Individual Term Paper on

Topic: Bond Market in BD for financing big business

Prepared for:

Dr. Salehuddin Ahmed

Professor

BRAC Business School

BRAC University

Prepared by:

SL Name ID

1. Maliha Farzana 20164092

Course code: ECO502

Date Submission: 07.12.2020

Acknowledgement

It's my immense pleasure to complete this assignment in due time by the grace of Almighty Allah. I am
gratifying to those people who helped me a lot during the preparation of this report. I would like to show my
gratitude to my administering faculty Prof. Dr. Salehuddin Ahmed for given that overall concept in the process
of preparation of the term paper on “Bond Market in BD for financing big business” I will do my best to use
my skills and knowledge in the best possible way, and I will continue to give my effort on the improvement,
in order to achieve preferred results.

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Letter of transmittal
7.12.2020

Prof. Dr. Salehuddin Ahmed

BRAC Business School

BRAC University

Subject: Authorization letter for submission of the term paper.

Dear Sir,

I have the pleasure to submit the term paper on “Bond Market in BD for financing big business”
which I have been assigned as a part of my course “Macroeconomics and Business Forecasting”
requirements. To prepare this report, I have tried to devote our best effort and conducted extensive
analytical work to find out the study relevant materials. I believe that the experience I have
acquired from this study will be an invaluable asset in my career. Due to various constraints, there
may be some mistakes. I will be grateful if you consider those from a reasonable point.

Finally, I hope that you will enjoy going through this report as I have felt enormous pleasure to
prepare it.

Sincerely yours,

………………………………..

Name: Maliha Farzana

ID: 20164092

BRAC Business School

BRAC University

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Introduction:
The bond market plays an imperative part in the financial improvement of a nation. As Bangladesh
targets to attain middle-income status by 2024, the nation would require speculations of USD 608
billion by 2040 within the foundation division. We recognized 12 sub-sectors, having a pipeline
of USD 186.7 billion worth of ventures of which USD 85.4 billion is ascribed to Private or PPP
ventures. Over the years, Global Banks, multilateral offices such as ADB, European Speculation
Bank, and World Bank, and foreign governments like India, China, and Japan whose have been
the most sources of stores for the framework projects in divisions such as Uncommon Financial
Zones (SEZs), Air terminals, Streets and Interstates, Control Transmission and Distribution,
Railroads, and Ports. Also, the bond market gives long term back to issuers by making an elective
source of the back through the stock market, other than giving a steady source of earning to
speculators against the unstable stock market. The inclusion of neighborhood banks and NBFIs
have moo due to tall NPAs of state-owned Commercial Banks (SOCB), moo capital ampleness
proportion, tall loaning rates (15%-18%) for long-term financing, and brief tenor of loaning. The
current sources of reserves will not be satisfactory to meet the growing needs of foundation within
the nation, and it is basic to tap into elective sources of reserves such as debt capital markets and
worldwide paramount and benefits reserves. Nonetheless, Bangladesh corporate Bond market is
at an extremely introductory stage. Henceforth, it is expected to make an examination of
speculators' disposition towards corporate securities in Bangladesh for deciding financial
specialists finding on the issue. The examination is restricted to the presentation assessment of
three corporate securities in the corporate security market in Bangladesh and explores the mentality
of risk-takers towards it. We collected secondary information from the DSE website and processed
it via SPSS to perform performance analysis and collected primary data from investors of some
Chittagong metro financial institutions by means of a questionnaire survey to evaluate the attitude
of investors towards the corporate bond market. The study found that the price stability of the ACI
zero-coupon bond is greater than the consolidated IBBL Perpetual Mudaraba Bond and contingent
bond of BRAC which that only 5% of respondents prefers to invest in corporate bonds due to lack
of supply of corporate bond, lack of investors’ awareness, inadequate market regulations, etc
(Alam, 2014).

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Major Issues:
1. In Bangladesh, our economy is profoundly dependent on bank financing and the financing
requirements proposed to address the effects of Covid-19 are also focused on funding from
banks.

2. The bond market is very less active, with three corporate bonds posted to date, as it were.
Arrangements and market reforms are expected to restore ads of the obligation money. One of
the problems for business creditors is high returns on government investment fund plans and
bonds.

