Bonds getting popular meeting capital needs

An increased number of financial institutions and entrepreneurs are showing interest in issuing bonds instead of going for bank loans to boost their capital base and meet capital needs.

Thirteen companies issued bonds worth Tk 4,059 crore in fiscal 2015-16 whereas 17 enterprises issued bonds worth Tk 8,591 crore in the fiscal year ending recently.

Moreover, six banks got approval in 2020 to issue zero-coupon bonds worth Tk 2,600 crore, according to data from the Bangladesh Securities and Exchange Commission.

Most of the bond issuers are financial institutions which chose the option to help them strengthen their Tier 2 capital base.

Tier one capital is commonly known as a bank's core capital whereas Tier 2 capital is known as a bank's supplementary capital.

The capital that falls within the definition of Tier 2 is revaluation reserve, undisclosed reserves, hybrid security and subordinated debt.

"The main objective…is to enhance our (Tier 2) capital base," said JQM Habibullah, company secretary to Islami Bank Bangladesh.

The stock market regulator approved a Mudaraba Subordinated Bond of Islami Bank worth Tk 600 crore on Wednesday, which is redeemable within seven years, non-convertible, unsecured and unlisted.

With each unit priced at Tk 1 crore, the bonds will be issued to financial institutions, insurance companies, corporate and other eligible investors.

Green Delta Insurance is its trustee while and Standard Chartered Bank the mandated lead arranger.

"When we lend money, we cannot say that all of the loans will come back," Habibullah said, adding that the bond-strengthened capital base supports risky assets of banks.

The stock market regulator also gave its go-ahead to UCB AML First Mutual Fund and the initial public offering of Desh General Insurance Company in a commission meeting chaired by BSEC Chairman Prof Shibli Rubayat Ul Islam on December 2.

Desh General will raise Tk 16 crore in funds by issuing 1.6 crore ordinary shares, the BSEC said in a press release.

The IPO proceeds will be used in government treasury bonds, fixed deposit, and stock market. Prime Finance Capital Management is the issue manager.

Eligible investors need to have at least Tk 1 crore of investment five trading days prior to the start of subscriptions scheduled in February in order to enjoy quota benefits.

For pension fund and provident fund, the investment should be at least Tk 50 lakh, the BSEC said.

Meanwhile the primary target of the open-ended UCB AML First Mutual Fund is to generate Tk 20 crore. Of the fund, UCB Asset management will provide Tk 2 crore and the remaining Tk 18 crore is open for general investors. The price of each unit is Tk 10.

Sandhani Life Insurance and Brac Bank was the fund's trustee and custodian respectively. 

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