BSEC pushes for direct listing of 11 perpetual bonds

The Bangladesh Securities Commission (BSEC) is pushing 11 of the perpetual bond commercial banks to provide fast direct listing of debt securities, as indicated upon their approval.

Observing a slower-than-expected listing pace, the capital market regulator had a meeting with senior bank executives last week, according to BSEC executive director and spokesperson Rezaul Karim.

From the nine participating managing directors and two deputy managing directors of banks, BSEC officials heard about the obstacles banks face and assured them of all their support in making their way to make bonds marketable on exchanges, he told The Business Standard.

The non-exclusion of listed bond investments from banks’ exposure to the capital market, the reluctance of underwriters, mandatory provisioning against perpetual bonds issued and high listing fees are among the factors hindering issuance and listing bonds, according to investment banker Ershad. Hossain, Managing Director of City Bank Capital Resources.

To ensure that as many debt instruments are traded on the stock exchange as possible, the capital market regulator had asked the 11 issuing banks to directly list bonds valued above Tk 5,000 crore on major trading platforms. post-subscription stock exchanges so that investors can buy and sell them on screen.

Unlike an initial public offering (IPO), a direct listing is a process of listing scripts on the stock exchange without issuing new shares or units.

Of the 11 perpetual bonds, approved by both banking and capital market regulators, only four have secured the investments necessary for the bond units to be sold.

These are City Bank, Trust Bank, Mutual Trust Bank and Jamuna Bank Ltd.

Some of the remaining banks have yet to secure investments worth Tk400-600 crore each as the banking industry, still the largest investor in bonds, is reluctant to underwrite, sources say.

Why?

Ershad Hossain, whose company works as the lead arranger of the approved perpetual majority bonds, said the central bank’s position not to exclude banks’ investments in bonds from their calculation of exposure to the markets. capital is the main reason.

“The Reserve Bank of India has excluded perpetual bonds from the exposure calculation of their banks and we have asked the same from the Bank of Bangladesh, as bonds are not listed securities that are too volatile by nature,” a- he declared.

In Bangladesh, the stock market recovery has already increased banks’ concern about limiting their exposure to the capital market and apparently they are not too interested in increasing exposure by currently investing in debt securities. low income.

Banks can maintain their exposure to listed securities up to 25% of their total equity and since exposure is calculated on the basis of the market value of the securities, banks often face pressure to sell in a market. bullish for fear of missing other capital gains.

BSEC Chairman Professor Shibli Rubayat-Ul-Islam recently told The Business Standard that perpetual bonds need to bolster banks’ additional Tier 1 capital to comply with the central bank’s Basel III guidelines and expect Bangladesh Bank cooperation to subscribe and register. .

“We have insisted that the bonds be publicly traded, which will provide investors with ease of buying and selling and will also help build our much-needed secondary bond market,” he said.

The 11 bonds approved by BSEC during the first half of this year were tasked with selling the units through private placements and then being directly listed within 30 days of subscription.

On the other hand, the bonds approved subsequently were instructed to place 90% of the shares privately and to float 10% of the shares in the context of a public offer and to ensure their listing on the stock exchange.

In order to comply with the 10% minimum free float rules, the unitholders of the previous 11 perpetual bonds will unload 10% of units on the secondary market within 90 business days of the direct listing.

“For listing, bonds must first be subscribed,” said the president of BSEC.

Pleas of investment bankers to the BSEC

The BSEC has asked banks to set aside 20% provisions on bonds issued so that the provision can be used to pay future interest in any unforeseen situation and Ershad Hossain said the discouraging factor should be removed.

In a recent letter to BSEC, his company asked the capital market regulator to allow banks and financial institutions to underwrite the gigantic bonds, as traditionally licensed underwriters with a smaller financial base feel the risk of non-underwriting. bond units while the market is still loving debt securities.

A subscriber absorbs the unsubscribed portion of any issue of securities.

The letter also asked the BSEC to extend the 10% unit unload time after the orderly direct listing of the 11 perpetual bonds, as the market may not be ready to absorb the supplies within the stipulated period of 90 trading days.

Beximco Limited’s Sukuk worth 3,000 Tk crore is not attracting enough investors as most are busy with the rising stock market, a frustrating development for those interested in seeing a vibrant bond market here at Bangladesh.

“Listing fees for bonds on local stock exchanges are the highest in the region and we have asked the Dhaka Stock Exchange (DSE) to rationalize them for corporate bonds,” said Ershad Hossain.

Last year, the DSE waived listing fees for treasury bills in an attempt to start trading in government securities, but the movement is still faltering.

BSEC recently approved perpetual bonds Tk500 crore of Al Arafah Islami Bank and Tk800 crore of Islami Bank Bangladesh Limited on the condition of 90% private placement and 10% in the public offering and Prime Bank Investment Ltd works as as principal arranger for both bonds.

Perpetual bonds have no term and cannot be transferred by investors until the issuer recalls them for specific reasons with regulatory approval after a rational period like a decade.

Banks have also been given options to convert their perpetual bonds into stocks to meet capital or Tier I capital requirements and until the bonds help them build their additional Tier I capital.

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