3. Inequity funding, either a corporation or a person makes an investment in a company, which

means it is not necessary to repay the money, but recently the investor claims a share of the
company, maybe even a controlling one.

4. There is a lack of action against market influencers who is responsible for preventing the
financial growth of the bond market.

5. The bond market is not digitalized which means that it is actually not automated. By creating
a bond trading site for all investors, the market has to be automated.

Information and Data Analysis

Bond market is known as debt market or fixed income market which is the common name given
to all debt securities transactions and issues. However, the bond market is generally fragmented
into two distinctive kinds that are the primary market and the secondary market. The primary
market is frequently referred to as the “new issues” market in which transactions strictly occur
directly between the bond issuers and the bond buyers. In the secondary market, securities that
have already been sold in the primary market are then bought and sold at later dates (CHEN, 2020).

Types of Bonds:

The overall security market or bond market can be fragmented into the accompanying security
orders, each with its own arrangement of traits. They are: Corporate Bonds, Government Bonds,
and Municipal Bonds (CHEN, 2020).

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Government Bond scenario in Bangladesh: As per the understanding between The Government of
Bangladesh and Bangladesh Bank in 1985 (Treasury rules of 1998 and Bangladesh Bank (BB) Order in
1972, article 20 enables Bangladesh Bank to issue unused credits and oversee open obligation for the
Government. Government Security may be a tradable instrument issued by a paramount Government. It
recognizes the Government's obligation commitment. Such securities are brief term (more often than not
called treasury bills, with unique maturities of less than one year) or long term (ordinarily called
Government bonds or dated securities with an unique development of one year or more). Too, there are
major Government Securities in Bangladesh are. Treasury Bills (T-Bills) b. Bangladesh Government
Treasury bond (BGTB) ((BB), n.d.).

Figure 01: Types of bonds

Corporate Bond Market scenario in Bangladesh: The corporate bond market in Bangladesh is
characterized by a low base market and the market is still at the beginning organize of improvement. In
Bangladesh Bond Market, settled salary securities to begin with time came into presence in 1987 with the
floatation of debenture by two companies. Be that as it may, no debenture was issued after 1999.
Exchanging of Government Treasury bonds begun in December 2005 at the Dhaka Stock Trade (DSE)
(Afia Akter, 2019).

Municipal Bond Market scenario in Bangladesh: According to, the article of “The Financial
Express” I find that the municipal bond is developed by UNCDF (UN Capital Development Fund) for
hitting the Bangladesh capital market because their aim is to rise fund for municipalities and encourage
capital market. In addition, UN agency found that the demand for finance in the functional region of local
governments has also increased with the transition towards urban lifestyles. Though, Feni, Chandpur,
Bhola, Kushtia, Faridpur, Bagerhat, Brahmanbaria, Cox's Bazar and Sirajganj are the nine municipalities
with assessed investment grades. In the ratings, Pabna figured poorly (Jasim Uddin Haroon, 2020).

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The legal differentiation between Debt financing and Equity Financing:

Debt instruments are corporate borrowing, whatever they might be called. The company uses"
from other investors as an alternative procuring a pure commercial bank loan. That is why, like a
loan, debt instruments, such as bonds, come with a stated interest rate. An ownership interest in
the corporation is offered by equity investments. Owning shares makes the investor an
organization's director. As compared to the total number of shares issued by the company, the
percentage of ownership depends on the number of shares held (Pirraglia, n.d.).

Here in below the financial system of Bangladesh is given:

Figure 02: Bangladesh’s Financial System

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Long-term debt (Bond) market in Bangladesh:

Correspondingly, the long-term debt market is still largely underdeveloped in order to finance the
country's capital-intensive projects. The Commission took measures to help the participants in the
market and to improve the capital market. Moreover, Issuance debentures are unsecured debt
securities issued by listed firms. The coupon rates traditionally provided the issuers were in the 14
percent to 17 percent range. There are eight debentures at present, which are classified on Stock
market of Bangladesh. The listed debentures, however have reached maturity but are still listed
because of any unfinished court cases. The 8 debentures earned a total of USD 13.7 million (DSE,
2019).

Listed Bond in DSE:

As opposed to the Treasury bond market, the corporate bond market is only at a nascent level.
Three just Business Shares, i.e. Mudaraba perpetual bond, Advanced Chemical Industries, Islami
Bank Bangladesh Ltd (IBBL) Zero-coupon (matured) and BRAC bank subordinated (matured)
convertible bonds have been listed (ACI) Until now (DSE, 2019).

