The Role of Investment Bank to the

Development of Bond Market in Bangladesh

A Study on
Investment Corporation of Bangladesh (ICB)

Course Name: Investment Banking & Lease Financing

Course Code: FIN-3201

Submitted to
Dr. Md. Monzur Morshed Bhuiya
Chairman & Professor
Department of Finance
Jagannath University

Submitted by
Group - 06

Date of Submission: 07/01/2021

 List of student information

Group - 06
Batch - 12
Department of Finance
Jagannath University

Name ID No. Workload

Mahedi Hasan B170203006 12.5%
Fahim Shahriar B170203013 12.5%
Fariha Tasnim B170203062 12.5%
Monorom Polok B170203063 12.5%
Md. Nayem Uddin Ashik B170203096 12.5%
Rohama Akter B170203097 12.5%
Shakila Afroz Farha B160203006 12.5%
Mahbuba Sultana Shahin Farah B160203115 12.5%

1
 Acknowledgement

The success and final outcome of this assignment required a lot of guidance and assistance from
many people and we are extremely fortunate to have got this all along the completion of our
assigned work. Whatever we have done is only due to such guidance and assistance and we
would not forget to thank them. First of all, we cordially thank our course instructor, Dr. Md.
Monzur Morshed Bhuiya, for giving us an opportunity to do the assignment and providing all
support and guidance which made us complete the assignment on time, and for teaching us the
basic principles of Investment Banking & Lease Financing.

Due to COVID-19 situation, we could not take the risk of visiting Investment Corporation of
Bangladesh (ICB) head office physically. Rather, we tried to contact them over phone; and we
are grateful to Md. Anwar Shamim, Deputy General Manager, Branch head of local office, for
cooperating with us, and for the valuable time he spent with us and provided information about
ICB. We received bulk information from ICB’s official website. Our thanks and appreciations
also go to the people who have directly or indirectly helped us out in developing the assignment.

2
 Table of Contents

List of student information............................................................................................................................ 1

Acknowledgement ........................................................................................................................................ 2
Table of Contents .......................................................................................................................................... 3
Executive Summary ...................................................................................................................................... 4
Chapter 01 ..................................................................................................................................................... 5
1.1 Introduction ................................................................................................................................... 5
1.2 Objective of The Study ................................................................................................................. 6
1.3 Scope of The Study ....................................................................................................................... 6
1.4 Research Methodology ................................................................................................................. 6
1.5 Limitation of The Study ................................................................................................................ 7
Chapter 02 ..................................................................................................................................................... 8
2.1 Analysis of Data.................................................................................................................................. 8
2.1.1 Investment Corporation of Bangladesh, An Investment Bank:.................................................... 9
2.1.2 Current Condition of The Bond Market in Bangladesh: ............................................................ 13
2.1.3 Problems of The Bond Market in Bangladesh ........................................................................... 17
Chapter 03 ................................................................................................................................................... 19
3.1 Findings & Recommendations .......................................................................................................... 19
3.1.1 Findings...................................................................................................................................... 19
3.1.2 Recommendations ...................................................................................................................... 21
Conclusion .................................................................................................................................................. 22
References ................................................................................................................................................... 23
Appendices.................................................................................................................................................. 24

Table of Figures

Figure 1- Details of Corporate Bonds Listed on Bangladesh Stock Market ............................................... 14

Figure 2- Details of Islamic Bond Issued in Bangladesh ............................................................................ 16

3
 Executive Summary

The bond market—often called the debt market, fixed-income market, or credit market—is the
collective name given to all trades and issues of debt securities. Bangladesh's bond market
represents the 'smallest' in South Asia, accounting for only 12 per cent of the country's gross
domestic product (GDP). A World Bank report said. "It is surprising that Bangladesh, which is
much larger than Nepal in terms of population, land area and other measures, has the smallest bond
market in the region." The report added, like in any other country, a well-developed tradable bond
market is critical to ensuring stability and efficiency of the financial market in Bangladesh.

Here comes the noticeable contribution of Investment Corporation of Bangladesh (ICB) in the
field of bond market. ICB gives a few Money Market services like putting resources into
subordinated bond, zero coupon bonds and accept TDR. These administrations have improved
the expanded field in bond market’s portfolio. Alluring rate is offered for these items. ICB
receives deposit in the form of TDR from institutions/ individuals offering attractive and
negotiable interest rate which helps to make investment in profitable securities. By coping up
with the existing issues of bond market, ICB has been trying to play a crucial role in the
development of this field. We have discussed the activities and initiatives of Investment
Corporation of Bangladesh (ICB) by focusing on the current status, potentials and future
prospects of bond market. This study has been conducted in several parts.

