The World Bank is already working with the Government and Bangladesh Bank on some of these key issues, and we shall be ready to work further with them within the limits of our own comparative advantage. We have been extremely pleased to see the coordinated approach of the Bangladesh Bank, Ministry of Finance, the SEC and the National Board of Revenue to work with IPDC to bring the first securitization transaction to market in Bangladesh. This has been one solid step towards mobilizing finance for entrepreneurs and has confounded those skeptics who thought that securitization is “too sophisticated” for Bangladesh. Perhaps those skeptics would benefit from seeing the collected talent and enthusiasm for development gathered here in this room today. We would very much like to hope that the next securitization will be another transaction close to our heart, that of the securitization of a portion of the toll revenues of the Jamuna Bridge. The IPDC loan securitization was a long time in the making and the Jamuna Bridge securitization appears to be following the same path. This is a transaction which all experts agree would have a major positive impact not only on capital market development in Bangladesh, but also in mobilizing taka finance for other strategic infrastructure developments such as the proposed Padma Bridge. We can only hope that the Jamuna Bridge securitization will enjoy the same long term success. To facilitate this process, it would be useful to have designated counterparts from the Government and Bangladesh Bank. Such a crucial market as a domestic bond market needs excellent domestic regulation and supervision if investors and borrowers are not to be disappointed or worse. It cannot be created by outsiders.
Presently, Bangladesh capital market has achieved phenomenal growth in size, depth and maturity. All indicators of capital market showed an increasing trend during last couple of years. Increased investors' participation, demand for stocks is pumping to price hike in the market. Other indicators of the capital market also recorded a significant growth. Market capitalization of DSE, a remarkably increased during last three years that reflected in the ratios of market capitalization to the country's GDP at current market price. The ratio of market capitalization of DSE to GDP rose to 39.1 percent in end FY10 from 5.2 percent in FY06 and from 2.3 percent of FY00. Except 13.1 percent of 1996's bubble, the ratio was almost in horizontal level with around below 3 percent up to FY04. The capital market developments and its sustainability depend on market fundamentals at least in the medium term, and the fundamental strength of the market essentially comes from financial strength of the listed companies. Also, strong regulatory environment created and maintained by the regulatory bodies and participation of institutional investors and professional market analysts help orderly market operations. The market witnessed that last few years many fundamental companies with strong financial strength have been listed in the market. The main regulatory body SEC and the Government of Bangladesh and others related regulatory authorities have continued their all efforts to develop the Bangladesh capital market that reflected in the market trends. The Bangladesh capital market is now maturing gradually in terms of depth and breathe and approaching to more shock resistant operational mode.
Measures Supporting Capital Market Development
The Securities and Exchange Commission (SEC) undertook several measures to strengthen capital market through build-up the confidence of the investors in capital market during FY10:
1. For the benefits of investors and capital market, Dhaka Stock Exchange (DSE) is advised to provide over-the-counter (OTC) facility to the issuers, which have been delisted by the exchange, excluding those securities which have been delisted upon application by the issuers concerned.
2. For the benefits of the investors, deposit refund money is made directly into unsuccessful IPO applicants' bank account.
3. Stock Exchanges are advised that a stock broker can open maximum 15 branches and offices within one kilometer periphery of the main office.
4. For investment decision and for avoidance of confusion, all listed companies are advised for making the detailed quarterly financial statements available in their website.
5. Maturing of all closed-end mutual funds has been fixed. According to this directive no mutual fund shall have maturity for more than 10 years. However, the close-end mutual funds which have already passed 10 years after launching are allowed to continue a little more but must retire within 31 December 2011.
6. Banks, other financial institutions and insurers are advised to form separate subsidiary companies to run brokerage and dealer activities. The subsidiaries must be formed by 31 March 2010.
7. New criteria for margin loans for mutual funds have been set. According to the new criteria, the funds that will trade 7.5 percent higher than their latest net asset value (NAV) will not qualify for the loans.
