Bangla Bond to encourage expats to invest at home

The International Finance Corporation (IFC), the private sector financing wing of the World Bank Group, has issued its inaugural bond in Bangladeshi Taka, raising Tk80 crore – equivalent to approximately $9.5 million.

Before ringing the bell for listing Bangla Bond on the London Stock Exchange, investors subscribed for units 30 percent higher than the IFC offered, said related sources.

Praising it as a good initiative, experts say it is a testing ground for the international investors' confidence in Bangladesh's economy. They also think it will ease the pressure on banking system for midterm financing. Our correspondents Atiqur Rahman Khan and Mahfuz Ullah Babu talked to the experts in this regard.

A new window for expatriate investment

The former lead economist of the World Bank's Bangladesh wing, Zahid Hussain thinks the Bangla Bond has opened a new window for the expatriates to invest and for the Bangladeshi companies to raise money from the international bond market.

"The good thing is at least we have started with a bond as we do not have any active bond market, and it will test the confidence of international arena on Bangladesh," Zahid Hussain told The Business Standard.

He said, if properly managed, the three-year Bangla Bond in London Stock Exchange will help ease the pressure on banking system for midterm financing.

"If the local companies can gradually raise fund from the bond market, the pressure on banking system for midterm finance will decrease. This will help remove the midterm financing constraints for investment. But it still has a long way to go. It is the beginning of the beginning," he added.

Zahid Hussain thinks the Bangla Bond has a good market potential, as the International Finance Corporation is the issuer of the bond.

He said, "The IFC possesses AAA credit rating. It does not have any default risk. So, a good response is expected."

"The IFC has just introduced Bangladesh. For long term sustainable financing, we have to see how Bangladeshi companies perform in the bond market."

He also said some regulatory reforms are needed for the Bangladeshi companies to raise fund from the international bond market.

Positive dimension for private sector

Ahsan H Mansur, executive director of the Policy Research Institute, said, "It is a positive dimension especially for the private sector. Currently, our domestic market cannot afford the financial requirement of the big borrowers. On this ground, this will be very helpful for investment in our private sector."

"It was necessary to introduce our country to the international market. This initiative will ensure our presence in the international market. Issuing a series of Taka-denominated bonds in international market will make this permanent and sustainable."
He said countries like Bangladesh usually issue two types of bonds – Dollar-denominated bond and local currency bond. Currently Bangladesh issues only sovereign Dollar bond.

He also said, "The risk of Taka-denominated bond is very high. So, the premium will be high. If Bangladesh issues a number of Taka-denominated bonds, the international investors will assess the risk factor. For this, it was very urgent for Bangladesh to penetrate into the market."

"So, we have started our journey and our challenge is to gain the confidence of international investors to make it sustainable for long term financing," he added.

An offer of fair return with neutralised currency risk

Mostaque Ahmed Sadeque, former president of the Dhaka Stock Exchange Brokers Association, said the launch of the Bangla Bond has opened a new avenue for the expatriates to invest in Bangladesh.

"Non-resident Bangladeshis around the world have surplus money, which they want to invest in Bangladesh. The Taka-denominated bond is an opportunity for them to invest."

He believes that the Taka-denominated bond will get a good response from nonresident Bangladeshis if it is offered at financial centres abroad. 
The bond will offer them a fair return along with a neutralised currency risk, he said. 

He explained, "If the exchange rate of Taka decreases, their investment value at home will increase. They can utilise the inflated Taka assets locally."

"On the other hand, if Taka gets stronger against foreign currencies like Dollar, Pound, Euro or even Saudi Real, NRB [non-resident Bangladeshis] investors will be benefited abroad," he added.

Along with financial return, they will also enjoy a heroic engagement in the economic development of their homeland, opined Mostaque.

"India initially floated local currency bond for a mid-term period. Due to the non-resident Indians' response, the bond was later turned into longer-term bond. From the three-year Rupee Bond, it has been transformed into five-year, 10-year and 15-year Rupee Bond," he added.