Foreign equity investments in Nepal have been both in green field investing and brown. A green-field investment is where a parent company creates its subsidiary from the ground in a different country, whereas a brownfield investing is where an entity purchases existing facilities to begin new production in another country. Joint venture investments in banks would be an example of green-field investing and investments in hotels, hydropower, cement etc. would be examples of brown-field investing. In the past decade, the concept of Private Equity (PE) investing in Nepal would be considered a bit of both as it includes many approaches to investing.

Regulations on foreign equity investment, associated challenges, and avenues for improvement: The Nepal Rastra Bank (NRB) Foreign Direct Investment (FDI) and Loan Management Bylaw 2021 has introduced an automatic route that has helped onshore investment companies to receive blanket approval (Off Shore PE funds are not exempt from this). This means the companies do not have to wait for the approval from the central bank for each investment to be sanctioned once they receive permission from the Department of Industries (DoI) or the Investment Board of Nepal (IBN) or other government authorities. However, each investment still requires approval from the Department of Industry, making the process cumbersome. One of the ways to mitigate this challenge is by providing annual progress reports or information. The greatest lag for any investment seeking FDI approval in Nepal is the time taken by the authorities to approve the investment. There have been cases where the capital increment in FDI has taken over two years.

The recent regulation allowing FDI in an investment company has simplified PE/Venture Capital (VC) to start operations onshore. Earlier, Business Oxygen was the only company in this structure. A minimum of NPR 1 billion as corpus of the fund has to be declared to commence operations. Since this requires each investment to be approved by the Department of Industry ( DoI) it is time consuming; otherwise, this is a start towards institutionalizing PE/VC investments in Nepal although much can be done in future to making it commensurate to international best practices.

Moreover, the Industry and Investment Promotion Board (IIPB) needs to approve investments above NPR 5 billion (USD 42 million). The Public Private Partnership (PPP) and Investment Bill 2019 requires investments over NPR 6 billion (USD 50.37 million) to be approved
by the IBN. This creates further inconvenience to FDIs greater than NPR 6 billion (USD 50.37 million) as they need to be approved by two
entities instead of just one. The IIPB could be replaced by the IBN to make this process simpler. This brings us to the major challenge, the
governing system. It should be more result-oriented rather than the current process-driven system. Currently, approval is required for almost every process in investment, divestment, and return of sale proceeds, thus resulting in increased cost and time for decision making. Until the system is result-oriented, these anomalies will continue to deter FDI in the country. The other underlying problem here is that each bureaucrat has their own interpretation of the law that delays the entire process.

In addition, COVID-19 added a huge economic insecurity, where the PE’s inability to provide risk capital comes at a time when businesses
with high debts are left vulnerable due to COVID-19. A major way to promote PE transactions is to remove double taxation at exit. In the absence of a Double Taxation Avoidance Agreement (DTAA), both foreign investors of a local PE fund as well as offshore PE funds investing in Nepal have to pay tax at 25% on any gains from sale of investments in Nepal. Meanwhile domestic investors are subject to capital gains tax of only 5% (for sale of listed entities) and 10% (for sale of unlisted entities). Some DTAA would require foreign investors to be taxed exclusively at the country of residence, while other DTAA would require foreign investors to be taxed at source but at preferential rates compared to local investors. This would encourage FDI in Nepal. More specifically, we need to amend Section 57 of the Income Tax Act if we are to do away with this constraint. Section 57 of the Income Tax Act states that if the ownership of any entity changes by 50% or more within a period of three years, then such an entity is considered to have disposed of its asset and liabilities. So, any gain on such transaction is subject to tax at the rate applicable on their business income. Private Equity funds would benefit greatly if portfolio companies receive specific waivers from Section 57 of Income Tax Act. This waiver can be similar to those provided to Banks and Financial Institutions (BFIs) to encourage mergers and acquisitions.

