Sights set on bond market for long-term financing

Now the focus turns on bond market for long-term financing of trade and industries--amid a financial crunch at home and overseas-as a cutting-edge meet Tuesday stressed creating awareness about the fixed-income instrument.

Creating awareness of the bond market is the main challenge for developing this instrument in the country, a large number of speakers noted at the seminar, while economists opine banks are not meant for industrial or such other financing but the capital market is.

They listed lengthy timeline for issuing bonds, difficulty in getting special-purpose vehicles or SPV, and the need for lowering transaction fees on the exchanges as critical issues relating to bond-market development.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) organised the seminar at its headquarters in the city. FBCCI president Md. Jashim Uddin made a welcome address at the outset.

Salman Fazlur Rahman, private industry and investment adviser to the Prime Minister, joined the function as chief guest. Prof Shibli Rubayat-Ul-Islam, chairman of Bangladesh Securities and Exchange Commission (BSEC), attended the meet as special guest.

Arif Khan, vice chairman at Shanta Asset Management Limited, presented the keynote at the seminar detailing the pros and cons of bond-market development.

While speaking at the programme, Mr Salman Fazlur Rahman said awareness is very much important for the bond market. There are two main issues for the development of the market in the country: creating awareness and understanding of the calculation.

"I even had failed to convince many bank CEOs on the yield curves of Sukok bonds," Mr Rahman, also a business magnet and ex-president of the FBCCI, told his audience.

He said investment in bonds is attractive at a time when the market prices remain below par value as the investors then get good profits (a combination of both less-than-par-value bond prices and yields).

When the price of a bond is Tk 85 of par value Tk 100, and if the issuer gives 9.0-percent yield, then the investors get around 22 per cent.

On every matured market, the bond market is there. He, however, said Tuesday is a historical day for the market as 253 government bonds began to trade on the day.

Prof Shibli Rubayat-Ul-Islam said the banks come to the BSEC for issuing bonds as their non-performing loans eat up their capital.

"To meet the capital requirement the banks come to us for issuing perpetual bonds," Mr Islam said.

He said: "Sitting at the BSEC we are helping banks to survive."

When NPL increases, the banks need to provision and then they need money to survive.

He said the BSEC made mandatory secondary trading of the perpetual bonds.

Mr. Islam said the market capitalisation has surged to 25 per cent of the GDP after the beginning of the secondary trading of the G-securities on the bourses on Tuesday.

The BSEC chief said bonds are very much alternative than FDR. An FDR needs to encash for some time but the bonds can be sold in any trading session of the exchanges.

He noted that the capital market in many economies is bigger than the money market.

About delay in getting approval from the BSEC, he said the regulatory body scrutinizes all documents to avoid any failure by the issuers.

While speaking as a penal discussant, Shuvra Kanti Choudhury, managing director & CEO of Central Depository Bangladesh (CDBL), said secondary trading in the government securities failed to launch on Monday due to technical reasons.

He said the CDBL is now sending the monthly statement to the investors.

Richard D' Rozario, president of the DSE Brokers Association of Bangladesh, said knowledge is very much important for the market. He suggests that school syllabus should incorporate chapters relating to the bonds.

Mohammed Nasir Uddin Chowdhury, former president of the Bangladesh Merchant Bankers Association (BMBA), said the investors cannot foresee the future--they think about the short terms investments.

He alleged that the credit-rating agencies need to be monitored as those who rate the SMEs cannot rate Tk 100 billion worth of bond issues.

Shakil Rizvi, shareholder director of Dhaka Stock Exchange Ltd, said Bangladesh's share market has been progressing on one foot--this is not sustainable for the market.

He mentioned that in India investments in the bond market are tax-free.

"We should take such tax-free initiative for the development of the market".

Amzad Hussain, director at the FBCCI Standing Committee on capital market and bond, said they usually get involved with advocacy for the capital market.

"We are working for advocacy on the issue. We will give the pictures to the government relating to the hurdles of the development of the bond market to the government."

Nurul Amin, former CEO and Managing Director of Meghna Bank, said there is now a need to evaluate the existing performance of the bonds.

While presenting the keynote, Mr. Arif Khan said Bangladesh's total debt market is now at US$ 70 billion. But 52 per cent is occupied by the national savings certificates. The size of the corporate bond market is a mere $3.0 billion.

Mr. Khan said Bangladesh has the lowest bond market in terms of GDP among its peer economies.

"Bangladesh now has 8.0 per cent of the GDP while Vietnam has 26 per cent of its GDP," Mr. Khan told the meet. He said corporate bond is almost non-existent as a percentage of the GDP.

"Currently, of the 8.0-per cent bond share, 7.9-per cent government bonds while the 0.1 percent are corporate bonds."

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