In Chapter One, Introduction to Investment Banking, Investment Corporation of Bangladesh and

Bond Market has been provided. Here the objective, scope, methodology and limitations of the
study has been described.

In Chapter Two, we have analyzed the growth and activities of ICB, the current situation of
existing bond market in Bangladesh, and have identified several issues regarding that.

In Chapter Three, our findings regarding the interaction of ICB with bond market is discussed.
And recommendations are provided to facilitate the interaction even more.

We have concluded our study by outlining the prospects for Both ICB and bond market, and
have provided reference and necessary appendices.

4
 Chapter 01

1.1 Introduction

Investment banking is a particular division of banking identified with the buildup of capital for
different organizations, governments, and other entities. Investment banks underwrite new debt
and equity securities for a wide range of corporations, help in the sale of securities, and help to
encourage consolidations and acquisitions, reorganizations, and broker trades for both
institutions and private investors. Investment banks also give direction to issuers with respect to
the issue and placement of stock. In Bangladesh, investment banking sector has been expanding
over time with the growth of economic activities. The Government of Bangladesh has
contributed in this sector through establishing a statutory corporation of Government of the
People's Republic of Bangladesh, which is named as Investment Corporation of Bangladesh
(ICB).

Investment Corporation of Bangladesh (ICB) was established on October 1, 1976 under No.
40 of ‘Investment Corporation of Bangladesh Ordinance, 1976’. It is mainly an investment
bank operating in Bangladesh, established to accelerate the pace of industrialization and to
develop a sound securities market in Bangladesh. Investing in share market, providing loans and
advances, acting as trustee of mutual funds are some of main activities of ICB. It's the most
successful state-owned corporation of Bangladesh in terms of profitability.

On the other hand, Bond Market is a financial market where participants can issue new debt,
known as the primary market, or buy and sell debt securities, known as the secondary market.
Bond Market is a subset of derivative market. Its primary goal is to provide long-term funding

5
for public and private expenditures. Bond market contributes a lot in the industrialization of a
country through supporting investors. In Bangladesh, Bond Market is still at its initial stage. To
make it more economically enriched and reliable, ICB has taken lots of initiatives for and
contributed in the Bond Market. This report discusses the activities of Investment Corporation of
Bangladesh in the light of its contribution to the bond market of Bangladesh.

1.2 Objective of The Study

• To gather comprehensive knowledge on Investment Banking and Securities Market;

• To identify the problems regarding Bond Market in Bangladesh;
• To find out the activities and prospects of Investment Corporation of Bangladesh;
• To make some recommendations to the operations of ICB towards the development of
Bond Market in Bangladesh.

1.3 Scope of The Study

This report has been prepared through extensive discussion with people and clients related with
investment banking sector. While preparing this report, we had a great opportunity to have an in-
depth knowledge of all the activities of a statutory corporation of Government of Bangladesh.
This study has specified the prospects and grows of the discussed topics, limited with our
knowledge.

1.4 Research Methodology

The report has been written on the basis of information collected from primary as well as
secondary sources. The primary information has been collected from the personnel. In this case,
we have used telecommunication method to get positive, negative both sides. Then we got the
relevant data for the required project. To carry out the proposed study, data have been collected
from two sources: Primary and secondary sources. The details of the work plan are furnished
below:

6
The primary sources are as follows:

• Primary data for this study have been collected through a well-prepared questionnaire,
which contains both open and close-ended questions. Several ways of collecting data
have been used like, interviews over telephone with the respondents, questionnaire
surveyed;
• Conversation with clients who visited the corporation;

The secondary sources are as follows:

• Published reports of Investment Corporation of Bangladesh;

• Website of Investment Corporation of Bangladesh;
• Different manual published by Investment Corporation of Bangladesh;
• Different circular sent by head office;
• Articles on Investment Corporation of Bangladesh published on newspapers.

1.5 Limitation of The Study

The preparation of this report was not an easy task. We had to face some problems & limitations
during the preparation of this report despite the fact that we have tried best to prepare this project
successfully. The limitations were:

• Getting the information and interpreting it, on the basis of understanding and then
implementing it;
• Quite difficult for us to understand the financial terms;
• There were several departments for that reason we faced difficulties while collecting
information from those departments;
• Confidential information that no organizations inclined to share due to their business
interest was another limitation;
• Data from different sources were quite inconsistent which created some problems in
making the report & compelled us to verify the data diligently.