8. In order to increase the supply of shares mandatory provision has been made for companies having paid-up capital more than Taka 0.50 billion must apply for IPO to off-load shares in the capital market.
9. To cool down the stock market margin loan criteria has been reset. According to the new criteria investors are not entitled to get margin loan to buy equity shares exceeding P/E ratio 40. Previously it was at 50.
10. Plan to increase the number of mutual funds, merchant banking license to financial institutions.
11. Setting up of Bangladesh Institute of Capital Market to train the investors and the officials working in the intermediaries agencies.
Capital market securities
Bond market: Bond market acts as buffer of equity market. On the one hand, bond markets are essential for a country to enter a sustained phase of development driven by market-based capital allocation and increased avenues for raising debt capital. On the other hand, the central position occupied by domestic bond markets in markedly increasing the resilience of a country’s financial system and insulating it against external shocks, contagion and reduction of access to international capital markets is established. This market in Bangladesh has been found very inefficient with respect to number of issues, volume of trade, number of participant, long-term yield curve, interest rate policy etc. In view of this, the present study has been undertaken aiming at identifying the problems that impedes the growth and development of Bond Market in Bangladesh. The study has found that the size of debt market of Bangladesh is very low as compared to other SAARC Countries; has huge growth potentiality; and identified important impediments to the growth and development of Bond Market in Bangladesh such as risk and return factor, liquidity and government policy factor, issue management factor, investment policy factor, macro-economic and regulatory factor, and market & issue related factor. The study has suggested some important policy measures such as regulatory change, establishment of long-term yield curve, offering fiscal benefits, encouraging companies raising funds through corporate bond issues, keeping treasury rate low etc. for the development of Bond Market in Bangladesh. Bond markets in most countries are built on the same basic elements: a number of issuers with long-term financing needs, investors with a need to place savings or other liquid funds in interest-bearing securities, intermediaries that bring together investors and issuers, and an infrastructure that provides a conducive environment for securities transactions, ensures legal title to securities and settlement of transactions, and provides price discovery information. The regulatory regime provides the basic framework for bond markets and, indeed, for capital markets in general. Efficient bond markets are characterized by a competitive market structure, low transaction costs, low levels of fragmentation, a robust and safe market infrastructure, and a high level of heterogeneity among market participants.
Bangladesh Government Treasury Bonds
(BGTBs) Auctions:
Treasury Bonds, bearing half yearly interest coupons, with tenors of 5-year, 10-year, 15-year and 20-year are auctioned in every month. 48 auctions of these instruments were held in FY10. A total of 767 bids for Taka 218.49 billion were received and 159 bids for Taka 87.85 billion were accepted, of which Taka 39.41 billion was devolved on BB/PDs. The amount of outstanding bonds stood at Taka 396.26 billion at the end of June 2010 as against Taka 314.83 billion at the end of June 2009. The outstanding amount of bonds at the end of FY10 was higher than 25.86 percent that of end of FY09. The weighted average yield-to maturity for the treasury bonds ranged from 7.47 percent to 9.41 percent in FY10. It was found that the yield rates on all tenors of treasury bonds were decreased sharply during the year under the report. It is mentionable that in FY09, bids for a total of Taka 239.96 billion were received, of which Taka 124.71 billion was accepted and Taka 55.98 billion was devolved on BB/PDs. The overall weighted average yield-to-maturity ranged from 9.20 percent to 13.07 percent in FY09.
Bangladesh Government Islamic Investment Bond (Islamic Bond)
The operations of 6-month, 1-year and 2-year Bangladesh Government Islamic Investment Bond (Islamic Bond) introduced in FY05 continued in FY10. This Government Bond is operated in accordance with the rules of Islamic Shariah. As per the rules, Bangladeshi institutions, individuals and non-resident Bangladeshis who agree to share profit or loss in line with Islamic Shariah may buy this bond. As of end June 2010 the total sale against this bond amounted to Taka 23.4 billion while balance of total amount of financing stood at Taka 15.4 billion and the net outstanding against the bond stood at Taka 8.0 billion. As of end June 2009 the total sale against this bond was Taka 16.4 billion against the balance of total financing of Taka 12.1 billion and the net outstanding of Taka 4.3 billion.
