Bangladesh's hungry securities market swallows a gain-only bond as the Tk 50-billion government Sukuk was oversubscribed nearly five times to Tk 233.04 billion in its auction held Wednesday.
A total of 31 institutions -- both conventional and Shariah-compliant financial institutions -- along with three individuals took part in the auction of the Bangladesh Government Investment Sukuk (BGIS), generally known as Ijarah Sukuk, held at the central bank, officials say.
A financial unit styled special-purpose vehicle (SPV) allocated the bond certificates as per set quota for the auction of the blue chip, Sukuk.
Bangladesh Bank (BB) had earlier set the quota with priority given to Shariah-based Islamic banks, non-banking financial institutions (NBFIs) and insurance companies for staking their bets. A separate Islamic securities unit under the Debt Management Department of the central bank acts as SPV.
Investors will receive a profit of 4.65 per cent annually on their investment in the Islamic bonds. The capital gains will be paid on a half-yearly basis.
The government raised the Tk 50-billion hedge fund-type amount through issuing Five-Year Sukuk bonds for the implementation of a needs-based government primary school-development project by 2023.
Talking to the FE, a senior executive of a leading private commercial bank said bidders, particularly conventional banks, expressed their unwillingness to invest their excess liquidity in the Shariah-based instrument mainly for lower returns than on the same-tenure Bangladesh Government Treasury Bonds (BGTBs).
Currently, the cut-off yield on the BGTBs stood at 6.50 per cent.
"Most bankers also expected that the yields on the government-approved securities would increase in the near future," the private banker explains.
On the other hand, all the Islamic banks took part in the auction actively to invest their excess liquidity and received a better profit than in the Bangladesh Government Islami Investment Bonds (BGIIBs).
Currently, the Islamic banks are allowed to invest their excess funds in the two-type government securities with lower returns on such investment, according to a senior executive of a leading Islamic bank.
Twin Islamic bonds -- three-month BGIIB and six-month BGIIB -- are in operation.
"We're also allowed to meet our statutory liquidity ratio (SLR) requirement, as set by the central bank, with the BGIS," the senior banker said while explaining their active participation in the auction.
Currently, the required SLR is 13 per cent daily for the conventional banks and 5.5 per cent for the Shariah-based Islamic banks.
The senior banker urges the policymakers to fix the profit on the upcoming Sukuk considering the market situation.
He also requests the finance ministry and the central bank to issue the Sukuk in different tenures instead of only five-year tenure to help manage funds efficiently.
The ministry of finance and the central bank are now working to issue a third Sukuk by the end of the current fiscal year (FY), 2021-22, for raising another amount of Tk 50 billion to implement a rural- infrastructure-development project.
"We're trying to issue the third Sukuk worth Tk 50 billion within March 2022," a senior official familiar with the developments on the capital market told the FE, without elaborating.
Sukuk is an Islamic financial certificate similar to a treasury bond and structured to generate returns in compliance with Islamic finance principles.
"It is helpful to managing liquidity, particularly in Islamic banks of Bangladesh," Muhammed Shahidul Islam, managing director (MD) and chief executive officer (CEO) of Shahjalal Islami Bank Limited, told the FE while explaining the necessity of Sukuk.
Mr Islam feels more Sukuks should be issued immediately to ensure level playing field between the conventional and Shariah-based banks.
In FY'21, the government raised Tk 80 billion through issuing the first Sukuk for implementation of a water-supply project titled "Safe Water Supply for the Whole Country" by 2025.
In the private sector, BEXIMCO, a leading business conglomerate of Bangladesh, has already issued asset-backed Green-Sukuk bonds worth Tk 30 billion for the first time in the country for expanding its businesses.