7
 Chapter 02

2.1 Analysis of Data

A well-developed financial system mobilizes savings and facilitates investment in an efficient

manner for accelerating economic growth. It is considered as a precondition of economic
development. Within the financial system, financial market consists of money market, capital
market, and derivative market etc. play an important role for the economic development. The
debt market being an integral part of financial market plays a complementary role in developing
economy through allocation of funds to the different deficit sectors. The debt market of
Bangladesh is very small. Government debt securities such as treasury bills, treasury bonds and
National Savings Certificates (NSA) dominate the market, among which NSA account for
roughly two-thirds of it. The debt market consists of money market, mortgage market, bond
market and derivative market. Bond market plays a vital role in economic development of a
country. Bond market provides long term finance to issuers by creating alternative source of
finance through stock market, besides providing stable source of income to investors against
volatile stock market. However, Bangladesh corporate Bond market is at very initial stage. Bond
market is one of the diversifications of a country’s financial sector and it also reduces foreign
currency risk.

We know that sustained growth in economic wellbeing of the people of Bangladesh vitally
depends on the rapid industrialization of the country, which requires that Bangladesh has to
embark upon large-scale industrialization, but achievement of industrial development of the
country is heavily dependent upon the availability of invisible surplus. Although saving is the
prime source of invisible surplus, in the absence of a sound and active capital and bond market,
savings tend to be absorbed by conspicuous consumption or unproductive uses. In our country, it
is imperative that savings are used for productive purposes. An efficient Capital and bond market
can only ensure effective and optimum transformation of savings into productive investment.

The importance of sound bond market need not be over emphasized as it contributes to the real
economic growth of a country. The speedy Development of industrial activities in the country
needs the support of a balanced and efficient Bond Market. A sound Bond Market ensures
greater mobilization of domestic savings and also ensures broadening the base of industrial
8
ownership. The sound Bond Market also assists the entrepreneurs whether in the private or
public sector to acquire debt for a feasible project.

In this connection Investment Corporation of Bangladesh is playing an important role from the
very beginning to make the market stable and liquid. The activities of ICB are pivotal to the
Development of the Bond Market in Bangladesh, which is crucial for the sake of accelerating the
pace of industrial Development. The selling or issuing of bond and being a trustee of Bond
issuers, these operation of ICB contributes to the development of bond market in Bangladesh.
For the analysis of the role of Investment Corporation OF Bangladesh, We will:

• At first, discuss the activities of Investment corporation of Bangladesh and its operations
in developing the Securities Market of Bangladesh.
• Then, analyze the current condition of Bond Market of Bangladesh;
• After that, find out the problems of Bond Market of Bangladesh;

2.1.1 Investment Corporation of Bangladesh, An Investment Bank:

Historical Background of ICB:

After liberation war, in view of social economic changes, the scope for private sector investment
in the economy was kept limited by allowing investment in projects up to Tk. 25 lacs. The new
investment policy, which was announced in July, 1972 provides for an expanded role of private
sector by allowing investment in a project up to Tk. 3 crores. The ceiling has further been raised
to Tk. 10 crores in spite of the adequate facilities and incentives provided to the private sectors
encouraging response was not for the coming. One of the reasons among other was the lack of
institutional facilities, which provides underwriting support (Like former ICB) to industrial
enterprise that was required to raise much need equity fund. Thus, the need for reactivation for
capital market, stock market was keenly felt.

The Investment Corporation of Bangladesh (ICB) was established on 1st October 1976, under
“The Investment Corporation of Bangladesh Ordinance, 1976”. The establishment of ICB was a
major step in a series of measures undertaken by the Government to accelerate the pace of
industrialization and to develop a well-organized and vibrant Capital Market, particularly

9
securities market in Bangladesh. ICB caters to the need of institutional support to meet the equity
gap of the industrial enterprises. In view of the national policy of accelerating the rate of savings
and investment to foster self-reliant economy, ICB assumes an indispensable and pivotal role.
Through the enactment of the Investment Corporation of Bangladesh (Amendment) Act, 2000
(No. of XXIV of 2000) it has been reformed in operational strategies and business polices have
taken place by establishing and operating subsidiary companies under ICB.

Institutional Framework of ICB:

Investment Corporation of Bangladesh is a Corporate body as per section 3 of Investment
Corporation of Bangladesh Ordinance, 1976 and deemed to be a banking company within the
meaning of the Banking Companies Ordinance, 1962 (L VII of 1962). The shares of corporation
are listed with the stock exchange. ICB is an authorized broker of DSE.