Bangladesh Bond Sector Contrast with Other Countries from Asia:

The nearby money bond showcase in Asia, expanded essentially by 12.7% to USD 5,370 billion
in FY 2018 from USD 4,771 billion in FY 2017. China rules the Asian neighborhood money bond
advertise with 47% share, taken after by South Korea and Japan. Indonesia, Philippines, Vietnam
and Bangladesh have littler bond markets as compared to other Asian nations.

Figure 03: Comparison of our bond market to others

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The nearness of auxiliary advertise has played a crucial part within the development of bond
advertise in Asian nations. As a rate of GDP, in 2018, South Korea had the biggest corporate debt
market (73% of GDP) taken after by Malaysia (46% of GDP). In India, the corporate bond
advertise is 16% of GDP. In Indonesia, 87% of the entire extraordinary bonds are exchanged within
the auxiliary advertise, taken after by 70% in India (Unknown, 2019).

Generally the Advantage of Bond Market in other countries:

The funding of your company by debt provides many benefits. Firstly the lending institution has
no influence over how you operate your business, and it does not have any ownership. Secondly,
your arrangement with the lender ends if you repay the loan. If your company becomes more
valuable, that is particularly important. Thirdly, as a company expense, the interest you pay on
debt financing is tax exempt. Finally, a known cost that can be reliably used in the forecasting
models is the monthly payment, as well as the breakdown of the payments (PARKER, 2020).

Generally the Advantage of Bond Market in other countries:

Debt financing for your business, however does come with some downsides. Next, applying a debt
payment to the monthly expenditures means that all company expenses, including the debt
payment, will still be covered by the capital inflow. That is often far from certain for small or
early-stage firms. In addition, during recessions, small business lending may be slowed down
dramatically. It can be hard to receive debt funding in tougher times for the economy unless you
are disproportionately qualified (PARKER, 2020).

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Major Observation:

1. In this report, we found that the bond market is less active in our country so we can say
that the big business is unable to get sufficient financed.

2. Figure 03 shows us the bond market growth rate is better than Hong Kong and Japan, on
the other hand, other countries in the Asian region have more growth rates.

3. In my point of view, we also enlighten that the investors of the bond market in Bangladesh
have also been considered an unsustainable one. Inadequate Bond numbers, high returns on the
stock or money market, lack of the knowledge of investors is considered to be the biggest obstacles
to developing the country's big business and corporate bond market.

4. So if we minimize the cost of issuing bonds and the time to raise capital from bonds, it will
help to grow the bond market by raising incentives for institutional investors who are usually big
bond investors and by increasing the familiarity of bonds.

Conclusion:

Whereas the past chapters highlight the key issues in foundation financing and the obstacles to the
development of a vigorous bond platform in Bangladesh, in this report I have focused on the major
suggestions and takeaways in arrange to overcome the previously mentioned obstacles. The effect
is measured in terms of the impacts on the development of the bond market, accessibility of simple
back to framework players, and in general infrastructure development in Bangladesh.

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References
(BB), B. B., n.d. www.bb.org.bd. [Online]
Available at: https://www.bb.org.bd/fnansys/govsecmrkt/faq.php

Afia Akter, R. H. H. a. A. B. S., 2019. Corporate Bond Market: The Case of Bangladesh, Dhaka: World
Review of Business Research.

Alam, A. H. M. N. B., 2014. Evaluation of Corporate Bond Market Performance, Chittagong: IIUC STUDIES.

CHEN, J., 2020. www.investopedia.com. [Online]

Available at: https://www.investopedia.com/terms/b/bondmarket.asp

DSE, 2019. Dhaka Stock Exchange Ltd.. [Online]

Available at: https://www.dsebd.org/

Jasim Uddin Haroon, 2020. UNCDF-developed Municipal Bond to hit Bangladesh capital market, Dhaka,
Bangladesh: The Financial Express.

PARKER, T., 2020. The Basics of Financing a Business, s.l.: investopedia.com.

Pirraglia, W., n.d. What Are the Differences between Debt & Equity Investments?, s.l.: Zacks.

Unknown, 2019. Study of Bangladesh Bond Market, Dhaka: https://guarantco.com/.

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