One the major challenges in Nepal for companies with foreign investment is that once they receive approvals for investment in one sector, they are not allowed to invest in Nepali companies in other sectors. In a bid to remove this anomaly, necessary laws and regulations are being revised to ensure that Nepali companies established with foreign investment can buy and sell stakes in other domestic companies, on approval from the Department of Industries (DOI).
This is a welcome change, considering that this has been a major barrier for companies with foreign investment such as Surya Nepal and Dabur from utilizing their cash reserves, which have subsequently been repatriated or distributaed as dividends. This new provision will therefore allow for these cash reserves to be invested back into the Nepali economy.
Since existing companies with foreign investments have been operating in the Nepali market for over three decades, they understand the nature of the Nepali business environment. It is therefore but natural for them to be the first ones to look at other investments in Nepal. While there has been significant interest from foreign investors, a key point of consideration for them has been that existing companies with FDI are not allowed to expand into other sectors.
This move is expected to increase the capital availability for existing businesses and the equity from these FDI companies, which can create a multiplier effect, as more debt can be raised. This can also be an avenue for excessive liquidity that the banks are currently holding.
The government should take the engagement of existing FDI companies in the Nepal Stock Exchange more seriously, thereby providing much needed institutional capital to stabilize the volatile market. With the current government pushing reforms, more of such initiatives are expected, including the opening up of the capital market for international investors.