Objectives of ICB:
The objectives of the corporation are-
• To encourage and broaden the base of investments;
• To develop the capital market;
• To mobilize savings;
• To promote and establish subsidiaries for business development;
• To provide for matters ancillary thereto.

Business Policies of ICB:

The business policies of ICB in the following-
• To develop and encourage entrepreneurs;
• To diversify investments;
• To induce small and medium savers for investment in securities;
• To create employment opportunities;
• To encourage investment in Agro-based and ICT sectors;
• To provide financial assistance to projects subject to their economic and commercial
viability;
• To arrange consortium of financial institutions including Merchant banks to provide
equity support to projects;

10
 • To act on commercial consideration with due regard to the interest of industry,
commerce, depositors, investors and to the public in general.

Functions of ICB:
In order to achieve the previously mentioned objectives, the corporation may carry out the
following functions-
• Direct purchase of shares and debentures including placement and equity participation;
• Participating in and financing of joint-ventures companies;
• Providing lease finance singly and through syndication;
• Managing existing Investor’s Accounts;
• Managing existing Mutual Funds and Unit Funds;
• Managing Portfolios;
• Conducting computer training program;
• Providing advance against ICB Unit and Mutual Fund certificates;
• To act as Trustee and Custodian;
• Providing Bank Guarantee;
• Providing investment counseling to investors;
• Participating in Government divestment program;
• Introducing new business products suiting market demand;
• Dealing in other matters related to Capital Market.

Money Market Products and services of ICB:

ICB provides several Money Market services; i.e., investing in subordinated bond, zero coupon
bond and accept TDR. These services have enriched the diversified arena in their portfolio.
Attractive rate is offered for these products. ICB receives deposit in the form of TDR from
institutions/ individuals offering attractive and negotiable interest rate which helps to make
investment in profitable securities.

11
Fixed Deposit Receipt
Providing a tailored solution is the main purpose of its services. ICB recognizes that a
customized solution like FDR is another instrument for the success of their business. Whether it
is a Project Finance or Term Loan, ICB offers the right solution from where applicants find top-
class skills and in-depth knowledge of market trends from their specialists.

Issuing Bank Guarantee

ICB introduced Bank Guarantee scheme in 2002-03. ICB provides (1) Bid bond for enabling the
business people to participate in any tender or bidding; (2) Performance bond for helping the
business community to continue their business smoothly by fulfilling their obligations promised
by them to their clients; (3) Customs guarantee for solving different disagreements between the
customs authority and the business classes at the initial stage. The limit of guarantee would be
issued against at least 20.0 per cent cash and 80.0 per cent liquid securities or against 100.0 per
cent cash margin.

Consumer Credit Scheme

ICB has introduced "Consumer Credit Scheme" in 2003-04 to meet the needs of various
household appliances of different professionals of govt., semi-govt., autonomous bodies and
some established private sector organizations. Operation of the scheme has been kept stopped for
a certain period.

Corporate Financial Advice

Companies and Government enterprises intending to offload shares frequently seek professional
& financial advice on corporate restructuring & reengineering from ICB Capital management
Ltd. As a professional, ICB provides such services to their clients.

12
2.1.2 Current Condition of The Bond Market in Bangladesh:

Bond market serves as one of the best alternative sources of investment for investors around the
world while serving as one of the easier routes to ensuring finance for a business. In fact, the
global bond market, which stands at $100 trillion, is considerably larger than the global stock
market, which is valued at $64 trillion.

Bangladesh has seen significant economic growth over the years; however, the bond market has
yet to flourish in Bangladesh capital market, which has showed very little signs of growth. The
lack of a flourishing bond market has deprived Bangladeshi investors and companies of various
benefits that they could have reaped if there had been a developed bond market. Bond markets
serve as a source of long-term finance for companies with sound financial capabilities.
Moreover, it also provides investors with a stable source of long-term income compared to the
unstable and volatile returns of the stock market. Also considering the high volatility of the
Dhaka Stock Exchange, a stable bond market would serve the necessities of a general investor
very well. The bond market in Bangladesh is comprised mainly of Treasury bonds issued by the
Government of Bangladesh with 221 T-bonds and only one corporate bond that has been
currently floating in the market.

Issuance of Listed Bonds

The corporate bond market is still at a nascent stage as compared to the Treasury bond market.
Only three corporate bonds i.e., Islami Bank Bangladesh Ltd (IBBL)’s Mudaraba perpetual bond,
Advanced Chemical Industries (ACI)’s zero-coupon bond (matured) and BRAC bank’s
subordinated convertible bonds (matured) have been listed so far.

