The securities regulator and intermediaries have rebuked different tunes about the market’s ability to absorb the bonds approved so far.
Most bonds are issued by banks to strengthen their equity.
The Bangladesh Securities and Exchange Commission (BSEC) said the market has a much higher capacity than what is needed to absorb the bonds approved so far.
But some market intermediaries have said investor appetite for bonds has yet to meet. Others said banks bought the bonds through negotiations to help each other. The types of bonds currently issued will not help develop a vibrant secondary bond market that is most desired, they added.
âThe overall size of the bonds approved by the commission so far is not that large compared to the capacity of the market,â said Prof. Shibli Rubayat Ul Islam, Chairman of BSEC.
Dr Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), said that a vibrant bond market will continue to be a distant dream as long as bonds are traded among a select group through negotiations. Bonds must be made tradable and passed on to investors in general to achieve the goal, he said.
During the tenure of the outgoing commission headed by Prof. Islam, 16 banks, a financial institution and five other entities, including BEXIMCO, obtained authorization to raise a total amount of Tk 144.60 billion (14,460 crore) in capital by issuing bonds. Debt instruments include subordinated, green-sukuk, perpetual and zero coupon bonds.
Green Delta Insurance Company, MTB Capital, EBL Investment, IDLC Finance, Sena Kalyan Insurance, IDLC Investments and Investment Corporation of Bangladesh (ICB), among others, work as trustees or arrangers of many bonds issued by banks and corporations. entities.
Issuers are authorized to complete the subscription or sale of bond units within a period ranging from six months to one year.
Green Delta Insurance Company acts as trustee of the majority of bonds approved since May 2020.
When questioned, a senior Delta Life Insurance official said that subscriptions to all of their obligations were made within the deadlines stipulated in the prospectuses.
Md Syadur Rahman, Managing Director of EBL Securities, said the bond issued by Ashuganj Power Station Company (APSC) was underwritten despite being government guaranteed debt securities.
“The case of APSC bonds indicates that the appetite for bonds is not yet present due to the lack of sufficient effort to make these debt securities popular,” said Mr. Rahman, also chairman of the Bangladesh Merchant Bankers Association (BMBA).
Officials at MTB Capital, which works for bonds issued by 14 companies, said they had not yet encountered any problems with the sale of bonds, especially those issued by banks, within a deadline.
“However, corporate bonds do not elicit a lot of reaction to debt securities issued by banks,” said an official at MTB Capital.
Preferring anonymity, an official at an investment bank said the banks’ bonds were sold between the banks as they helped each other in the negotiation.
“This practice does not bring any benefit to the bond market,” said the official.
When asked, a Bangladesh Bank (BB) official said so far that only Padma Bank was unable to sell its bond due to a crisis following the issuance of its debt securities.
“All the banks except Padma Bank were able to sell their bonds,” the central bank official said.
BSEC President Islam said the capacity of the bond market will be gradually strengthened as these debt securities begin to become the main source of long-term financing instead of bank loans.
He said the securities regulator had already issued a directive regarding the public offering of at least 10 percent of a perpetual bond.
âThe public offering provision was introduced to contain the practice of selling bonds between banks by negotiation,â Professor Islam said.
Speaking on the issue of security, the president of BSEC said that no investment tool is risk-free.
“Payments to bondholders will be settled, if necessary in any case, through the sale of the assets of an issuer,” Islam said.
He said the securities regulator has also introduced the classification provision in the event of the issuer’s default to pay interest on the bonds.
The BSEC has asked perpetual bond issuers to ensure provisioning of at least 20% in addition to the annual payment of interest or coupons.
If there was a lack of funds or profit in any given year to make an interest or coupon payment, the perpetual bond issuer will have to pay all of the interest or coupons due using accumulated coupon or interest reserve account funds.
Units of different bonds are sold to financial institutions, banks, corporations and high net worth individuals, among others, through private placements.
In a directive, the securities regulator asked market intermediaries, including investment bankers and portfolio managers, asset managers and securities dealers, to invest at least three percent of their own portfolios in listed debt securities by June 30, 2022.
And they will have to maintain the ratio of investment in listed debt securities forever.
The securities regulator said the directive was issued in order to diversify the portfolio risk of market intermediaries.
Of the 16 banks, The City Bank, Jamuna Bank, One Bank, United Commercial Bank, Trust Bank and Mutual Trust Bank have been given the regulatory green light to raise Tk 4.0 billion each by issuing bonds.
Among the others, Standard Bank, NCC Bank, Al-Arafa Islami Bank, Southeast Bank, Dutch-Bangla Bank, Social Islami Bank, EXIM Bank and IFIC Bank have been authorized to raise Tk 5.0 billion each.
Islami Bank, First Security Islami Bank and EXIM Bank will raise capital worth Tk 6.0 billion each while Standard Bank has been given the green light to raise Tk 8.5 billion.
The financial institution IDLC Finance has been authorized to raise Tk 5.0 billion by issuing zero coupon bonds.
Of the other five entities, BEXIMCO has been authorized to raise the highest capital ever worth Tk 30 billion by issuing green sukuk-asset backed bonds.
BRAC has obtained authorization to raise Tk 13.50 billion via its zero coupon bond.
Pran Agro has been authorized to raise Tk 2.10 billion and Tk 1.50 billion separately.
The SAJIDA Foundation obtained regulatory approval for the first time to issue green bonds worth Tk 1.0 billion.
Aamra Network also obtained BSEC approval to raise Tk 1.0 billion (100 crore).