Beximco has decided to raise Tk 15 billion by issuing zero-coupon bonds at a higher-than-market rate to invest in the sluggish housing business.
In a stock exchange filing on Tuesday, Beximco said the bonds would have an annual yield of 15 per cent, whereas the current maximum lending rate of banks hovers between 12-14 per cent.
Chief Financial Officer of the company Md Luthfor Rahman said one-third of the fund would be spent on paying back bank loans while the rest would be invested in a new township project - 100-acre Sreepur Township Ltd in Gazipur.
In here, Beximco not only seems to go against the present trend of cutting borrowing costs by repaying banks and non-bank financial institutions with bond money, it will also take risk by investing in real estate at a time when sales of apartments have plummeted.
According to the disclosure, the project will build 18,000 apartments along with healthcare, education, entertainment, sports and recreation centres.
Investors will have to wait for a long time to see if they actually receive the high return promised by the company.
Since zero-coupon bonds are a kind of debt security that is issued at a deep discount, rather than giving monthly interest, bond purchasers will get the yield at maturity.
Mr Rahman told the FE that "Beximco 1st Zero Coupon Bond" will have a maturity period of five years and that investors will get the principal amount plus return as one-time payment.
Asked why Beximco would give a higher return than bank interest, an investment banker, wishing not to be named, said the company seeks to lure investors with a lucrative yield.
Beximco would use a portion of the fund to repay banks maybe because it is finding a way to avoid defaulting on loans, he said, adding that it may also be looking to overcome cash crunch.
The bonds to be issued will be non-convertible and non-tradable, meaning the securities will not be converted into shares, will not be listed and will not be exchangeable, said Shahidul Islam, chief executive officer of VIPB Asset Management.
Investors, who will buy the bonds, will have to keep those until maturity, he added.
How promising are the investment plan?
Sreepur Township Ltd (STL) is a new company with no previous experience of building apartments or developing lands.
It has given rise to murmurs in the financial market when it gathered Tk 10 billion in November last year through five-year "IFIC Aamar Bond" -- in a deceptive move.
Though the real name of the bond was IFIC Guaranteed Sreepur Township Green Zero Coupon Bond, the name was changed into "IFIC Aamar bond" in advertisements, giving an impression that the bank was raising the fund.
At the time of floating "IFIC Aamar Bond", the project was 37 acre, which would be expanded to 100 acre with a partnership of a 75:25 ratio between Beximco and STL.
The investment banker said it would be highly unlikely for the companies to generate enough revenue within the five-year time to keep the promise of high repayments.
At present, Beximco's price-to-earnings (P/E) ratio is 1,927, according to the Dhaka Stock Exchange, which shows the stock is overvalued though it is still stuck on the floor. An investor of the stock has paid Tk 1,927 for every Tk 1 income of the company at the current stock price.
For the six months through December last year, its EPS (earnings per share) is Tk 0.03, which was Tk 7.35 for the same period a year earlier.
The company said its profit had plunged for a decline in exports and an abnormal decrease in the local demand for its products.
Its earnings fell more than 43 per cent year-on-year in FY23 to Tk 7.1b. Beximco reported the highest revenue and profit in at least five year for FY22.
The bonds will be issued if approved by the Bangladesh Securities and Exchange Commission (BSEC).
The company will make refunds of a tiny portion of its loans [long- and short-term] of Tk 52 billion from the fund, but whether investors will get the promised return or not will depend on the success of the housing project in Gazipur.
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