Amongst the three corporate bonds, IBBL's Mudaraba Perpetual Bond (MPB) is currently listed
and traded in Bangladesh stock market as IBBLPBOND. In 2007, IBBL bank issued MPB under
the Mudaraba principles of Islamic Shariah law and received approval from BSEC and
Bangladesh Bank. The Investment Corporation of Bangladesh is appointed as the trustee of
MPB. The company issued three million units with a minimum subscription amount of USD 59.2
(BDT 5000) and raised a total capital of USD 35.5 million (BDT 3 billion) which qualified 20
for additional Tier-1 Capital under BASEL-III guidelines. As on 2017, the company has

13
reportedly paid a total profit of USD 3 million. However, the dividends paid by IBBL on MPB
has declined to 8.6% in FY 2017 from 13.5% in FY 2012.

Name of Islami Bank Advanced Chemical

the Bangladesh Limited BRAC bank limited Industries (ACI)
company (IBBL)

$36m ($18m each in $16m ($9.6m in

$36m ($32.4m in private private
Size of the private placement placement and $3.6m in
and IPO) placement and
issue IPO) $6.4m in IPO)

Number of 3m 3m 1.3m
units

Unit price $12 $12 $12

Figure 1- Details of Corporate Bonds Listed on Bangladesh Stock Market

Private Placement of Corporate Bonds

Apart from the above-mentioned listed bonds, corporates in Bangladesh have also raised funds
via private placement of bonds. Unlike private companies, local banks are fairly active in the
bond market and have raised funds by issuing subordinated bonds. Over the last three years21,
55 companies have privately issued bonds worth USD 2.7 billion. In 2018, bonds worth USD 1.2
billion were issued, which was 66.3% more than the capital raised by privately placed bonds in
FY 2017. The companies issued different types of bonds such as non- convertible, redeemable,
and unsecured bonds at floating rates. More than 20% of the companies issued zero- coupon
bonds. These bonds have a maximum maturity period of seven years.

In 2018, the commission gave approval to 20 issuers to raise a total capital of USD 1.2 billion via
private placement of bonds. These bonds would be sold to multiple banks, financial institutions,
insurance companies, corporate bodies, asset management companies, mutual funds, and high
net worth individuals. Amongst the 20 issuers, four Islamic banks i.e., Al-Arafah Islami Bank
Limited, Islami Bank Bangladesh Limited and Social Islamic Bank and Shahjalal Islamic Bank

14
plan to raise a total capital of USD 276 million via subordinated bonds with floating rates, and
with a maturity period of seven years. Additionally, there are ten banks and three textile
companies (Generation Next Fashions Limited, Flamingo Fashion Limited, and Tarasima
Apparels Limited), which will raise a total capital of USD 768 million and USD 66 million,
respectively via issuance of bonds.

Bangladesh Government Treasury Bonds (T-Bonds) are available with maturity periods of two
years, five years, 10 years, 15 years and 20 years. The T-Bonds are tradable in the secondary
market. In FY 2018, T-Bonds worth USD 3.0 billion were issued. Over the past three years, the
cut off yield for T-Bonds has increased except for two years T-Bond, whose yield reduced
marginally by 6 basis points23. 10 years T-Bonds dominates the T-Bond market with a 38%
market share followed by five years T-Bonds (with 21% share) and 15 years T-Bonds (with 18%
share).

Issuance of Islamic Bond

Islamic bonds are issued against capital raised by individuals and Islamic banks. The sale of
Islamic bonds increased by 10.1% to USD 1.1 billion in FY 2018 from USD 1.0 billion in FY
2017. Any individual or corporation can purchase Islamic bonds issued by Islamic banks. The
bonds have a maturity of three months, six months, one year or two years.

Unlike other countries such as Malaysia, Indonesia and Saudi Arabia, the use of Islamic bonds in
Bangladesh for financing long-term infrastructure projects has been minimal. Despite the large
presence of Islamic banks in the country, there is a lack of Shariah compliant instruments to
support the Islamic finance industry. This is because unlike other debt securities, the return on
Islamic bonds is based on profit or loss sharing in line with the Shariah law. To ensure
compliance with Islamic principles, the structuring of Islamic bonds requires approval from
Shariah advisers. Hence, the Government of Bangladesh does not borrow money from the
Islamic banking sector. (See Appendix A for Islamic Bond)

