BB shelves debt-equity guideline
Saturday, 28 July 2007
The Bangladesh Bank has set back rolling out a debt-equity guideline after stiff opposition from entrepreneurs, reports bdnews24.com.
The guideline was framed to encourage companies to raise funds in part from the capital market instead of seeking bank loans for external funding.
The entrepreneurs argued the move would put brakes on raising funds and stymie industrial growth.
"We are not considering it for now. But we have not trashed it either," a top central bank official, speaking in return for anonymity because he was not authorised to speak to the media, told bdnews24.com Thursday.
"We will put it in force once we are sure that industrial growth will not be hampered anyway."
"Entrepreneurs say it will affect the industrial growth since the country's capital market is not developed enough," he said.
The central bank, following a government decision to make the stock market a major source for industrial financing in mid-2005, framed the guideline in April 2006.
It recommended that the companies raise a portion of their required funds through IPOs.
The proposed guideline says a company, seeking large bank loans of Tk 25 crore or beyond, will need to raise 25 percent of the funds from the stock market and an equal portion from sponsor shareholders.
Banks will provide the remaining 50 percent of funds to the company as loans and the ratio for debt-equity was suggested at 50:50, according to the draft guideline.
The guideline also stressed a minimum BBB credit rating and credit risk grading ACCPT for companies applying for large bank loans.
The regulatory body's latest decision to delay the plan came after the chamber bodies, especially the Metropolitan Chamber of Commerce and Industry, took a position on the grounds that it would hurt industrial growth.
The MCCI said a mandatory IPO requirement based on the project size might act as a disincentive to the entrepreneurs when the confidence of the investors in the capital market is low.
"Presently, the capital market performance had been affected by low investors' confidence.
"In this situation, making it mandatory to float shares for large projects would not necessarily result in upward movement of the capital market performance," the MCCI said in its observation in Major Events 2006.
The chamber said the decision on whether to go for an initial public offering should be left with the entrepreneurs in a free-market regime instead of it being forced upon them.
It also wants a change to the definition of large loans-from Tk 250 million to Tk 1.00 billion-in the proposed guideline.
MCCI president Latifur Rahman could not be immediately reached for comment.
His attention drawn to the buoyant trend on the bourses, the central bank official said a bullish trend over the past six months was not enough to say that the market has developed.
"We should observe the trend for a long period," he said.
Chief executive of Dhaka Stock Exchange Salahuddin Ahmed Khan differed over the contention of the MCCI and the central bank official.
He said the capital market was capable to meet fund requirements of companies.
"It now has the capacity to provide over thousands of crore of taka without affecting regular trading," Ahmed said.
He cited recent subscription to the IPO of Trust Bank, which fetched some Tk 7.00 billion from the primary market against an offer at Tk 700 million.
Volume of regular trading was upbeat during the subscription period, he said.
The guideline was framed to encourage companies to raise funds in part from the capital market instead of seeking bank loans for external funding.
The entrepreneurs argued the move would put brakes on raising funds and stymie industrial growth.
"We are not considering it for now. But we have not trashed it either," a top central bank official, speaking in return for anonymity because he was not authorised to speak to the media, told bdnews24.com Thursday.
"We will put it in force once we are sure that industrial growth will not be hampered anyway."
"Entrepreneurs say it will affect the industrial growth since the country's capital market is not developed enough," he said.
The central bank, following a government decision to make the stock market a major source for industrial financing in mid-2005, framed the guideline in April 2006.
It recommended that the companies raise a portion of their required funds through IPOs.
The proposed guideline says a company, seeking large bank loans of Tk 25 crore or beyond, will need to raise 25 percent of the funds from the stock market and an equal portion from sponsor shareholders.
Banks will provide the remaining 50 percent of funds to the company as loans and the ratio for debt-equity was suggested at 50:50, according to the draft guideline.
The guideline also stressed a minimum BBB credit rating and credit risk grading ACCPT for companies applying for large bank loans.
The regulatory body's latest decision to delay the plan came after the chamber bodies, especially the Metropolitan Chamber of Commerce and Industry, took a position on the grounds that it would hurt industrial growth.
The MCCI said a mandatory IPO requirement based on the project size might act as a disincentive to the entrepreneurs when the confidence of the investors in the capital market is low.
"Presently, the capital market performance had been affected by low investors' confidence.
"In this situation, making it mandatory to float shares for large projects would not necessarily result in upward movement of the capital market performance," the MCCI said in its observation in Major Events 2006.
The chamber said the decision on whether to go for an initial public offering should be left with the entrepreneurs in a free-market regime instead of it being forced upon them.
It also wants a change to the definition of large loans-from Tk 250 million to Tk 1.00 billion-in the proposed guideline.
MCCI president Latifur Rahman could not be immediately reached for comment.
His attention drawn to the buoyant trend on the bourses, the central bank official said a bullish trend over the past six months was not enough to say that the market has developed.
"We should observe the trend for a long period," he said.
Chief executive of Dhaka Stock Exchange Salahuddin Ahmed Khan differed over the contention of the MCCI and the central bank official.
He said the capital market was capable to meet fund requirements of companies.
"It now has the capacity to provide over thousands of crore of taka without affecting regular trading," Ahmed said.
He cited recent subscription to the IPO of Trust Bank, which fetched some Tk 7.00 billion from the primary market against an offer at Tk 700 million.
Volume of regular trading was upbeat during the subscription period, he said.