Corporate bond
ACI Bond
Authorities of Advanced Chemical Industries Limited (ACI) sponsor of ACI 20 per cent Convertible Zero Coupon Bonds, have stated the following:
(1) As per the maturity schedule, the record date of ACI 20 per cent Convertible Zero Coupon Bonds is March 6, 2011. The bondholders whose name will appear in the Depository List on the record date will be entitled to get the redemption of 1st Series of Bonds,
(2) As per the announced features, 80 per cent of the redemption value will be paid in cash and rest 20% can be converted into ACI shares. The bondholders, who do not want to exercise the convertibility option, shall notify in writing their intention by five working days from the record date (March 13, 2011) to the address of Bond Department, ACI Limited, 245, Tejgaon Industrial Area, Dhaka-1208.
(3) The NAV per share as per last audited financial statements (2009) is Taka 156.16 and the conversion strike price is Taka 171.78 as per announced formula,
(4) If any bondholder gets fraction or odd lot number of shares through conversion, the fraction or odd lot shares shall be credited to suspense account and will be sold out in the market. The equivalent selling price against the odd lot or fraction of shares will be paid to the respective bondholders and
(5) After record date of 1st Series of Bonds, the number of series in each lot will be reduced to four from five.
Mudaraba Perpetual Bond (MPB) of Islami Bank Bangladesh Limited:
Brief Overview of the Bank
1. Date of Incorporation: March 13, 1983
2. Commencement of Business: March 30, 1983
3. Authorized Capital: Tk. 5,000 million.
4. Paid up Capital: Tk. 3,456.00 million (Pre issuance of MPB)
5. No of Branches: 176
Mutual Funds
Mutual funds are professionally managed investment schemes that collect funds from small Investors and invest in stocks, bonds, short term money market instruments, and other securities.
This ensures a diversified portfolio for the investors at much less efforts than through purchasing individual stocks and bonds. Mutual funds are usually managed by fund managers who undertake trading of the pooled money and are responsible for managing the portfolio of holdings. Generally, mutual funds are organized under the law as companies or business trusts and managed by separate entities. Mutual funds fall into two categories: open-end funds and closed-end funds. In Bangladesh, the number of mutual funds is small having low issued capital. At present, there are only 33 mutual funds 1JANATAMF( First Janata Bank Mutual Fund )1STBSRS( 1st Bangladesh Shilpa Rin Sangstha M.F. ) 1STICB( 1st ICB M.F. )1STPRIMFMF (Prime Finance First Mutual Fund) 2NDICB (2nd ICB M.F.)3RDICB ( 3rd ICB M.F. )4THICB( 4th ICB M.F. )5THICB( 5th ICB M.F. )6THICB( 6th ICB M.F. )7THICB( 7th ICB M.F. )8THICB( 8th ICB M.F. )AIBL1STIMF( AIBL 1st Islamic Mutual Fund )AIMS1STMF( Aims 1st M.F. )DBH1STMF( DBH First Mutual Fund )EBL1STMF( EBL First Mutual Fund )GRAMEEN1( Grameen Mutual Fund One )GRAMEENS2( Grameen One : Scheme Two )GREENDELMF( Green Delta Mutual Fund )ICB1STNRB( ICB AMCL 1st NRB Mutual Fund )ICB2NDNRB( ICB AMCL 2nd NRB Mutual Fund )ICB3RDNRB( ICB AMCL