Furthermore, we need digitization of processes. Until now the need for digitization has only been realized but not implemented. As an FDI investor in PE, Business Oxygen has assisted Securities Exchange Board of Nepal (SEBON) in drafting the Specialized Investment Fund (SIF) regulation. The SIF has somewhat streamlined the approval process by allowing FDI in PE funds from bilateral and multilateral organisation and recognizing both investment committee and advisory committee as per international practice. However, SIF still needs to address the double taxation of PE funds and waiving of blacklisting provision for onshore PE funds.239 We have realized and have continuously tried making SEBON aware of the balance required between the SIF regulation and the prevailing acts that will assist in addressing the problems that international PE faces in Nepal. Without this, SIF will be another layer of hassle on top of what we have to go through at the DoI. There are chances that SIF might work for local firms but for us, it needs to be revised before subscribing to it. The existing Company Act provides only two financial instrument options. Unless SIF regulation breaks its silence and talks about debentures, blacklisting provision for PE, mezzanine financing and the likes, it might be hard to subscribe to SIF.

Scope of PE in Nepal: There are various sectors that have the potential for PE investments. Due to COVID-19, in recent times, we have seen that information technologyrelated companies are doing well and so are companies related to renewable energy and health sectors. Agriculture also has enormous potential, but the government has placed it in the negative list for FDI and, as a result, we are barred from investing in it. In agriculture, FDI could help modernize the sector and facilitate technology transfer in areas of higher-yielding crops, genetically modified organisms, processing facilities, and cold storage. Foreign Direct Investments (FDIs) could help prevent the waste of surplus food and dairy products by using the surplus to produce different product variants as well as using cold storage facilities to keep produce fresh for longer periods of time. Ironically, Nepal imported NPR 321 billion (USD 2.78 billion) of agricultural goods in the last fiscal year.

 

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November has been scintillating with COP26 deliberations in Glasgow and around the world in various side lines discussing, once again, how to arrest global warming. This time, with net zero pledges. Nepal has been a willing and obedient participant in these conferences through the years and has repeatedly endorsed all actions and commitments. As one of the most vulnerable nations affected by global warming, Nepal has clearly impressed the need for financial support to address this. It now needs to plan to implement climate smart measures and provide the “how” to the “why” billions of dollars are required. The most prudent way forward to accomplish this is to take the private sector into confidence, and plan holistically towards its implementation.

Nepal’s experience with renewable energy goes back to 1968. The government-owned Agriculture Development Bank provided credit to rural energy technologies such as improved water mills and biogas. Biogas was one of Nepal’s success stories. With the establishment of the Alternative Energy Promotion Centre two decades later, subsidising solar installations in rural areas commenced operations. Nepal was the only country in 2008 to participate in Climate Investment Funds projects, the Scaling Up Renewable Energy Programme and the Pilot Programme for Climate Resilience.

Private sector participation

With donor funding, around 2015, the Central Renewable Energy Fund was created as a public-private partnership (PPP) model by partnering with private sector banks to manage the fund. There is considerable institutional knowledge in this area, and the journey forward should pivot from subsidy-based financing in rural energy technologies to a commercially and sustainable financing method. This can only be possible with private sector participation to implement the target of net zero emission by 2045 with a solicitation of $46 billion to fulfil it. Transformational change can only happen with all stakeholders joining hands.

Arguably, the hydropower sector could be considered a successful PPP model; the private sector building the power plants and the government enabling evacuation of the electricity by building transmission lines and also purchasing the power. This success now needs a replication in the rural energy technology sector with an energy mix of clean energy offsetting burning of biomass usage and fossil fuels.

One of the greatest barriers to developing renewable energy technology companies is limited access to financing. Where donor funding is not available, development finance institutions have in recent years been able to address that gap by working directly with the private sector on commercial terms. New forms of access to finance such as private equity is now available as an asset class in Nepal. With the advent of Business Oxygen (BO2) in 2015 with IFC (World Bank Group) funding, it became possible to address the missing middle, that was cut off from formal investment opportunities, to qualify for equity funding.

In 2017, the Climate Investment Funds Pilot Programme for Climate Resilience project injected capital through IFC in BO2. Climate Investment Funds’ investment in the fund facilitated climate smart approaches as well. All investee companies that qualified for investments were vetted to comply with environment, social and governance measures and adopt climate smart approaches. The third investor in BO2 is the Foreign, Commonwealth & Development Office (erstwhile DFID). Two other offshore funds, Dolma Fund and One to Watch, are also active in hydropower and solar photovoltaic investments in the private equity ecosystem.

The investments in Nepal’s largest biogas/fertiliser plant and the first bio pellet producing company, and in solar photovoltaic in the Renewable Energy Service Company model, are some of the successful financing in climate adaptation made by BO2 in recent years. These investments have shown that zero carbon emitting companies assist the environment by replacing dirty fuels such as coal, petrol, diesel and bio mass that a majority of the rural population uses as fuel.

