent liberalisation has also opened an outbound channel. The amendment to FERA and Foreign Exchange and Management Bylaws allows Nepali companies to invest abroad, with NRB approval, in priority sectors such as IT, technology and export oriented industries. This is an accompanying development to the inbound reforms described above, and one that debt and equity practitioners advising Nepali corporates should track alongside the bond market changes.
6. Practical Takeaways
● For multilateral and regional development institutions. An onshore Nepali rupee bond, sold to investors inside Nepal, already has a codified route through SEBON registration under Rules 28 to 37 of the Securities Registration and Issuance Regulation, 2073. An offshore issuance sold outside Nepal, as IFC’s 2019 bond was, still requires bespoke Cabinet approval, and every commercial term, including tenor, hedging, use of proceeds and repatriation timing, remains a matter for bilateral negotiation with the Cabinet and the Ministry of Finance.
● For the Government of Nepal and sovereign debt investors. The Public Debt Management Act amendment, if enacted as drafted, would be a first of its kind legal basis for a Nepali sovereign foreign currency bond. This has implications for Nepal’s eventual entry into international bond markets and for its sovereign credit story.
● For Nepali corporates and their lenders. FITTA Section 11 already permits qualifying Nepali public companies to raise foreign currency debt abroad with dual NRB and SEBON approval. The draft SEBON Regulations would supplement this with a domestic secured bond regime carrying materially tighter governance, collateral and disclosure standards than current market practice.
● For all market participants. The Public Debt Management Act amendment and the SEBON Bond Regulations remain, as at the date of this update, in draft or consultation form, while the Rules 28 to 37 onshore IFI regime is already in force. Final enacted text, section numbering and effective dates for the drafts should be confirmed before any transaction is structured on their basis.