An ADB delegation yesterday made a presentation on the arrangement to the BB senior executives in the bank's conference room in presence of Governor Dr Salehuddin Ahmed.

Under the arrangement, the finance will be available mainly for state-owned enterprises (SoEs) as well as for the corporate sectors without state guarantee as required for other modes of ADB loans and grants.

The loan will be of local currency to be mobilised mainly through issuing bonds in the local money market, with ADB providing a substantial portion of the total loan.

The central bank governor and other senior executives, however, mentioned some risks of issuing such bonds and the pricing policy.

"We'll have to examine whether government's borrowing capacity will be reduced due to such bonds," the governor told reporters after the ADB presentation.

He said if the price of the bond is set higher than the government bonds, the cost of government borrowing through bonds would increase.

During the presentation, Dr Salehuddin said he was worried whether the SOEs would be viable in the long run, but admitted that it would give signals to the SOEs to become vibrant.

The ADB financing arrangement through bond, he added, would deepen the country's capital market, attract foreign portfolio investment and help activate the secondary bond market.

Besides big projects, Dr Salehuddin said the municipalities would be benefited from such bonds if they could meet the requirements to qualify for the loans to be evaluated by ADB.

ADB's South Asia Department Director for Governance, Finance and Trade Ashok Sharma told reporters that there would be no competition with the local banks, as they cannot meet the demand for huge projects.

ADB executives informed the meeting that they assumed the demand for such loans will come from infrastructure projects in Bangladesh, but now they see that demands are coming from the financial sector particularly from the nationalized commercial banks (NCBs) going through substantial reforms.

They said ADB would carry out extensive due diligence to select SoEs for the financing and the SoEs certainly have to be willing to restructure management and ensure governance as key elements.

For instance, they said the policy in the power sector of Bangladesh is being changed positively.

The ADB executives said such loan arrangements for Agrani Bank, Power Grid Company of Bangladesh Limited, Infrastructure Development Company Limited, Teletalk Bangladesh Limited and Dhaka Electric Supply Company (DESCO) are in the pipeline.