Capital market regulator has removed the obligation of getting evaluated by credit rating agencies for financial intermediaries till the end of the current fiscal year.
Earlier in February, capital market regulator — Securities Board of Nepal (Sebon) — had made credit rating mandatory for the companies applying to hold public issues exceeding Rs 30 million.
However, the issues belonging to commercial banks, development banks, finance companies, microfinance development banks and insurance companies do not need to go through credit rating procedure till mid-July.
The financial institutions and insurance companies required by their respective regulators to
increase their paid up capital by the end of current fiscal year will be issuing right shares and primary shares to raise capital before mid-July 2013.
"The regulators asked Sebon to waive the provision of credit rating for a time being since credit rating will delay the issues so that these institutions will not be able to reach the regulatory capital requirement on time," said chairman of Sebon Baburam Shrestha.
The non-life insurance companies have a deadline of mid-July to increase their paid up capital to
Rs 250 million while life insurance companies have to raise their paid up capital Rs 500 million by the deadline, as per Insurance Board's direction.
Unlisted insurance companies are issuing primary shares while listed ones have geared up for right issue to fulfill the regulatory requirement.
Likewise, commercial banks have to make their paid up capital to Rs 2 billion while national development banks and finance companies are required to increase their paid up capital to Rs 640 million and 200 million, respectively.
"However, other companies belonging to real sector will have to get rated by credit rating agency, if they wish to float shares worth more than Rs 30 million," he added.
According to Credit Rating Agency Regulation 2068, the companies planning to issue ordinary shares, bonds, debentures, right share and preference shares exceeding Rs 30 million in value have to get themselves rated by a rating agency.
The credit rating agencies rate credit worthiness and financial soundness of companies based on different parameters making it easier for the investors to invest on right information.
The credit ratings are supposed to be a simple yet effective indicator aiding the ordinary investors to take informed decisions regarding the purchase of the securities.
There is only one credit rating agency operating at present in Nepal — Icra Nepal — that got license in October, 2012.
India's Icra Ltd has 51 per cent stake in the rating agency while the remaining stake is held by Credit Information Bureau, Himalayan Infrastructure Fund and few domestic banks.