Bangladesh is preparing to release sovereign bonds for the first time in the international capital market. The government plans to raise $500m to a maximum of $100m by selling these bonds in the next three months. The amount of $1b in Bangladeshi currency is about 12,500cr taka.
JPMorgan Chase & Company, one of the world's largest investment firms, is in the process of being appointed to manage the bond's issue. In the meantime, the Bangladesh delegation has held meetings with institutional investors in Europe and New York. In these meetings, there was a hint of investor interest in the bond, the concerned said.
If the government's initiative is successful, for the first time, the price of Bangladesh's own debt or interest rate will be determined in the international capital market. At the same time, it can also open new avenues to raise money directly from the market in foreign currency in the future.
However, the government is cautious about Bangladesh's credit quality in the international market, its ability to repay debt in foreign currency, and the potential interest rate. Concerned people say that issuing bonds at higher interest rates than necessary may increase the burden of foreign debt in the future.
According to sources, the first phase of the bond issue of $500m is considered, but if the market conditions are favorable, it can be up to $1000m. Work is underway to release the bond by December this year.
In July, the finance ministry formed a high-level committee to examine the feasibility of issuing bonds. The committee is headed by Tanvir Shahriar Gani, Special Assistant to the Prime Minister on Investment and Capital Markets. The committee has already held several meetings.
Recently, there have been meetings with major investment firms in Europe and New York. In these meetings, various institutional investors from the United States and Europe have shown interest in Bangladeshi bonds, the government said. The government has said that global interest rates and investor demand will be taken into account in determining the price of bonds.
According to a Bloomberg report, around 15 major investment firms, including BlackRock, Pacific Investment Management Company (PIMCO), Texas Pacific Group (TPG), Macquar, Golden Tree Asset Management, and MetLife, have shown initial interest in potential sovereign bonds in Bangladesh.
Special Assistant to the Government Tanvir Shahriar Ghani said the level of investor interest in sovereign bonds was "very high." However, further discussions are needed before finalizing the bond structure, interest rates, and other legal issues.
According to him, the government is taking seriously the rising cost of borrowing in the international market. As a result, the final decision will be taken considering the amount of interest to be paid from the investors.
Bangladesh has been heavily dependent on loans from development partners, including the World Bank, Asian Development Bank, JICA, and IMF, for foreign financing. There are also bilateral loans.
But with global interest rates rising, the terms and costs of development partners' loans have changed compared to before. At the same time, the country's development spending, foreign debt repayment, and dollar demand have increased.
The size of the budget for the current fiscal year is Rs 9.38 lakhcr. A large part of this will have to be met through deficit financing. As a result, there is a need to increase the government's source of funding.
The government wants to diversify that source by raising money directly from the international market. At the same time, one of the objectives of this initiative is to create opportunities for Bangladesh to participate in the international debt market in the future.
Dollar bonds are the first choice: the first bond is more likely to be released in US dollars. This currency is considered to be the primary choice, as the dollar-based bond market is large for international investors.
However, the government is also examining the possibility of issuing samurai bonds in Japanese yen, panda bonds in Chinese yuan, egg sum bonds in Hong Kong, and sukuk bonds based on Islamic Shariah. Sources said Bangladesh Bank held talks with a delegation of China Exim Bank on the issue of Panda Bonds in China.
Interest rates are the biggest challenge: The biggest question for Bangladesh in the case of sovereign bonds may be interest rates. Because international investors usually determine the interest rate of a country's bonds based on its debt value, foreign exchange reserves, economic stability, ability to repay debt, and future risks.
Bangladesh's debt is still at a relatively low level. However, there have been changes in some indicators in recent times. Moody's has upgraded Bangladesh's credit outlook from negative to stable. On the other hand, from the perspective of Standard & Poor's and Fitch, there is still a risk factor. As a result, the first bond may demand a higher risk-premium for Bangladesh. This can also increase the cost of raising money.
How much relief will you give to the reserve? Bangladesh's foreign exchange reserves have increased slightly in recent times. A positive trend has been created in the reserves due to the increase in remittances and export earnings. But at the same time, there is pressure on foreign loan installments, the cost of importing fuel and goods, and other foreign repayments.
In such a situation, if $500m to $100b is available as new foreign currency, it can provide some immediate relief to the reserves. However, since this money is a loan, interest will have to be paid along with the principal amount in the future.
Where the money will be spent: The money received from the sovereign bonds will be used for which sectors will be used is also becoming important. According to economists, if this money is used for productive investments, it can help pay off debts by generating income in the future.
Investing in sectors such as infrastructure, port and rail connectivity, power and energy, digital infrastructure, and increasing export capacity has a higher chance of getting economic returns. On the other hand, if foreign bond money is used to meet current or non-productive costs, there is a risk of increasing debt pressure in the future.
The first sovereign bond in the international capital market is not only a means of raising money for Bangladesh but also a new test of the country's borrowing capacity in front of international investors.
In addition to how many dollars were received in the first issue, it will also be important to know at what interest and under what conditions Bangladesh is able to raise money. A successful issuance of the first bond could create a larger pool of funds in the international market in the future.
However, the government's ability to repay debt, the dollar exchange rate, and the bond interest rate will be a major consideration for the government before taking on new foreign loans.
Financial Mirror/AH
