The Asian Development Bank (ADB) is seeking to lend a hard-term loan to the Bangladesh government from its non-sovereign financing facility as part of an effort to expand its portfolio, officials said on Wednesday.
However, the government has declined to borrow from the non-sovereign financing modality, as it is a non-concessional and hard-term loan, they said.
The Manila-based lender had urged Dhaka Electric Supply Company Limited (DESCO) to borrow from the non-sovereign financing facilities - typically used to help private sector organisations and businesses.
The interest rate on the loan is a floating one, which is charged at the Secured Overnight Financing Rate (SOFR) plus 0.05 to 0.5 per cent rate. The maturity of the loan is between 8 and 12 years, with a grace period of only 2 to 3 years.
Besides, the non-sovereign loan would have commitment charges, front-end fees, and transaction fees.
The SOFR rate is currently 5.06760 per cent for a 30-day average, 5.02583 per cent for a 90-day average and 4.83105 per cent for a 180-day average.
According to the ADB, the non-sovereign loan would be a floating-rate loan, with the lending rate consisting of a cost base rate plus a lending spread.
The cost base rate for floating-rate loans will be based on a suitable local floating rate market benchmark, adjusted by the ADB's funding spread over or below the benchmark.
The lending spread would be fixed for the life of the loan and would depend on the assessment of the credit and project risks of the loan, the ADB said.
"We have already informed the ADB that the government is not in a position at this moment to borrow from the non-sovereign financing facility," said a senior Economic Relations Division (ERD) official. "We need more concessional loans during this economic crisis."
The official said the government could consider the ADB's non-concessional loan proposal in the future, but not now.
DESCO Managing Director Engineer Md Kausar Ameer Ali said the ADB has suggested that they borrow from the non-sovereign financing facility.
"But the government policy at this moment is against borrowing from non-concessional windows. We have requested the ADB to lend from its sovereign or concessional window," Engineer Ameer told the FE.
According to DESCO, it has undertaken the 'Dhaka Power System Expansion and Strengthening Project in DESCO Areas,' which will require some US$257.7 million in funding.
Of the cost, the ADB has assured of bankrolling US$160 million worth of loans.
When asked about the terms and conditions of the ADB's proposed non-sovereign loan, another ERD official said the credit would be much more challenging than its current portfolios.
"This will be a floating rate and there will be a shorter maturity, with different types of additional charges, such as front-end fees, commitment fees and transition fees. Since the SOFR rate is now nearly 5.0 per cent, the overall interest rate of the proposed loan will cross 6.0 per cent, which is a fully commercial loan."
Currently, the ADB provides Bangladesh loans from the COL (Concessional OCR Loan) and the OCR (Ordinary Capital Resources).
The ADB's interest rate for COL is fixed at 2.0 per cent, and the OCR is a floating one based on the SOFR.
The ERD official said, "If we borrow the non-sovereign loan from the ADB at this economic crisis moment, Bangladesh's debt burden will be higher. So we are very much cautious in this regard."
Actually, the present government policy is to borrow more concessional loans than non-concessional ones, as the economy is going through a transition amid the Russia-Ukraine war and global inflationary pressure, the ERD official said.
The ADB is the second largest multilateral lender in Bangladesh after the World Bank.
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