$1b taka bond debuts Nov 11
A $1 billion taka-linked bond is set to be floated on the London Stock Exchange on November 11 as the government looks to mobilise the hordes of expatriate Bangladeshis the world over towards nation building and also draw in foreign investors.
The disclosure was made by Finance Minister AHM Mustafa Kamal at a programme held at the Bangladesh high commission in London on Thursday, according to a statement from the finance ministry.
The bond will be backed by the International Finance Corporation (IFC), which has been working with the government for four years.
A successful implementation of the bond issuance will signal the confidence offshore investors have in the stability of the Bangladesh economy and the taka, the IFC said in its proposal on April 2015.
Positive investor and media responses to an inaugural IFC issuance could potentially catalyse further investments and dollar inflows into Bangladesh.
Many investors tend to invest in AA-rated bonds and stay away from Baa3/BBB-/BB+ rated Bangladesh government bonds even if they wish to gain exposure to the taka.
These investors will, however, be able to invest in IFC’s AAA rated bonds, the IFC said, adding that sovereign wealth funds and foreign central banks are likely to be attracted to the taka-linked bonds.
While initial feedback from investors has signalled appetite for shorter tenures (2-5 years), the IFC’s intent is to build a longer yield curve over time.
“Based on our experience in other countries such as China and India, as the market matures, investors will gain more comfort with taking risk for longer tenures.”
For instance, in India the IFC successfully created an offshore rupee yield curve starting with three-year issuances of benchmark sizes and gradually extending to longer maturities of five, seven and 10 years by regularly tapping into the market over a one year period.
Proceeds from longer tenure bonds could be utilised in infrastructure projects within Bangladesh, it said.
By establishing the programme, the IFC can provide a successful benchmark for other issuers from Bangladesh, who could then access the offshore investor base.
Potential exists for such issuers to be able to source funding for longer tenures and larger sizes (given the more diversified investor base) than would be possible in the domestic capital markets, the IFC said.
The World Bank’s private sector arm cited the case in India, where the success of its bond programme demonstrated to the Indian government and its central bank the potential of the offshore markets as a new and significant funding source for entities.
Lastly, a deep and liquid offshore taka market will provide a channel for foreign investors to invest dollars that can be used for investment in Bangladesh.
The primary objective of the bond issuance is to mobilise capital to fund IFC investments in projects in the country.
This will be done by converting the dollar proceeds of the bonds into taka and then using the resulting taka funds to provide financing for projects in Bangladesh.
The finance ministry official said former finance minister AMA Muhith had discussed the issue with the IFC on various occasions and with the World Bank and International Monetary Fund in Washington DC.
He also said the present finance minister held a meeting in this regard while attending an annual IMF meeting earlier this month. The IFC will launch the taka-linked bonds after discussions with the finance minister once he returns to Dhaka in a couple of days’ time, said a finance ministry official.
New Committee
Kamal said a seven-member committee will be formed headed by the high commissioner in London to identify the barriers in sending remittance to Bangladesh. He also said the cash incentive for remittance will be provided from July 1 and beneficiaries can claim the incentive at their respective banks.
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