Al Amin :
Success of the Bangla Bond can be a turning point for Bangladesh if it boosts private investment from the current 23 percent of GDP to nearly 30 percent to accelerate and sustain growth as it moves up to the middle-income path.
The Bangla Bond will also pave the way for the government to float sovereign bonds of its own and get the funding needed to develop infrastructure befitting of the country’s growth ambitions, which is become an advanced nation by 2041, economists said.
The International Finance Corporation (IFC) has floated taka bonds-Bangla Bond-in the London Stock Exchange on Monday after the approval of the Bangladesh government.
IFC collected $19 million from European institutions so far in the first phase and all the money will go to Bangladeshi leading company Pran RFL to expand its business. The IFC is also working to collect $30 crore through the ‘Bangla Bond’ for the second phase by next January-February.
The bond is principally purchased by institutional investors seeking exposure to the taka and a higher yield.
IFC Senior Economist Mashrur Reaz said, “Most of the investors in the Bangla Bond for first phase are European institutions as there is no chance to invest in the bond individually or expatriate Bangladeshi. But they will be able to invest here institutionally, if they want.”
He also said the interest of bond will be paid by Taka and the investors will convert it into a convenient currency. So, the investors will bear the currency exchange rate risk.
The money collected through the Bangla Bond will be invested in three sectors-housing, microfinance and SME and the interest will be indentified as per market.
According to IFC, it is working for improvement of the private sector and the proceeds of the taka bond would be lent to private sector clients in Bangladesh.
“Successful operation of the Bangla Bond can hasten the development and maturity of the fixed income market in Bangladesh. If it really becomes popular with overseas investors, then they can be a huge support to the taka,” said Dr Zahid Hossain, former lead economist of World Bank in Dhaka.
Meanwhile, A B Mirza Azizul Islam, former Adviser to the Caretaker Government, said, “Too much success with the issuance of this bond can also be problem as it will lead to appreciation of the taka, thus discouraging exports, remittances and dent the competitiveness of several Bangladeshi industries.”
The IFC spokesperson in Dhaka said that many international investors were interested in investing Taka-denominated bond with a view to keeping their investment free from possible risks due to exchange rate fluctuation.
“Generally, investment in Bangladesh’s private sector needs to proceed through a lot of official formalities, which make the thing costlier and time consuming. So, investing in Bangla Bond will not require that much cost and time. This is basically to attract investors,” said the IFC spokesperson.
The Bangla Bond will give global investors the chance to make a profit from Bangladesh’s growth process, from which they have been shut out thus far for the rudimentary state of the local bond market, cumbersome registration processes, foreign exchange administrative procedures and capital controls.
Offshore borrowing allows Bangladeshi companies to take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant and has to be borne by the companies themselves.
Success of the Bangla Bond can be a turning point for Bangladesh if it boosts private investment from the current 23 percent of GDP to nearly 30 percent to accelerate and sustain growth as it moves up to the middle-income path.
The Bangla Bond will also pave the way for the government to float sovereign bonds of its own and get the funding needed to develop infrastructure befitting of the country’s growth ambitions, which is become an advanced nation by 2041, economists said.
The International Finance Corporation (IFC) has floated taka bonds-Bangla Bond-in the London Stock Exchange on Monday after the approval of the Bangladesh government.
IFC collected $19 million from European institutions so far in the first phase and all the money will go to Bangladeshi leading company Pran RFL to expand its business. The IFC is also working to collect $30 crore through the ‘Bangla Bond’ for the second phase by next January-February.
The bond is principally purchased by institutional investors seeking exposure to the taka and a higher yield.
IFC Senior Economist Mashrur Reaz said, “Most of the investors in the Bangla Bond for first phase are European institutions as there is no chance to invest in the bond individually or expatriate Bangladeshi. But they will be able to invest here institutionally, if they want.”
He also said the interest of bond will be paid by Taka and the investors will convert it into a convenient currency. So, the investors will bear the currency exchange rate risk.
The money collected through the Bangla Bond will be invested in three sectors-housing, microfinance and SME and the interest will be indentified as per market.
According to IFC, it is working for improvement of the private sector and the proceeds of the taka bond would be lent to private sector clients in Bangladesh.
“Successful operation of the Bangla Bond can hasten the development and maturity of the fixed income market in Bangladesh. If it really becomes popular with overseas investors, then they can be a huge support to the taka,” said Dr Zahid Hossain, former lead economist of World Bank in Dhaka.
Meanwhile, A B Mirza Azizul Islam, former Adviser to the Caretaker Government, said, “Too much success with the issuance of this bond can also be problem as it will lead to appreciation of the taka, thus discouraging exports, remittances and dent the competitiveness of several Bangladeshi industries.”
The IFC spokesperson in Dhaka said that many international investors were interested in investing Taka-denominated bond with a view to keeping their investment free from possible risks due to exchange rate fluctuation.
“Generally, investment in Bangladesh’s private sector needs to proceed through a lot of official formalities, which make the thing costlier and time consuming. So, investing in Bangla Bond will not require that much cost and time. This is basically to attract investors,” said the IFC spokesperson.
The Bangla Bond will give global investors the chance to make a profit from Bangladesh’s growth process, from which they have been shut out thus far for the rudimentary state of the local bond market, cumbersome registration processes, foreign exchange administrative procedures and capital controls.
Offshore borrowing allows Bangladeshi companies to take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant and has to be borne by the companies themselves.
