Investors have begun to see redemption of a listed subordinated bond issued by Ashuganj Power Station Company, fueling optimism surrounding the secondary market of debt securities.
This is the first time a listed bond floated by an energy company is paying back the principal amount along with interest to the bondholders.
The instrument with a maturity period of seven years since 2020 has been ensuring a return of 8.5 per cent to 10.5 per cent, depending on the reference rate of 182-day-T-bills plus 4 per cent interest margin.
The chairman of EDGE Asset Management, Asif Khan said the yield was lucrative compared to the deposit rates of banks and other financial institutions.
The bond is a test case for both power companies and investors. It shows how electricity generators can reduce their dependency on government funds or foreign debts, while raising investors' confidence in debt securities as a means to diversify their investment portfolios.
Ashuganj Power Station raised Tk 6 billion in 2020 for working capital and development of a 400MW power plant.
Of the total fund, Tk 5 billion was collected from the private sector and the rest through an IPO (initial public offering). Hence, about 16.66 per cent of the bond units have been tradable in the secondary market.
As per the IPO prospectus, 25 per cent of the fund from general investors, equivalent to Tk 250 million, will be paid within this month. The record date of the partial redemption was January 4.
The state-run power company has already completed repayment of Tk 2.5 billion this month out of the fund taken from institutions. The first-round payment was made in January last year.
"This bond has set an example. The government's bank borrowing will decline if other power companies raise funds issuing bonds too," said Mr Khan.
It will also help the bond market flourish.
Company secretary MA Mansur said the power generator had received 70 per cent of the fund required for 400 MW Combined Cycle Power Plant from the Islamic Development Bank (IDB) and the Asian Development Bank (ADB).
It needed Tk 6 billion more for working capital and project development.
"The problem was that a bank does not finance such a big amount solely. Then the company had an option of receiving fund from the government."
However, Ashuganj Power Station was advised to consider other options, said Mr Mansur.
"The success of this bond depicts how we can mobilise funds on our own," he added.
Seeking government fund support is a popular practice of the state-run power companies.
Many organisations have repeatedly received funds from the government and later transformed the money into equities, leading to a ballooning of their paid-up capital. That reduced their chances to get listed for fear of dilution of income and dividends.
Fundraising through bonds will make a company disciplined in managing financial aspects and cash flow and create a pressure for good governance, said Md. Moniruzzaman, managing director of Prime Bank Securities.
The government's expenditure is higher than the amount of tax collection, he said, adding that if the state-run companies stopped seeking funds from the government, budget financing requirement would be lower.
On the other hand, the companies that installed power plants taking foreign loans see their debt burden get bloated just because of currency depreciation.
"The companies will get rid of such extra burden if they gather funds issuing debt securities," said Mazeda Khatun, chief executive officer of the ICB Capital Management, trustee and joint issue manager of the bond of the Ashuganj power plant.
Officials of the ICB Capital Management said the bond units had not traded in the secondary market.
"Those, who got the units through IPO, were unwilling to hand over the securities; the coupon rates were higher than the deposit rates," said Mrs. Khatun.
"The risks of collective investment portfolios will decline through listing of more bonds like this," she added.
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