Third NRB Mutual Fund )ICBAMCL1ST( ICB AMCL 1st M.F. )ICBAMCL2ND( ICB AMCL Second Mutual Fund )ICBEPMF1S1( ICB Employees Provident MF 1: Scheme 1 )ICBISLAMIC( ICB AMCL Islamic Mutual Fund )IFIC1STMF( IFIC Bank 1st Mutual Fund )IFILISLMF1( IFIL Islamic Mutual Fund-1 )MBL1STMF( MBL 1st Mutual Fund )PF1STMF( Phoenix Finance 1st Mutual Fund )PHPMF1( PHP First Mutual Fund )POPULAR1MF( Popular Life First Mutual Fund )PRIME1ICBA( Prime Bank 1st ICB AMCL Mutual Fund )TRUSTB1MF( Trust Bank 1st Mutual Fund )
Debentures:
It is a type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture. Some example: DEBARACEM( Aramit Cement Ltd.(Deb-14%) )DEBBDLUGG( Bangladesh Luggage Ind. Ltd.(Deb-14%) )DEBBDWELD( BD Welding Electrodes Ltd.(Deb-15%) )DEBBDZIPP( Bangladesh Zipper Ind. Ltd.(Deb-14%) )DEBBXDENIM( Beximco Denims Ltd.(Deb-14%) )DEBBXFISH( Beximco Fisheries Ltd.(Deb-14%) )DEBBXKNI( Beximco Knitting Ltd.(Deb-14%) )DEBBXTEX( Beximco Textiles Ltd.(Deb-14%) )
References:
1. Imam O Mahmood, The Capital Market Development in Bangladesh: problems and prospects, October 5, 2000
2. Imam M. Hasan, Capital Market: An Overview, 2005
3. Nazimuddin, AZM, An Overview of Bangladesh Capital Market, 2007
4. Ahmed, M. Farid, Emerging Stock market and the Economy: The Case of Bangladesh, Southeast Asian Studies Series, 33. The Research Institute of Southeast Asia, Nagasaki University, 2000.
5. Ahmed. M. Farid, "Equity Market Performance in Bangladesh: An Evaluation "Savings and Development. Vol. XXII, No. I. 1998.
6. DCCl. Report of the Round Table Discussion on Capital Market - A Vehicle for Industrialization and Privatization, August 10. 1999.
7. El Erian. M.A., "Middle East Financial Markets: Potential for Development and Internationalization", Middle East Executive Report, June 1994.
8. Mookerjee. R. R. "The Stock market and the Economy: The Indian Experience 1949-1981'. Indian Economic Journal, Vol. 36. No. 2, 1988.
9. Moore. G.H., "Stock prices and the Business Cycle", Journal of Portfolio Management, Vol. 1 No. 3. 1975.
10. Nafisa H., Foreign Portfolio Investment: Return. Growth, Determinants and Monitoring -A Critical Analysis. Internship Report. Department of Finance and Banking. University of Dhaka, 1998.'
11. Nishat, M. and Saghir. M ‘’The Stock Market and Pakistan Economy4, Savings and Development’’ Vol., 2. No. XV. 1991.
12. Shaw. E., Financial deepening in Economic Development. Oxford University Press. New York. 1973.
13. Stiglitz. J.E. and Weiss. A., "Credit Rationing in Markets with Imperfect Information", American Economic Review. Vol. 71. No. 3. June 1981.
14. Tarumizu, K., "Fostering Investor Confidence in the Asian and Pacific Capital Markets." Pacific-Basin Financial Journal, Vol. 1, 1993. Page 32
15. Wai, U.T. and Patrick, H.T., "Stock and Bond Issue and Capital Markets in Less Developed Countries". IMF Staff Papers. July 1973
16. http://www.bb.org.bd/fnansys/capmarket.php
17. http://en.wikipedia.org/wiki/Economy_of_Bangladesh
18. http://bicm.ac.bd/
19. http://www.bdstock.com/
20. http://www.scribd.com/
Read Part 1: Capital market in Bangladesh: Progress and Prospects
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