Study of Bangladesh Bond Market

Study of Bangladesh Bond Market
April 2019

Table of Contents
A bbreviat ions ........................................................................................................................................................... ii List of Tables......................................................................................................................................................... viii List of Figures ..........................................................................................................................................................x Forewords ............................................................................................................................................................... xi Executive Summary.............................................................................................................................................. xiv 1. Introduction ......................................................................................................................................................... 2
1.1. Background to our work ....................................................................................................................................................... 2 1.2. Structure of the report .......................................................................................................................................................... 2 1.3. Our methodology and approach ...................................................................................................................................... 2 2. Overview of Bangladesh Infrastructure Financing Market ............................................................................ 5 2.1. Introduction...............................................................................................................................................................................5 2.2. Overview of Bangladesh infrastructure pipeline.......................................................................................................6 2.3. Infrastructure sub-sectors of potential interest .......................................................................................................... 7 2.4. Sources of funds for infrastructure projects ...............................................................................................................14 2.5. Role of Islamic finance in the country......................................................................................................................... 20 2.6. Conclusion ............................................................................................................................................................................ 22 3. Overview of Bangladesh Bond Market .......................................................................................................... 24 3.1. Financial system of Bangladesh.....................................................................................................................................24 3.2. Long-term debt market in Bangladesh .......................................................................................................................27 3.3. Market infrastructure...........................................................................................................................................................31 3.4. Comparison of Bangladesh Bond Market with Other Asian Countries...........................................................33 3.5. Current market procedures for issuing a bond........................................................................................................33 3.6. Key benefits in bond issuance........................................................................................................................................36 3.7. Structural issues associated with the debt market of Bangladesh ..................................................................36 3.8. Conclusion .............................................................................................................................................................................37 4. Overview of Credit-Guarantee Products in Bangladesh .............................................................................. 39 4.1. Current credit guarantee schemes available in the Bangladesh financing environment ........................39 4.2. Credit assessment in Bangladesh ................................................................................................................................39 4.3. Key regulations pertaining to treatment of credit guarantee products ......................................................... 40 4.4. Key licensee requirements if an entity plans to set up operations to provide such products................42 4.5. Conclusion .............................................................................................................................................................................42 5. Market Perspective .......................................................................................................................................... 44 5.1. Introduction.............................................................................................................................................................................45 5.2. Key findings...........................................................................................................................................................................45 6. Conclusion ........................................................................................................................................................ 52 Appendix A: Infrastructure Sectors in Bangladesh........................................................................................... 57 A.1. Affordable Housing .............................................................................................................................................................57 A.2. Airports.....................................................................................................................................................................................61 A.3. Logistics ..................................................................................................................................................................................63 A.4. Manufacturing ......................................................................................................................................................................67 A.5. Ports.........................................................................................................................................................................................70 A.6. Power.......................................................................................................................................................................................72

A.7. Railways ................................................................................................................................................................................. 80 A.8. Roads and Highways........................................................................................................................................................ 82 A.9. Social infrastructure (Health and Education)........................................................................................................... 85 A.10. Special Economic Zones (SEZs) .................................................................................................................................. 88 A.11. Telecommunication Industry ...........................................................................................................................................91 A.12. Urban infrastructure (Water, Sanitation and Waste Management) ................................................................94 Appendix B: List of Institutions ........................................................................................................................... 97 Appendix C: References .................................................................................................................................... 100

Abbreviations

Acronym

Definition

ACI

Advanced Chemical Industries

ADB

Asian Development Bank

ADF

Asian Development Fund

ADP

Annual Development Plan

AIIB

Asian Infrastructure Investment Bank

AMC AMEZ

Asset Management Company Abdul Monem Economic Zone

AOA APSCL

Articles of Association Ashuganj Power Station Company Limited

ASA

Association for Social Advancement

BAS

Bangladesh Accounting Standards

BBA

Bangladesh Bridge Authority

BDT

Bangladeshi Taka

BEPZA BERC

Bangladesh Export Processing Zones Authority Bangladesh Energy Regulatory Commission

BEZA

Bangladesh Economic Zones Authority

BFI BGTB

Bilateral Financing Institutions Bangladesh Government T-Bonds

BHTPA BI

Bangladesh Hi-Tech Park Authority Bilateral Institutions

BIBM BIDA

Bangladesh Institute of Bank Management Bangladesh Investment Development Authority

BIFFL BIMB

Bangladesh Infrastructure Finance Fund Limited Bank Islam Malaysia Berhad

BIS BLPA

Bank for International Settlements Bangladesh Land Port Authority

BNM BOO

Bank Negara Malaysia Build-Own-Operate

BOOT

Build-Own-Operate-Transfer

BOT BPDB

Build-Operate-Transfer Bangladesh Power Development Board

BR BRAC

Bangladesh Railway Bangladesh Rural Advancement Committee

BREB BRT

Bangladesh Rural Electrification Board Bus Rapid Transit

BSA BSEC

Bangladesh Standards of Auditing Bangladesh Securities and Exchange Commission

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Acronym BTCL BTRC CAAB CAGR CCGT CDMA CGS CHA CHEC CP CPA CRM CRR CSE DBFO DCC DCCI DESCO DFI DGFP DGHS DHUTS DNCC DPDC DPHE DSCC DSE DTH DWASA EBL ECA ECAI ECGD EDCF EDF EDGE EGCB EIB EKVE EPC

