Outbound investments up to 5% of forex reserve on cards

The government is set to provide outbound investment opportunities to local exporters and any company running their business in the domestic market for 10 years.

This opportunity will be extended to small and medium enterprises interested in establishing backward and forward linkage industries, along with NGOs with a reputation for working towards society's betterment and improving people's quality of life in Bangladesh.

The government will allow local companies with outbound investments to enlist in foreign stock markets too. However, Bangladesh's total outbound investment in a single fiscal year will not exceed 5% of the central bank's foreign exchange reserves for that particular fiscal year.

After finalising the "Overseas Investment Guideline 2021" with such provisions and more, the Bangladesh Investment Development Authority (Bida) will submit it to the Prime Minister's Office (PMO) for approval, said Bida Executive Chairman Md Sirazul Islam.

The guideline will come into effect following the final approval at the cabinet meeting, he added while responding to The Business Standard through WhatsApp from the USA.

According to the draft guideline, exporters will be able to make outbound investments reaching up to 25% of their average exports in the past five years. Other companies and NGOs will be able to invest up to 25% of their net assets – per their latest audited balance sheet.

Companies seeking to invest more than these amounts can apply for the opportunity along with a proper rationale behind their decision. If needed, the Bangladesh government will allow such companies to make outbound investments against bank guarantees.

Providing more details, Sirazul said, "The guideline is a very important and sensitive document. That is why we are consulting as many stakeholders as possible before finalising it from our end.

"Once it is approved, I think it will meet a long-standing demand of the private sector entrepreneurs, and it will definitely help build a brighter image of Bangladesh in the international arena."

He continued, "The guideline is still under process. Bida may be able to finalise it soon, but it has to go through several other processes. We will send it to the PMO. After scrutiny, the PMO will hold an inter-ministerial meeting to discuss and finalise this guideline.

"It will then be sent to the Cabinet Division for further discussion and approval. While going through this process, the guideline might witness changes, refinement and reorganisation. If the cabinet approves, the guideline will be published in a government gazette."

What are the conditions?

Addressing the criteria for eligibility, the guideline's third amended draft says a company interested in making outbound investments must possess $5 million worth of net assets – reflected by their audited balance sheets in the last five years.

The government will consider providing SMEs with the same opportunity based on solvency certificates provided by banks.

A company seeking to invest overseas in a particular sector must have at least three years of business or manufacturing experience in that field, and of the three years, at least two must be profitable. This rule will be relaxed for ICT entrepreneurs.

Companies with unpaid taxes, import costs, and defaulted loans will not be allowed to invest overseas. The regulators will also take legal action under the money laundering prevention act against any company found to be wasting funds in the name of outbound investment.

The draft says an inter-ministerial committee – headed by the Bida executive chairman – will be formed to review outbound investment proposals and submit recommendations to the Bangladesh Bank for final approval.

However, overseas investments up to $1 million will not require the committee's recommendation.

Organisations approved for investing overseas will be able to take out loans from their mother companies, Bangladeshi banks, or from any commercial banks in the countries they are investing in.

During the initial phase, these organisations will be allowed to operate under the 70:30 debt-to-capital ratio. They will also be able to provide corporate, personal or any other property located in Bangladesh as a guarantee to finance their overseas projects.

No concrete guidelines exist now

Responding to a query, several officials from the Bangladesh Bank and Bida said the country presently has no concrete guidelines regarding Bangladeshi companies' outbound investments.

Interested organisations presently apply to the central bank for permission. The Cabinet Committee on Economic Affairs – led by Finance Minister AHM Mustafa Kamal – reviews these applications and gives recommendations to the regulator for approval.

Bangladesh, for the first time in 2013, permitted Mobil-Jamuna Group to invest $5.10 million overseas. Since then, a few more companies such as the DBL Group, Beximco Pharma, Square Pharmaceuticals and Akij Group have received the opportunity to invest overseas.