As all attention remained focused on the category-2 tropical cyclone 'Bulbul' and the trail of devastations it had left behind in some of the country's south and south-western districts in the second week of this month, an event of high economic significance---listing of 'Bangla Bond' on the London Stock Exchange (LSE)--- happening during that time escaped many people's notice . The listing of the bond is considered a good omen for the economy, particularly for the private sector investment. Though the value of the bond in question is not that big---only US$9.5 million or Tk 800 million, it could be a ground-breaking event in terms of alluring big foreign funds for investment in building important infrastructures. Even the Bangla Bond size could be expanded if there were demands from both investors and local businesses.
The proceeds of the first-ever bond floated in the international market would be used for expanding operations and distribution of network of one of the leading Bangladeshi processed food and beverage manufacturers. However, neither has the government nor the Bangladeshi firm issued the bond. Rather the triple-A rated International Finance Corporation (IFC), the private sector lending arm of the World Bank Group, is the issuer. The IFC is an old player in the local currency-based bond market. It has so far raised more than US$ 16 billion in 50 local currencies, including Indian Rupee and Chinese Renminbi since early 2000.
Many international investors are found interested in putting in their fund in local currency-based bonds because it is devoid of the exchange rate fluctuation risks. Moreover, foreign investors do usually face a number of hurdles while trying to invest in Bangladesh. But investment in bonds is far more easy and hassle-free. Besides, the return on their investment is also guaranteed. The local businesses would also prefer such funds for investment in infrastructures and other productive initiatives since those are expected to be less expensive. However, a highly credible entity the IFC, naturally, would lend money to local firms that have sound track record.
Undeniably, the Taka bond, an innovative capital market solution, could help solve the problem of stagnancy in private investment to some extent. The private investment-GDP ratio has remained stuck at 23 per cent for the past few years. This is not at all an ideal situation. With a view to supporting the aspired high growth rate, the ratio needs to be raised to, at least, 30 per cent. The floatation of Taka bond in the international market would also help enhance the profile of Bangladesh currency. The IFC is reportedly interested in helping the country's private sector through issuance of similar bonds in the future. However, the performance of the local beneficiaries of such instruments would be a key to ensuring success of similar bonds and creating scope for floating even sovereign bond by the government.
But, sadly enough, the secondary bond market at home continues to be non-existent despite the fact it could be a great source of mobilising funds for investment in both private and public sectors. Floatation of local bonds abroad for foreign institutional investors is welcome, but there should be determined and effective measures to activate the bond market at home.