Definition Bangladesh Telecommunication Company Limited Bangladesh Telecommunication Regulatory Commission Civil Aviation Authority of Bangladesh Compound Annual Growth Rate Combined Cycle Gas Turbine Code-Division Multiple Access Credit Guarantee Scheme Custom Handling Agents China Harbour Engineering Company Limited Chittagong Port Chittagong Port Authority Credit Risk Mitigation Cash Reserve Ratio Chittagong Stock Exchange Design-Build-Finance-Operate Dhaka City Corporation Dhaka Chamber of Commerce and Industry Dhaka Electric Supply Company Limited Development Finance Institution Directorate General of Family Planning Directorate General of Health Services Dhaka Urban Transport Network Development Study Dhaka North City Corporation Dhaka Power Distribution Company Department of Public Health Engineering Dhaka South City Corporation Dhaka Stock Exchange Direct-To-Home Dhaka Water Supply and Sewerage Authority Eastern Bank Limited Export Credit Agency External Credit Assessment Institution Export Credit Guarantee Department Economic Development Cooperation Fund Export Development Fund Enhanced Data rates for GSM Evolution Electricity Generation Company of Bangladesh European Investment Bank East Klang Valley Expressway Engineering, Procurement and Construction
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Acronym EPZ ERG EXIM EZ FCB FDI FFA FMO FSIBL FSRU FTPS GBP GDA GDIC GDP GE GoB GP GPOBA GPRS GSM GW HBFC HBRI HNI HSIA HSPA IATA IBA IBBL IBRD ICB ICD ICT IDA IDCOL IDLC IDRA IFC IIDFC

Definition Export Processing Zones Economic Research Group Export-Import Economic Zone Foreign Commercial Banks Foreign Direct Investment Freight Forwarders Netherlands Development Finance Company First Security Islami Bank Limited Floating Storage Regasification Unit Fast Track Projects Scheme Great Britain Pound Greater Dhaka Area Green Delta Insurance Company Gross Domestic Product General Electric Government of Bangladesh Grameen Phone Global Partnership for Output Based Aid General Packet Radio Service Global System for Mobile communication gigawatt House Building Finance Corporation Housing and Building Research Institute High-net-worth Individual Hazrat Shahjalal International Airport High Speed Packet Access International Air Transport Association Islamic Banking Act Islami Bank Bangladesh Limited International Bank for Reconstruction and Development Investment Corporation of Bangladesh Inland Container Depot Information and Communications Technology International Development Association Infrastructure Development Company Limited Industrial Development Leasing Company Insurance Development and Regulatory Authority International Finance Corporation Industrial and Infrastructure Development Finance Company Limited
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Acronym IIFC IIFCL IMF IPFF IPO IPP IT IWT JICA JV km KPCL kWh LGD LGED LGI LIBOR LNG LoC LTA m MDB MDG MFI MFI MHPW MHz MIGA MNC MOA MoLGRD&C MP MPA MRA MRT MRTB MVA MVNO MW NBFI

Definition India Infrastructure Finance Company India Infrastructure Finance Company Limited International Monetary Fund Investment Promotion and Financing Facility Initial Public Offering Independent Power Producer Information Technology Inland Water Transport/Inland Waterways Transport Japan International Cooperation Agency Joint Venture kilometre Khulna Power Company Limited kilowatt hour Local Government Division Local Government Engineering Department Local Government Institutions London Inter-bank Offered Rate Liquefied natural gas Line of Credit Long Term Access million Multilateral Development Bank Millennium Development Goals Micro Finance Institution Multilateral Financing Institution Ministry of Housing and Public Works Megahertz Multilateral Investment Guarantee Agency Multinational Corporation Memorandum of Association Ministry of Local Government, Rural Development and Co-operatives Mongla Port Mongla Port Authority Microcredit Regulatory Authority Mass Rapid Transit Ministry of Road Transport and Bridges Mega Volt Amperes Mobile Virtual Network Operator megawatt Non-Banking Financial Institution
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Acronym NBR NCB NHA NOC NPL NRB NSC NSD NTPC NTTN NWPGCL ODA OFID OPEC PCB PDB PGCB PIDG PKSF PMO PPP PPPO PPSIP PSE PSMP PV PWD RAJUK RE REHAB RHD RICT RMG RMP RoE ROW RPCL RWA SAPL SCADA

