Listing of perpetual bonds must by 30 days of subscription closure

Perpetual bonds issued by banks must be listed on the stock exchanges within 30 days of their subscription closure, as decided by the Bangladesh Bank and the Securities and Exchange Commission (BSEC) in a meeting on Monday.

The capital market regulator is set to come up with detailed instructions in this regard, said Rezaul Karim, BSEC executive director and the spokesperson.

The deadline for making the bonds tradable in the secondary market will be set on a case-to-case basis, but the commission is convinced that 30 days are grossly enough for listing, he said.

The move comes to offer investors the freedom to exit with ease any day.

Earlier, in July last year, BSEC decided all the perpetual bonds issued by banks must be tradable in the main board of a local bourse.

Perpetual bonds, debt securities without maturity, are gaining momentum in Bangladesh as a large number of commercial banks are on their way to strengthening the Tier-I capital base to comply with Basel III guidelines.

Tier-I capital consists of equity and perpetual debt securities, which are deemed to be similar to equity in nature.

Since mid-2020, commercial banks have begun to get regulatory approval for perpetual bonds and eight banks are collecting Tk3,600 crore in total through the newly popularised instrument.

The City Bank Ltd is going to arrange the closure ceremony of the first-ever Basel-III complying perpetual bond in the country on Tuesday.

And, the others are set to follow through while many more such bonds are in the pipeline.

The City Bank Capital Resources Limited, the investment banking subsidiary of the City Bank, is working as the mandated lead arranger of all eight perpetual bonds.

Bangladeshi banks have flooded the primary bond market with redeemable corporate bonds over the last decade as those helped them strengthen their Tier-II capital base.

But as the bonds barely took to the stock exchanges for listing, those were privately placed mainly among other banks and the concentration did not help to uphold the idea to diversify the investor base and create a vibrant secondary market for bonds.

However, as perpetual bonds have no maturity, investors need their freedom to exit when they need it, and listing is now set to offer them convenience.

Very importantly, the listing through attracting diversified investors in the debt instruments will help reduce a rational expert concern - looming systematic risks in the banking sector because of the concentration of both issuance and investment within the banking system.

The capital market's hunger for tradable debt securities will also be catered through the perpetual bonds' listing.

The BSEC on Monday also said the money and capital market regulators decided to work together on making the treasury bills and bonds tradeable in the bourses so that different types of investors can invest in the government securities.

The two will also join hands to advocate for market-friendly tax measures for listed companies, alongside inspiring commercial banks to invest Tk200 crore each in capital market instruments.

Central Bank officials in the meeting with the BSEC also assured the capital market regulator of considering the market professionals' call for easing the method to calculate commercial banks' exposure in the capital market.

Following the 2010 stock market crash, the Bangladesh Bank capped the banks' investment ceiling in stocks and other capital market instruments and the exposure is being calculated based on the securities' market price, which market professionals have long been requesting to be based on the actual cost.

The meeting also decided in principle to welcome banks' investment in special purpose vehicles, asset-backed securities, diversified debt securities out of their Tk200 crore capital market investment funds the central bank instructed for in early 2020.