Preference Shares vs Debentures in Nepal: A Complete Comparison Guide for Investors

Wed, Apr 22, 2026 04:24 PM

Introduction

As Nepal's capital market matures under the supervision of the Securities Board of Nepal (SEBON) and trading on the Nepal Stock Exchange (NEPSE), investors are increasingly looking beyond ordinary shares. Two instruments that sit between pure equity and pure debt — preference shares and debentures — have become particularly important financing tools for Nepali banks, insurance companies, and corporations.

While both offer relatively stable returns compared to ordinary shares, they are fundamentally different in nature. Understanding these differences is essential for any investor in Nepal who wants to build a balanced portfolio.

What Are Preference Shares?

Preference shares (अग्राधिकार शेयर) are a type of share capital that gives holders preferential rights over ordinary shareholders in two key areas:

Dividend distribution — Preference shareholders receive their fixed dividend before any dividend is paid to ordinary shareholders.
Repayment of capital — In case of liquidation, preference shareholders are paid back before ordinary shareholders (but after all creditors and debenture holders).

In Nepal, preference shares are issued under the provisions of the Companies Act, 2063 (2006) and regulated by SEBON. They are classified as part of the company's equity capital.

Types of Preference Shares Issued in Nepal

Cumulative Preference Shares — Unpaid dividends accumulate and must be paid later.
Non-cumulative Preference Shares — Missed dividends do not carry forward.
Convertible Preference Shares — Can be converted into ordinary shares after a specified period.
Redeemable Preference Shares — The company buys them back after a fixed period.

Examples of Preference Shares Listed on NEPSE

Preference share issuance in Nepal is a relatively recent trend, with most issues being made by commercial banks to strengthen their capital reserves. Most of these are restricted to institutional investors only. Some notable examples include:

Issuer	Instrument	Dividend Rate	Type
Nabil Bank	Nabil 8% Convertible Preferred Shares	8%	Convertible (institutional only)
Kamana Sewa Bikas Bank	KSBBL 9% Non-Cumulative Preference Shares (KSBBLPNP)	9%	Non-redeemable, Non-cumulative
Machhapuchchhre Bank	MBL Non-Convertible Preference Shares (PNCPS)	8.25%	Non-convertible, Perpetual
Everest Bank	Everest Bank Convertible Preference Shares	7%	Convertible (20% converted every 3 years)
NMB Bank	NMB Non-Convertible Preference Shares	Fixed rate	Non-convertible (institutional only)
Siddhartha Bank	Siddhartha Non-Convertible Preference Shares	Fixed rate	Non-convertible (institutional only)

Note: Most non-convertible preference shares are restricted to a maximum of 50 institutional investors and are not available for ordinary retail investors on the secondary market.

What Are Debentures?

Debentures (ऋणपत्र) are long-term debt instruments issued by companies and governments to raise capital from the public. When you buy a debenture, you are essentially lending money to the issuer in exchange for a fixed rate of interest paid regularly, plus the return of your principal at maturity.

In Nepal, debentures have become a major fundraising tool, especially for commercial banks, which are required by Nepal Rastra Bank (NRB) directives to raise a certain portion of their capital through debt instruments to meet capital adequacy and liquidity requirements.

Common Features of Debentures in Nepal

Typical tenure of 5 to 10 years
Interest rates usually between 7% and 11%, paid semi-annually or quarterly
Listed and traded on NEPSE after issuance
Often secured against company assets (secured debentures)
Must be approved by SEBON before public issuance

Examples of Debentures Listed on NEPSE

Debentures are widely issued in Nepal, with dozens currently listed on NEPSE. Below is a selection of notable examples across different rate ranges and issuers:

Commercial Bank Debentures (Recent Issues)

NEPSE Symbol	Debenture Name	Interest Rate	Tenure
NBLD82	10% Nabil Debenture 2082	10%	Long-term
NABILD87	9% Nabil Debenture 2087	9%	10 years
NICAD8283	11% NIC Asia Debenture 2082/83	11%	Long-term
NMBD89/90	NMB Debenture 10.75% – 2089/90	10.75%	Long-term
GBILD86/87	Global IME Bank Debenture 2086/87	10%	7 years (quarterly interest)
EBLD85	10.50% Everest Bank Debenture 2085	10.50%	Long-term
HBLD86	Himalayan Bank Limited Bond 2086	10%	Long-term
SBID89	9% Nepal SBI Bank Rinpatra 2089	9%	Long-term
CIZBD90	10% Citizens Bank Debenture 2090	10%	Long-term
NIMBD90	10% NIMB Debenture 2090	10%	Long-term

Energy / Hydropower Bonds

NEPSE Symbol	Bond Name	Interest Rate	Purpose
NMBEB92/93	NMB Energy Bond 2092/93	4%	Hydropower financing
NIFRAUR85/86	NIFRA Urja Rinpatra 2085/86	7%	Infrastructure / Energy
EBLEB89	Everest Bank Energy Bond 2089	Fixed	Energy sector financing
ADBLB	Agricultural Bond (Krishi Bond)	4%	Agricultural sector

Finance Company and Development Bank Debentures

NEPSE Symbol	Debenture Name	Interest Rate
ICFCD83	12% ICFC Finance Debenture 2083	12%
GWFD83	12% Goodwill Finance Debenture 2083	12%
KSBBLD87	9% Kamana Sewa Bikas Bank Debenture 2087	9%
MFLD85	9.5% Manjushree Finance Debenture 2085	9.5%
JBBD87	Jyoti Bikash Bank Bond 2087	Fixed

Data source: SEBON, NEPSE listings. Interest rates and symbols reflect information at time of issuance — always verify current details on the NEPSE website before investing.