15
 Name of Islami Bank Advanced Chemical
the Bangladesh Limited BRAC bank
company (IBBL) limited Industries (ACI)

Perpetual (no maturity 84 months Five years with yearly

Term period) from the date redemption
of issue
1.2% (profit) +
10% of Interest margin +
Rate of interest declared Discount rate of 10.5%
12.5%
dividend

Industrial and
Investment Infrastructure
Trustee Corporation of City Bank Limited Development Finance
Bangladesh Company Limited (IIDFC)

IDLC (Industrial
ICB Capital Development
Manager of Leasing Alliance Financial
the issue Management Limited Services Limited
Company)
Finance Limited

Credit rating A+ by CRISL NA A+ by CRISL

Public issue: 10%

100% issue Public issue: 46%
Investors offered to Institutional
public Institutional investors: 54%
investors: 90%

Figure 2- Details of Islamic Bond Issued in Bangladesh

Comparison of Bangladesh Bond Market with Other Asian Countries:

The local currency bond market in Asia, increased significantly by 12.7% to USD 5,370 billion
in FY 2018 from USD 4,771 billion in FY 2017. China dominates the Asian local currency bond
market with 47% share, followed by South Korea and Japan. Indonesia, Philippines, Vietnam
and Bangladesh have smaller bond markets as compared to other Asian countries. The presence
of secondary market has played a vital role in the development of bond market in Asian
countries. As a percentage of GDP, in 2018, South Korea had the largest corporate debt market
(73% of GDP) followed by Malaysia (46% of GDP). In India, the corporate bond market is 16%
of GDP. In Indonesia, 87% of the total outstanding bonds are traded in the secondary market,
followed by 70% in India. (See Appendix B for Comparison Between South Asian Countries)

16
2.1.3 Problems of The Bond Market in Bangladesh

From the perspective of Bond Subscribers -

• Lower demand for corporate bonds: Government securities are risk free, provide
higher returns (7.5%-9%), and have longer maturity periods (10-20 years) as compared to
corporate bonds. Additionally, purchase of government securities provides tax incentives
to individuals. On the other hand, NSC Schemes provide coupon rates of 11% to 12%,
which are very attractive to investors. Institutional investors such as mutual funds,
pension and provident funds, insurance firms, banks and NBFIs prefer to invest in
government securities as they can withdraw funds at any time and it helps them maintain
their SLR requirements. Further, the investors find it difficult to judge the
creditworthiness of the companies issuing bonds despite ratings being provided by local
credit rating agencies. All these factors have contributed to significantly lower demand
for corporate bonds.

• Low investor base: Domestic investors are unable to invest in corporate bonds due to a
lack of professional fund management. Moreover, the bond market significantly lacks
presence of international investors. In the past, issuers have failed to service their
payment obligations on time, while the trustees have failed to enforce the debt securities
holder’s rights. Thus, general investors lack confidence in the private sector due to an
absence of a robust regulatory system.

• Lack of investor awareness: Lack of an investor education program and adverse

perception by the market participants deters participation in the bond market. Investors
also lack knowledge on how to sell bonds in the capital market, as there is a difference
between equity selling and bond selling. It is the primary responsibility of BSEC to
undertake both education and training program for the market participants.

17
From the perspective of Bond Issuers -

• Lack of supply of bonds: In Bangladesh, donor agencies provide loans at an interest rate
of 3% to 4% whereas the investors in the bond market expect a return of at least 10%
from companies with a good credit rating. Further, the process of getting a loan from the
bank is streamlined and quick as compared to the tedious process of raising funds through
bonds. Hence, the issuers do not prefer to issue bonds.

• High cost of bond issuance: Approximately 1.5% to 2% of the cost is associated with
issuance of new bonds in the country. The costs include registration fees, annual trustee
fees on outstanding debt securities amount, credit rating fees, etc. and underwriters’ fees
(in case of public issue of bonds). Further, trustee fees can be as high as 5% of the total
amount raised.

From the perspective of Market Intermediaries -

• Weak regulations and market infrastructure: It take a minimum of six months to one
year for a company to issue bonds. Due to lack of infrastructure, the approving authorities
are not able to conduct due diligence and compliance checks in a short turnaround time.
Hence, companies that would be interested to raise funds within three to six months
would eventually borrow money from banks or donor agencies.

• Inactive secondary market: Benchmark yield is an indicator of the current structure of

interest rates. Based on this yield, the investors can predict the movement of future
interest rates and associated risks. Due to the absence of a credible long-term yield curve,
the corporate bond market is underdeveloped.