As the production of electricity increases, there is an evident need for demand to also increase. This provides enormous opportunities for the market to pivot from using dirty fuel to clean energy usage such as electrical vehicles, charging stations, and a wide range of cooking, heating, cooling, agriculture and industrial processes that are driven by electricity. The off takers’ inability to deliver an uninterrupted supply of power, especially in the dry season, gives enormous opportunities to the solar photovoltaic industry, which can provide short-term reliability, and in the case of rural Nepal, off-grid solutions through installation of solar photovoltaic.

Whether it is solar pumps for irrigation or creation of enterprise through rural electrification, these investments have changed the face of small communities and helped them make ends meet. Recent news of Nepal’s largest cement manufacturer, Hongshi Shivam Cement, finally receiving 30 megawatts from the Nepal Electricity Authority grid that has saved the company thousands of litres of diesel fuel that would otherwise be used to operate its generators on a daily basis, is further example of how the government can work with the private sector to address neutralising carbon emission. In India, producers of bio pellets and industrial consumers get tax concessions to encourage the usage of bio pellets as a replacement to coal. This not only encourages the sale of agricultural waste to make pellets, but incentivises farmers to make money by selling what they have been burning in the open fields causing black carbon emission, one of the causes of environmental disaster in our Himalaya.

Awareness drive

Net metering was a result of persistent lobbying with the government by solar energy groups that enabled roof top solar solutions to be financially viable and attractive to consumers. The government needs to provide various tax concessions to the renewable energy technology industry commensurate with the facilities provided to the hydropower industry to encourage its development. An awareness drive is needed to educate the public that clean energy usage is economically viable, and in the long run, profitable for companies that use climate smart measures.

Nepal’s first bio pellet company, a BO2 investment, buys perennial forest waste from Sagarnath forest in Province 2 and compresses it to make bio pellets, which is a clean alternative to imported coal that our cement industries, tea plantations and brick kilns use. There is a cost to this pivot, and development finance institutions, donors and the government can come in providing alternative forms of financing and technical assistance. The cost is marginal considering what is at stake. Transformational change can only happen if there is top-down, bottom-up, backward and forward collaborations.

Source : The Kathmandu Post

 

 

काठमाडौं (अस) । सरोकारवालाहरूले नेपालमा ग्रीन एसएमई फाइनान्सिङको क्षेत्रमा उच्च सम्भावना भएको बताएका छन् । नेपाल इकोनोमीक फोरमले मंगलवार आयोजना गरेको ‘ग्रीन एसएमई फाइनान्सिङ इन नेपाल’ विषयक छलफल कार्यक्रमा सरोकारवालाहरूले यस्तो बताएका हुन् ।

नेपालमा ग्रीन एसएमई वित्तीय विकासका लागि क्षमता तथा यससम्बन्धी नीति निर्माणमा पनि काम गर्नुपर्ने उनीहरूको भनाइ छ । यसका लागि सरकारले नियमावली बनाउनु प्रशंसायोग्य रहेको उनीहरूले बताए । तर, उक्त नियमावलली कार्यान्वयन गर्न असफल भएको बिजनेश अक्सिजन प्राइभेट लिमिटेडका अध्यक्ष तथा प्रमुख कार्यकारी अधिकृत सिद्धान्त राज पाण्डे बताए । यस्ता नीतिहरू कार्यान्वयन गर्न सरकारले सबैसँग सहकार्य गर्नुपर्ने उनको भनाइ छ । ग्रीन फाइनान्सको लक्ष्य कार्बन उत्सर्जन घटाउनु र स्रोतको दक्षता बढाउनु रहेको उनले बताए ।

यसैगरी बेलायती दूतावासका निजीक्षेत्र विकास सल्लाहकार चाँदनी सिंहले नेपालमा हरित वित्तलाई प्राथमिकतामा राखेर काम गर्नुपर्ने बताइन् । त्यसैगरी हरित वित्तको प्रवद्र्धन र कार्यान्वयनका लागि नेपालले अन्य देशको अनुभवबाट सिक्नुपर्ने बताइन् ।