Detailed Comparison Table

Basis of Difference	Preference Shares	Debentures
Nature	Part of share capital (equity instrument)	Part of borrowed capital (debt instrument)
Status of Holder	Owner of the company (shareholder)	Creditor of the company (lender)
Return	Fixed dividend (paid from profit only)	Fixed interest (paid whether profit or loss)
Tax Treatment (Nepal)	Dividend paid from post-tax profit; subject to 5% final withholding tax for individuals	Interest is a tax-deductible expense for the company; subject to 5% TDS for individual investors
Voting Rights	Generally no voting rights (except in matters directly affecting them)	No voting rights at all
Priority at Liquidation	Paid after debenture holders and creditors	Paid before all shareholders (highest priority among investors)
Security	Unsecured — no charge on assets	Can be secured against company assets
Risk Level	Moderate risk (return depends on profits)	Lower risk (fixed legal obligation)
Governing Law in Nepal	Companies Act, 2063 & Securities Act, 2063	Securities Act, 2063 & NRB Directives (for banks)
Maturity	May be perpetual or redeemable after a fixed period	Always has a fixed maturity date (usually 5–10 years)
Convertibility	Can be convertible into ordinary shares	Can also be convertible, but most Nepali debentures are non-convertible
Trading on NEPSE	Listed and traded, but volume is usually low (mostly institutional)	Listed and traded, relatively more active in secondary market
Issuer in Nepal	Limited issuance — mainly Nabil, Everest, NMB, Siddhartha, Kamana Sewa, Machhapuchchhre	Widely issued — most commercial banks, NIFRA, hydropower-linked bonds, government

Which One Should a Nepali Investor Choose?

The choice between preference shares and debentures depends on your financial goals, risk appetite, and investment horizon.

Choose Debentures If You Want:

Predictable income — Interest is guaranteed by contract, not dependent on company profit.
Lower risk — Higher priority in repayment if the company fails.
Fixed tenure — You know exactly when your principal returns.
A safer alternative to fixed deposits — Debentures often offer slightly higher returns than bank FDs with comparable liquidity on NEPSE.

Choose Preference Shares If You Want:

Slightly higher return potential — Dividend rates can sometimes exceed debenture interest rates.
Equity exposure with less volatility — You get a fixed dividend but also benefit from the company's success.
Conversion opportunity — Convertible preference shares (like Nabil's 8% convertible or Everest Bank's 7% convertible) can become ordinary shares in growing companies.

Real-World Context in Nepal

Over the past decade, debentures have become overwhelmingly more popular than preference shares in Nepal. Major commercial banks like Nabil Bank, NIC Asia, Global IME, NMB, Everest Bank, Himalayan Bank, and Nepal Investment Mega Bank have issued debentures worth billions of rupees to meet NRB's capital requirements. Specialized institutions like Nepal Infrastructure Bank Limited (NIFRA) have also issued Urja Rinpatra (Energy Bonds) to finance hydropower and infrastructure projects.

Preference shares, on the other hand, remain a niche instrument. Only a handful of commercial banks — Nabil, Everest, NMB, Siddhartha, Kamana Sewa Bikas, and Machhapuchchhre — have issued them, and most issuances are restricted to a maximum of 50 institutional investors. This is largely because ordinary shares and debentures already meet most financing needs, and partly due to limited investor familiarity at the retail level.

Risks to Consider

Risk Factor	Preference Shares	Debentures
Credit Risk	High if company fails (low repayment priority)	Lower if secured, but still exists if unsecured
Interest Rate Risk	Low to moderate	High — bond prices fall when market rates rise
Liquidity Risk	High — thin trading on NEPSE	Moderate — more active secondary market
Dividend/Interest Skip Risk	Dividend may be skipped if no profit	Interest payment is a legal obligation

Conclusion

Both preference shares and debentures are valuable instruments in Nepal's growing capital market, each serving a different purpose. Debentures are ideal for conservative investors seeking stable, predictable income with lower risk. Preference shares offer a middle path between equity and debt, suited for those who want slightly higher returns with some equity exposure.

Before investing, always check the issuer's credit rating, financial health, the terms of the prospectus approved by SEBON, and consult with a licensed broker. A diversified portfolio — mixing ordinary shares, preference shares, and debentures — typically offers the best balance of risk and return for the long-term Nepali investor.

Disclaimer: This article is for general informational purposes only and does not constitute investment advice. Please consult a licensed financial advisor before making any investment decision.