• Absence of digital platforms: An absence of a centralized database management system

hinders issuers and investors from accessing authentic information. As a result, lack of
information prevents issuers and investors from entering into the bond market. Privately
placed bonds are traded over the phone by the companies. Such old-fashioned trading
techniques bring in transparency issues in the bond market. However, the government has
plans to implement an electronic platform to trade the debt securities.

18
 Chapter 03

3.1 Findings & Recommendations

Throughout the study, we have identified operations of ICB towards the development of Bond
Market in Bangladesh. Our findings have been discussed here:

3.1.1 Findings

ICB Raised billions of Money from Subordinated Bond at 2018

The Investment Corporation of Bangladesh (ICB) has so far raised Tk 7.50 billion from the
issuance of subordinated bonds floated as part of its market supportive measures. The state-run
corporation is expected to raise Tk 20 billion by offering the subordinated bonds. Of the total
amount, Tk 15 billion will be invested in the listed securities. The ICB officials expressed the
hope that they would receive the remaining funds soon. The Bangladesh Securities and Exchange
Commission (BSEC) approved the ICB's proposal for raising a fund of Tk 20 billion through
issuing non-convertible fixed rate subordinated bond. The securities regulator also set a
condition that Tk 15 billion has to be invested in the listed securities to boost the country's
capital market. Accordingly, the ICB has already started making investment in the capital market
after it received a fund of Tk 7.50 billion from three institutions by offering the subordinated
bond. Of the amount, Tk 7.0 billion came from Agrani Bank, Tk 400 million from the DSE and
Tk 100 million from Dhaka Bank. Of the remaining funds, Tk 5.0 billion will come from Janata
Bank, Tk 5.0 billion from Sonali Bank, and Tk 1.50 billion from Rupali Bank.

ICB Proposing Citi Group for Partnership

By the end of 2019, State-owned Investment Corporation of Bangladesh proposed Citigroup
Global Markets as its partner for raising $500 million from the international market by issuance
of bond. This has been the first attempt by the government to raise fund from the international
market through issuance of bond. On November 11, 2019 the International Finance Cooperation
floated the ‘Bangla Bond’ on the London Stock Exchange to raise Tk 80 crore, equivalent to
approximately $9.5 million. The fund would be used for providing loan to the private companies
by the ICB. The interest rate of the bond, according to media report, is 6.3 per cent annually.

19
Acting as a Trustee for the bond issuer
ICB is acting as trustee to the debenture issues and asset-backed securitized bonds. ICB acted as
trustee to the issues of 17 companies of which 7 companies has been redeemed successfully.

Investing in Subordinated, Zero coupon Bond

ICB provides several Money Market services like investing in subordinated bond, zero coupon
bond and accept TDR. These services have enriched the diversified arena in their portfolio.
Attractive rate is offered for these products. ICB receives deposit in the form of TDR from
institutions/ individuals offering attractive and negotiable interest rate which helps to make
investment in profitable securities.

Investment Portfolio of ICB

During 2003-04, a total investment of Tk. 138.93 crore had been made in the investment
portfolio of ICB including Tk.0.2 crore in shares of a company through Pre-IPO placement, Tk.
7.0 crore in debentures of two companies, Tk. 0.3 crore in preference shares of a company and
Tk. 5.0 crore in bonds of a company. Up to 30 June 2004 ICB made a total investment of Tk
41.08 crore in 27 companies through purchase of preference shares, debentures, shares against
pre-IPO placement and bonds of Tk.7.3 crore of 3 companies, Tk. 9.5 crore of 3 companies, Tk.
11.33 crore of 12 companies and Tk. 5.0 crore of a company respectively as well as through
investment of Tk. 7.95 crore in 8 companies as direct equity participation.

Issuing Subordinate Bond to Increase Liquidity

In 2018, Bangladesh Bank relaxed a rule regarding ICB’s capital exposure. Prior to that, ICB
was struggling with insufficient liquidity. To deal with the situation, ICB board issued a new
fully redeemable and subordinate bond. Its tenure was seven years including a two-year grace
period. The interest rate was 9 percent and in case of late redemption an extra 2 percent interest
would be paid. The bond is non-convertible and non-listed. The per unit value of the bond is Tk
1 crore, which is sold by way of private placement to individuals (at a minimum subscription of
one unit) and institutions (at a minimum subscription of five units). Banks, financial institutions
and institutional investors can invest in the bond.

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3.1.2 Recommendations

Based on our findings about the activities of Investment Corporation of Bangladesh and the
prospects of Bond Market in Bangladesh, we have made some recommendations that can
flourish the growth of Bond Market and make the initiatives taken by ICB more effective. These
recommendations are certainly limited by our knowledge.

