Beximco Green Sukuk: A fixed income opportunity overlooked

In the capital market, an intriguing situation has emerged where return-seeking investors seem to be disregarding the attractive rates offered by the sole listed Sukuk, an Islamic debt instrument.

With an impressive yield of over 13%, Beximco Green-Sukuk AL Istisna'a has been found to be the most alluring fixed income option in the local financial market.

In comparison, Treasury bonds presently offer a yield of up to 9%, while individuals are placing their funds in banks for returns ranging from 6% to 8%. National savings certificates provide an interest rate between 7.7% to 11.76% annually.

Investors in Beximco Sukuk received a periodic payment of 5.55% during the initial half of 2023. This translates to an annual rate of 11.1% based on the face value of Tk100 per unit.

According to analysts, an investor who had purchased this Shariah-compliant instrument from the exchanges at the floor price of Tk85 per unit would achieve an effective annual yield exceeding 13%.

Despite this, exchange trading of Beximco Sukuk barely reflects any appetite among mass investors.

For months, there has been a scarcity of trades involving this instrument, and the price has not risen above Tk86 in the past five months, as reported by the Dhaka Stock Exchange (DSE).

How Beximco sets rate for Sukuk

Beximco Sukuk investors are guaranteed to have a 9% base rate against the face value each year. On top of that, the Sukuk offers added payments if Beximco's cash dividend for the year is higher than 9%.

According to the Sukuk prospectus, one-tenth of the percentage point excess Beximco Ltd shareholders get as cash dividends over the Sukuk base rate would be added to the Sukuk payment rate.

For example, Beximco's dividend was 30% for the last fiscal year and Sukuk investors' are getting periodical payments at 11.1% rate. 210 basis points added to the base rate of 9%.

If Beximco Limited shareholders get higher dividends, Sukuk investor's return will go higher and if Beximco's dividend rate is less than 9%, Sukuk investors will get periodical payments at 9%, still not less than the highest yield from the treasury bonds, and bank deposits nowadays.

Fixed income investments have been popular among institutional investors in the country as they have informed investment professionals within teams.

However, there has been a significant lack of awareness and appetite among the retail investors, which is why the bond market has been a playground of institutional investors, while the equity market is mostly chased by individuals.

Of the 17.45 lakh beneficiary owner accounts in Bangladesh now, not even 17,000 are by institutional investors, according to the Central Depository Bangladesh.

Floor price hurts confidence during equity conversion 

Besides, the secondary market investors also seem to have been ignoring the lucrative option to convert the debt into the equity of Beximco Ltd that should have been only increasing the appeal of the Sukuk as Beximco offered the gradual conversion at 25% discount on the 20-day average market price of Beximco shares.

For instance, Sukuk investors who exercised their right to convert 20% of the Sukuk in Beximco equity at the end of 2022 – the first year of the five year instrument, their cost for a Beximco share was Tk86.70, while the stock has been stuck at the floor price of Tk116.

Even if one, getting Sukuk converted into equity last year, had sold at a 10% discount from the floor in the block market, it was still an over 15% capital gain. Not even 20% of the eligible Sukuk investors applied for the conversion last year.

Analysts observed that the floor price deprived investors of liquidity and hurt their confidence.

The floor price imposed by the Bangladesh Securities and Exchange Commission (BSEC) at the end of July last year to artificially hold prices of listed securities despite the economic challenges brought about by the Ukraine war.

233 among the 401 DSE shares, mutual funds and corporate bonds were stuck on the floor price during the closing bell on Monday.

The Sukuk

Beximco, a top conglomerate in Bangladesh, originated the first ever private sector Sukuk in the country and the Tk3,000 crore issue at the end of 2021 was also the largest one in the subcontinent.

Sukuk, in an Islamic way, lets investors buy the originator needed infrastructure under a contract to get rental income over a predetermined period and at the end of the period the trustee transfers the ownership of the underlying asset to the originator and the originator pays investors back the principal.

Beximco had three projects to accomplish with the help of the gigantic Sukuk fund -- a 200MW solar power plant, another 30MW solar power plant and a green expansion of its textile unit.

The projects

The company in a regulatory filing with the DSE on Monday informed investors that the 200MW solar power project at Sundarganj, Gaibandha utilised Tk1881.8 crore of the Sukuk fund and successfully started commercial operations on 8 January this year and Prime Minister Sheikh Hasina on 2 August inaugurated the largest solar power plant of the country as it was performing well.

It also has successfully commissioned the textile machineries arranged through financing and refinancing that utilised Tk805.9 crore of the Sukuk fund and the green expansion has enhanced Beximco textile division's capacity in spinning, denim, yarn dyeing, knitting, printing and washing units, according to the price sensitive information.

After using Tk2,687.7 crore in the two projects, the company is using the rest of the Sukuk fund in the third project – the 30MW solar plant at Tetulia, Panchagarh and the plant will be fully operational by June 2024.

Ahmed Shayan Fazlur Rahman, group CEO of Beximco, told TBS that his company was rapidly embracing the green in more and more of its divisions.