The government issued guidelines permitting Bangladeshi entrepreneurs to make offshore equity investment to the tune of 25 per cent of net asset of a company -- to instant welcome from businesses.
Seven core conditions are tied to the investment in foreign countries -- an option big businesses of Bangladesh have long sought.
The financial institutions division of the ministry of finance has published a gazette notification on the 'Capital Account Transactions (Overseas Equity Investment) Guidelines 2022' detailing how to spread their wings beyond borders.
"Interested overseas investors will have to take prior permission from the government through central bank channel," says one provision of the guidelines.
They will be allowed to make equity investment abroad up to 20 per cent of their average annual income from exports during the last five years or 25 per cent of net asset mentioned in the last audited financial report.
The government since 2013 has given permission to eight companies to invest abroad. The firms are DBL Group, Mobil Jamuna, ACI Healthcare, Square Pharma, Incepta Pharmaceuticals, BSRM Steel, Spectrum Engineering, and Akij Group.
Also, Ha-Meem Group, Nitol-Niloy Group, Summit Group, Meghna Group and Pran-RFL Group have expressed interest in making equity investment abroad.
Another condition laid down in the guidelines says an entrepreneur who wants to make overseas investment has to be an exporter with adequate balance in its Exporters' Retention Quota (ERQ) account.
The entrepreneur needs to be financially sound according to audited accounts of his or her company in the past five years, in line with the directives in the Financial Reporting Act 2015.
"No loan defaulters should be allowed to make investment abroad."
The credit-rating grade of the entrepreneur has to be at least 2.0 according to the mapping set in the Guidelines on Risk-Based Capital Adequacy, prepared by the central bank.
The overseas investment proposal for business activity shall ordinarily be of similar nature of the entrepreneur's business engagement in the home country.
The equity-investment proposal has to be proved economically viable by feasibility study.
Also, the proposal should have the potential for future earnings of foreign exchange coupled with other advantages to the country, including raising exports from Bangladesh and employment opportunities for Bangladeshi nationals.
The applicant company must have adequate experienced human resources in running international business, financing, and making investment.
A 15-member high-powered committee, comprising representatives from various ministries, divisions, and departments, led by the central bank governor, will scrutinise overseas equity-investment proposals and have decision by consulting the government, says the investment guidebook.
Overseas equity investment will get priority in countries where there are no restrictions on Bangladeshi nationals to work and repatriate their income to Bangladesh.
The countries with which Bangladesh has dual taxation-avoidance agreement, and where investment from Bangladesh and the repatriation of capital including capital gains, dividends, and other admissible earnings including technical know-how fees, royalty, consultancy fees, commission or other entitlements are allowed will get priority for investment.
Also, overseas equity investment will get priority in countries with which Bangladesh has agreements on bilateral equity investment, development, expansion, and conservation.
However, equity investment by Bangladeshi entrepreneurs would not be allowed in countries where sanctions have been imposed by the United Nations, the European Union, Office of Foreign Asset Control (OFAC), and the countries which are not compatible with Financial Action Task Force (FATF) requirements.
Entrepreneurs also would not be allowed to make equity investment in countries with which Bangladesh has no diplomatic relations.
It is further mentioned that the money for equity investment has to be sent directly into the bank account of the subsidiary company abroad. If any investment proposal fails to materialise, the money has to be brought back immediately.
The guidelines say any misuse of the funds would be treated as an offence under the Money Laundering and Prevention Act. In such cases, the owner, the directors and the beneficiary owners of the company shall be liable to punitive action under the law.
President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Jasim Uddin welcomed the issuance of the guidelines paving a clear way of equity investment abroad.
"There are many Bangladeshi companies which have capacity to invest abroad, which will brighten the country's image," he told the FE.
However, he expressed reservation over the requirement of taking prior permission from the government for making investment.
Executive director of the Policy Research Institute of Bangladesh Dr Ahsan H Mansur told the FE Wednesday that prominent companies with good track record can be allowed for overseas investment and the central bank has to keep a close eye on them.
"The top executives of the subsidiary companies abroad should go from here," he says, referring to the styles followed by the multinational companies. Allowing overseas investment by Bangladeshi companies will expand the name and fame, he adds.
syful-islam@outlook.com