• Attracting the Investors:

As investors are not attracted much towards bond, by providing attractive coupon rate on bonds
ICB can play a great role in Bond Market Bangladesh.

• Reassurance of bond holder’s right:

ICB can encourage the domestic investors by reassuring the bond holders right by fulfilling
perfectly the role of a bond trustee. This role will help boosting Bond Market in Bangladesh.

• Increasing Awareness:
Making enough efforts to make the investor more aware will help the bond market in Bangladesh
bloom significantly. ICB can make investor more aware by maybe forming an index or making
information about bond more available.

• Creating a digital Platform:

By creating a digital platform ICB can make the access to information easy and facilitate the
total process of bond issue which will finally result in a more convenient bond market.

• More investment in bond:

ICB can help flourish the bond market in Bangladesh by issuing more bonds and investing in
bond market along with the investment in capital market Bangladesh.

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 Conclusion

As an Investment Bank, the state-owned Investment Corporation of Bangladesh (ICB) is a

unique name in Bangladesh. The ICB is virtually the only investment bank in Bangladesh. The
establishment of ICB was a significant step in a series of measures undertaken by the
government to accelerate the pace of industrialization and to develop a well-organized and
vibrant capital market in Bangladesh. ICB provides institutional support to meet the equity gap
of the companies. It has experienced and skilled labor force and professional and dedicated
managerial team that aid to pursue the goals and objectives of ICB. The Investment Corporation
of Bangladesh acts as an Investment Banker, Market maker & Portfolio Manager which has
significant contribution from the beginning of its establishment to develop a well-organized,
balanced, stable, efficient, and liquid capital market in Bangladesh. ICB is playing a major role
from the very beginning to make the market stable and liquid. In a broader sense ICB is both
Investment bank and Development Financial Institution (DFI). ICB plays a vital role to
encourage and broaden the base of investments and thereby to help develop the bond market in
Bangladesh, as well as the stock market. Furthermore, the Investment Corporation of Bangladesh
is helping to accelerate the industrial growth in this country by mobilizing the small savings from
investors to the capital market. ICB should be concerned about its investors, as the investors
prefer not to take risks, thus not investing in many capable, influential, and profitable companies.
ICB has great influence in the bond market, but not as influence that it has on the stock market.
ICB should play its important role for the gaining of the investors’ confidence on the bond
market and further industrial growth in our country and also the development and stabilization of
the capital market in Bangladesh.

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 References

1. https://icb.gov.bd/zindex.php
2. https://www.icbamcl.com.bd/
3. https://www.thedailystar.net/business/news/victory-icb-bb-relaxes-rules-its-bond-
1639843
4. https://www.dhakatribune.com/business/stock/2018/10/11/icb-to-invest-tk-1-500cr-in-
capital-market-from-bond-
proceeds?fbclid=IwAR1HJvSrBU8S2lQWyva5Gn5eyR_54vQmY97H-
0mDi_l9q3FPIE9EeUOGzLk
5. http://www.newagebd.net/article/93656/icb-proposes-citi-as-partner-for-issuance-of-
500m-bond?fbclid=IwAR00Xxc4MSVaWKHzyb0KZ84Z4UlhwfoH-
FtpyVVq7U1KLdMENYDJ1rXm73w
6. https://www.thefinancialexpress.com.bd/stock/icb-raises-tk-75b-from-subordinated-
bonds_1542430165?fbclid=IwAR2jGMiRif1mP_SEHuamBXjpLHSOMCdn56ET7V97E
zYVzycHSHoB2EP0JMM
7. https://www.icbislamic_bd.com/assets/files/disclosure/disclosure_on_risk_based_capital
%20_basel-II_for_2011.pdf

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 Appendices

Appendix A:
Islamic Bond- Sukuk or Islamic Bond is an alternative to conventional bonds. Islamic bonds do
not contain debt obligation. Because, according to Shariah law it is prohibited to lend with
interest payments. Rather, Sukuk represents a portion of ownership in a portfolio of eligible
existing or future assets.

Appendix B:
A chart is given here showing comparison among the South Asian countries based on percentage
of bond within GDP.

60.00%

49.11%
50.00% 45.09%

40.00%

30.00%

20.00%
11.42% 10.96%
10.00% 6.43%
0.13% 0.49% 0.98%
0.00%
Bangladesh India Srilanka Pakistan

Corporate bond as a % of GDP Bond market as a % of GDP

(Data is collected from 2018’s record)

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