Definition National Board of Revenue National Commercial Bank National Housing Authority No Objection Certificate Non-Performing Loans Non-Resident Bangladeshi National Savings Certificate National Saving Doctorate National Thermal Power Corporation Nationwide Telecommunication Transmission Network North West Power Generation Company Limited Official Development Assistance OPEC Fund for International Development Organization of the Petroleum Exporting Countries Private Commercial Bank Power Development Board Power Grid Company of Bangladesh Private Infrastructure Development Group Palli Karma Sahayak Foundation Prime Minister's Office Public Private Partnership Public-Private Partnership Office Pro-Poor Slum Integration Project Public Sector Entity Power System Master Plan Photovoltaic Public Works Department Rajdhani Unnayan Kartripakkha Renewable Energy Real Estate Housing Association of Bangladesh Roads and Highways Department Riverside Inland Container Terminal Ready-Made Garments Road Master Plan Return on Equity Right-of-Way Rural Power Company Limited Risk-Weighted Asset Summit Alliance Port Limited Supervisory Control and Data Acquisition
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Acronym SEZ SHS SIBL SIDA SLR SME SMEF SOCB SPV SREDA T & D TAT TEU UK UMTS UNCDF USD WASA WB WZPDCL YOY

Definition Special Economic Zone Solar Home System Social Islami Bank Limited Swedish International Development cooperation Agency Statutory Liquidity Ratio Small and Medium Enterprises Small and Medium Enterprise Fund State Owned Commercial Bank Special Purpose Vehicle Sustainable and Renewable Energy Development Authority Transmission and Distribution Turnaround Time Twenty-foot equivalent unit United Kingdom Universal Mobile Telecommunications System United Nations Capital Development Fund United States Dollar Water Supply and Sewerage Authority World Bank West Zone Power Distribution Company Limited Year-On-Year

Currency units (as on February 2019) 1 BDT = 0.012 USD 1 BDT = 0.0091 GBP 1 USD = 0.76 GBP

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List of Tables
Table 1: Investments by Japan International Cooperation Agency in Bangladesh.......................................................15 Table 2: Investments by China in Bangladesh............................................................................................................................16 Table 3: Investments by India in Bangladesh ..............................................................................................................................16 Table 4: Investments by Asian Development Bank in Bangladesh.....................................................................................16 Table 6: Infrastructure projects sponsored by World Bank....................................................................................................17 Table 7: Investments by European Investment Bank in Bangladesh..................................................................................17 Table 8: Overview on Islamic banking sector in Bangladesh................................................................................................19 Table 9: Exploring synergies between Islamic finance and infrastructure PPP projects: ......................................... 20 Table 10: Financial performance of Dhaka Stock Exchange ............................................................................................... 26 Table 11: Details of eight debentures listed on Bangladesh stock market ......................................................................27 Table 12: Details of corporate bonds listed on Bangladesh stock market ......................................................................27 Table 13: Fees charged by BSEC for issuance of privately placed debt securities......................................................34 Table 14: Tasks to be performed by an issuer on fulfilling the pre-conditions set by BSEC .....................................34 Table 15: Details of US Dollar Premium bonds and Wage Earner Development bonds ............................................36 Table 16: Tax rebate for individuals investing in Treasury bonds and Sanchayapatra ..............................................36 Table 17: Mapping of credit rating categories with Bangladesh Bank's rating grade................................................ 40 Table 18: Details of investor profile and their preferences ....................................................................................................46 Table 19: Key challenges in the Bangladesh bond market and possible mitigation measures ..............................47 Table 20: Housing deficit in urban areas.....................................................................................................................................57 Table 21: Development of flats across six regions in Bangladesh..................................................................................... 58 Table 22: Affordable housing projects in PPP consideration .............................................................................................. 58 Table 23: Outstanding housing loans over the past three years....................................................................................... 59 Table 24: Details of upcoming airports projects in Bangladesh......................................................................................... 62 Table 25: EPC companies who provide airport construction services............................................................................. 62 Table 26: Market size for warehousing services in Bangladesh.........................................................................................64 Table 27: Market size for Freight forwarding and Custom handling services in Bangladesh..................................64 Table 28: Opportunity mapping for private sector companies in the Logistics sector ...............................................64 Table 29: Financing mechanism in the Logistics sector ........................................................................................................ 65 Table 30: List of major road transportation companies in Bangladesh .......................................................................... 65 Table 31: List of major Inland Water Transportation companies in Bangladesh .......................................................... 65 Table 32: List of airlines providing cargo services in Bangladesh..................................................................................... 66 Table 33: List of shipping companies providing cargo services in Bangladesh........................................................... 66 Table 34: List of major players in the cold storage sector .................................................................................................... 66 Table 35: Key Players in the Manufacturing sector................................................................................................................. 68 Table 36: List of PPP projects in the Ports sector......................................................................................................................70 Table 37: Details of state owned companies and private companies in the Ports sector..........................................71 Table 38: List of IPP power projects ...............................................................................................................................................75 Table 39: Investments by project type in the Transmission sector.....................................................................................76 Table 40: Investments by project type in the Distribution sector ........................................................................................76 Table 41: Source of funds in the Power sector ...........................................................................................................................76 Table 42: Financing mechanism in the Power sector..............................................................................................................77 Table 43: Market share of power generators in Bangladesh...............................................................................................77
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