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Fund raising through bonds rose sharply by 62.56 per cent to Tk13,967 crore in the fiscal year 2020-21 as it gives a company more freedom and flexibility to collect money than traditional bank loans.
According to Bangladesh Securities and Exchange Commission (BSEC) data, 24 companies raised Tk 13,967 crore in the last fiscal year through the issuance of bonds, which is 62.56 per cent higher than Tk 8,591.4 crore the year before.
In July, the first month of the current FY, Pran Agro Limited and TMSS got regulatory approval to raise Tk 150 crore and Tk 200.10 crore, respectively, through the bond.
In the last 10 FYs, 99 companies raised Tk 60,010 crore through the issuance of several bonds.
Last fiscal year, 16 companies raised Tk 1,715 crore through an initial public offering (IPO).
Organizaions get nod to raise funds
In the FY21, a total of 21 companies and three non-government organizations received approvals from BSEC to raise funds through bond issuance.
Standard Bank got nod to collect Tk500 crore followed by NCC Bank Tk500 crore, Standard Chartered Bank Bangladesh Tk 850 crore, Al-Arafah Islami Bank Tk500 crore, PRAN Agro Tk210 crore, Southeast Bank Tk 500 crore Dutch-Bangla Bank Tk500 crore, Aamra Networks Tk 100 crore, Social Islami Bank Tk 500 crore, Islami Bank Tk600, Confidence Batteries Tk 570 crore, First Securities Islami Bank Tk600 crore, Trust Bank Tk400 crore, United Commercial Tk400 crore, One Bank Tk400 crore, Mutual Trust Bank Tk400 crore, Trust Bank Tk400 crore, IDLC Finance Tk 500 core, BRAC Tk 1,350 crore, EXIM Bank Tk 600 crore, Sajida Foundation Tk 100 crore, EXIM Bank Limited Tk 500 crore, IFIC Bank Tk500 crore and Beximco Green Sukuk Tk3,000 crore
Why do businesses choose bonds?
“Bonds are typically less risky than stocks and therefore command lower expected returns than stocks. Bondholders are creditors for a company, not owner,” Uzma Chowdhury, Finance Director of PRAN-RFL Group, told The Business Post.
“Owners issue bonds If they want to keep ownership intact, use the money against interest expense and pay back the money to the creditors on time.”
Secondly, once you pay off the creditors, the relationship ends. If you issue shares, the shareholders are the company’s owners, and they stay with you forever, said Uzma.
Pran Agro Limited got the regulator’s nod to raise Tk 150 crore through non-convertible green bonds.
On the other hand, some of the businesses are preferring Islamic bonds.
A tool for large and long-term investment
“Collecting funds through different types of bonds can reduce pressure on the banking sector by meeting long-term and large-scale financing with a fixed rate, which fluctuates in case of bank loans, Ershad Hossain, managing director of City Bank Capital Resources Limited, told The Business Post.
“We had a plan to diversify the sources of funds to reduce dependency on foreign funds,” Asif Saleh, executive director of BRAC, told The Business Post.
The issuance of bond to collect funds is a new way of financing for microfinance. That is why we are collecting funds through bonds, said Asif.
BRAC, the world’s largest NGO, has received the nod from BSEC to raise Tk 1,350 crore by issuing zero-coupon bonds.
BRAC will use the proceeds to expand its microfinance activities.
What experts suggest
In general, the bond is always good for developing ways to finance long-term investments and mega projects. But the issue should be handled with care to tap the opportunities.
“Since there are not available alternative options for long-term financing except bank loans, we should develop a sustainable bond market for ensuring financing for big projects as well as a long-term investment,” Zahid Hussain, former lead economist of World Bank, Dhaka, told The Business Post.
However, this bond should be made available for general investors and traded in the secondary market, said the economist.
Good governance has to be ensured so that no one can issue bonds against a junk company, while the financial statement should be properly scrutinised to protect investors’ rights, said Zahid.
