Private enterprises are facing a tricky situation in collecting funds through bonds; they want to keep the return rate low, avoiding high bank borrowing costs, but are having to compete with rates of government securities.
After the latest policy rate hike by the central bank, the lending rates accelerated to cross 12 per cent, swelling finance costs of borrowers. To keep the repayment burden under control, companies tilted towards bonds.
On the other hand, Treasury bond rates rose up to 11.60 per cent this month for a period of two years, luring investors to the fixed-income instrument.
That is the reason as to why recent attempts to issue corporate bonds for raising capital have not been as fruitful as expected.
For example, bonds issued by National Housing Finance have received a slow response. The company received regulatory approval to issue zero-coupon bonds worth Tk 37.44 billion in November last year.
"Corporate bonds will not be able to attract investors unless they offer higher interest rates compared to Treasury bonds," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
When Navana Pharmaceuticals tabled its proposal for floating convertible and redeemable bonds in the middle of 2023, it suggested 10.5 per cent coupon rate.
Though the drug maker has already received an approval, it considers increasing the coupon rate to elicit investors' interest.
Md. Abu Hurayra, chief financial officer of Navana Pharmaceuticals, said it would be difficult to ensure bond subscriptions amid rising interest rates of Treasury bills and bonds.
Asked if the purpose of containing borrowing costs will be served if the bond rates go higher, the CFO said they were yet to decide how to go about it.
Last year, Runner Automobiles saw successful subscription of its sustainability bonds offering an interest rate of 8.5-9 per cent. At the time, the interest rate of Treasury bills was 8.5 per cent, meaning the coupon rate of the Runner's bonds was above the rate of Treasury bills.
MetLife Bangladesh solely subscribed Runner's bonds.
However, there are other factors, such as company's reputation, previous record of payments, and cash flow positions, which investors consider while deciding to buy corporate bonds.
Alif Industries, National Polymer Industries, Paramount Textile, and Mir Akhter Hossain have failed to complete subscription of the bonds that they issued.
In May 2022, the securities regulator approved a proposal of Alif Industries for issuing convertible bonds worth Tk 3 billion, with a six-year maturity period.
As per the regulatory approval, the company was supposed to issue debt securities to banks, insurers, financial institutions, corporate bodies, and high net worth individuals.
But the company failed to raise a single taka as no one showed any interest in investing in the bonds.
"Bonds cannot be sold forcefully. The company's debt securities were not sold due to reluctance of subscribers," said Mahfuzur Rahman, company secretary of Alif Industries.
Apart from distributing cash dividends above 10 per cent for three fiscal years, Alif Industries, formerly known as CMC Kamal, exhibited a steady profit growth over the last two fiscal years.
Bangladesh General Insurance Company (BGIC) was assigned as trustee of the bonds.
"BGIC refused to work as trustee of the bonds as Alif Industries failed to arrange any bank guarantee against the proposed bonds," said Saifuddin Ahmed, company secretary of BGIC.
A realtor, Mir Akhtar Hossain got permission in March 2022 to float debt securities worth Tk 2.49 billion but could raise only Tk 890 million.
IDLC Investments was appointed as lead arranger of the zero-coupon bonds. It refused to take the responsibility.
"Many companies' affordability of bank loans declined. That's why they showed interest in issuing bonds," said Md. Masbaus Sunnah, company secretary of Mir Akhtar Hossain.
National Polymer Industries also failed to complete its bonds' subscriptions even by extending tenures several times. Finally, it was able to gather Tk 490 million only against a target of Tk 3 billion.
Another company Paramount Textile was able to raise Tk 1.1 billion against the proposed amount of Tk 1.5 billion.
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