एशिया प्यासिफिक ग्रीन क्लाइमेट फन्डकी क्षेत्रीय प्रबन्धक अनुपा रिमाल लामिछानेले सरकार र सरोकारवालाको संयुक्त सहकार्यमा ग्रीन फाइनान्सको लक्ष्य निर्धारण गर्नुपर्ने बताइन् । यस्तै, ग्रीन फाइनान्सिङ आयोजनाका लागि विदेशी लगानी ल्याउने सम्बन्धी नीति कार्यान्वयन गर्न सरकारले पहल गर्नुपर्ने उनको भनाइ छ ।

यसैबीच, विश्व बैंक नेपालका प्रमुख निजीक्षेत्र विशेषज्ञ पिटर मौस्लीले जलवायु वित्तमा धेरै पहल गरिएको बताए । तर, गर्नुपर्ने काम धेरै रहेको उनको भनाइ छ । उक्त कार्यक्रमलाई फोरमका अध्यक्ष सुजीव शाक्यले सहजीकरण गरेका थिए ।

 

स्रोत : आर्थिक अभियान

 

 

Further reforms can help the market grow and attract more investments and best practices.

In just half a decade, since the private equity market first broke ground in Nepal, it has provided welcome support to local entrepreneurs. With better access to capital, small businesses can now dream bigger. Private equity funds bring more than money to the table. They help build or grow dynamic, job-creating companies that can be potential game changers, spurring the development of the business ecosystem. For Nepal, this can help stimulate its economy, especially in the face of a global pandemic. Our research shows that 17 million small and medium sized enterprises (SMEs) in the developing countries have unmet financing needs, notably because young, growing businesses lack the track record to qualify for bank loans. So, they require “risk capital”—where there is higher risk tolerance than bank loans—which is hard to access in countries with fragile economies.

In Nepal, where SMEs account for around 98 percent of all businesses and where entrepreneurs consistently rank access to finance as a major obstacle, private equity could play a crucial role in driving growth. In fact, for startups and SMEs with high growth potential, private equity can turn out to be a better deal than a commercial bank loan. This is because the former has a stronger shared interest in ensuring the business does well and is sustainable.

 

Source : The Kathmandu Post

 

IFC South Asia Gender Compendium profiles case examples of gender impact in agribusiness in South Asia covering India, Bangladesh and Nepal. Business Oxygen’s investments  in Nepal are  improving the lives and livelihood of women smallholders and local entrepreneurs. These are powerful examples of what the private sector-led initiatives can do to promote gender in their business operations and supply-chains.

 

 

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Business Oxygen (BO2), a private equity fund backed by International Finance Corporation (IFC) to support small and medium enterprises in Nepal, said Monday it has invested $500,000 in MedPro International.

MedPro, which is led by cardiac surgeon and healthcare entrepreneur Bishal Dhakal, runs a venture under the banner of Health at Home Nepal. Established in 2007, it is an out-of-the-hospital healthcare service provider.

The company provides a range of care services for patients, from general nursing care to critical care for severely ill patients and long-term, chronically ill patients. It also offers counselling for patients, physiotherapy services and monthly prescription-drug delivery.

Dhakal said the firm has over 10,000 people in its network and plans to use the money raised to add a digitisation component to the business.

“We started operations much before some of the well-known Indian names came into the picture and have always been profitable. We are also looking at collaboration and exploring if we can expand into some markets in India, especially Uttar Pradesh and Bihar,” he said.

Dhakal added that the firm has recorded a spike of 600-700% in demand because of Covid-19 and expects to double its annual revenue over the next few years. It may also look at another round of funding in two-three years.

Siddhant Raj Pandey, chairman and CEO of BO2, said that healthcare at home is a novel concept in Nepal that MedPro has tapped into. “Before this service commenced operations, after-care services once the patient left the hospital were not readily available in an institutional capacity. With BO2 funding MedPro will be able to expand its services to other Provinces in Nepal along with enhancing its poly-clinic services and health care services.”

BO2 is the first International SME venture and climate impact fund in Nepal promoted by IFC, the UK government’s The Foreign, Commonwealth & Development Office, Climate Investment Funds’s Pilot Program for Climate Resilience and WLC Ventures.

Nepal is one of the world’s poorest countries with nearly half of the population living below the poverty line. Besides socio-economic factors and the mountainous terrain, susceptibility to natural disasters such as earthquakes, floods and landslides as well as armed insurgencies also make delivery of healthcare a challenging endeavour.

 

Source : The Capital Quest