2 NBFIs allowed to issue zero coupon, asset-backed bonds

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Siddique Islam
The Bangladesh Bank (BB) has given two non-banking financial institutions (NBFIs) permission to float two zero-coupon bonds and one asset-backed zero-coupon bond.
"We have given permissions on issuance of two zero-coupon bonds and an asset-backed zero-coupon bond to two financial institutions aiming to broaden the window for investment," a BB senior official told the FE Monday.
He also said at least four proposals are still lying with the concerned department of the central bank seeking permission to issue such bond.
"The zero-coupon bond has gradually become a popular investment tool in the financial market due mainly to income tax exemption on earning from the product," the official observed.
The government has already exempted the income, generated from zero-coupon bonds, from payment of income tax as it is considered as an alternative source of financing investment.
The central bank has given permission to the IDLC Finance Limited for floating zero-coupon bond and asst-backed zero-coupon bond worth Tk 1.0 billion and Tk 275 million respectively, the BB officials said.
On the other hand, the Delta Brac Housing Finance Corporation Limited has already obtained permission from the central bank to issue a zero-coupon bond worth Tk 1.50 billion, they added.
"We are positive. But the organisations seeking to issue bonds must fulfil our requirements," another BB official said, adding that the banks, insurance companies and corporate entities mostly purchase such bonds under private placements.
He also said the new bonds will leave a positive impact on the country's bond market.
Currently, there are four zero-coupon bonds, issued by four NBFIs.
The companies are Industrial Promotion and Development Company of Bangladesh Limited (IPDC), IDLC Finance Limited, United Leasing Company Limited, and Industrial and Infrastructure Development Finance Company Limited (IIFCL).
Earlier, the central bank introduced guidelines on mortgaged backed securities (MBS) market in Bangladesh aiming to bring dynamism in the country's bond market.
"The overall bond and securitisation market in Bangladesh has not yet flourished significantly. Specially, the concept of 'mortgaged backed securities market' is quite new," the central bank said in its guideline, issued earlier.