BSEC pushes for direct listing of 11 perpetual bonds
Only four of them have secured the necessary investments to get the bond units sold
The Bangladesh Securities and Exchange Commission (BSEC) is pushing 11 of the perpetual bond issuing commercial banks to ensure the prompt direct listing of the debt securities as instructed during their approval.
Observing a slower than expected pace in moves for listing, the capital market regulator had a meeting with the top executives of the banks last week, according to BSEC Executive Director and spokesperson Rezaul Karim.
From the participating nine managing directors and two deputy managing directors of the banks, BSEC officials have heard about the hurdles the banks are facing and assured them of full support to clear their way to make the bonds tradable on bourses, he told The Business Standard.
Non-exclusion of listed bond investments into the banks' capital market exposure, the reluctance of underwriters, mandatory provisioning against issued perpetual bonds, and high listing fees are among factors that are hindering the issuance and listing of the bonds, according to investment banker Ershad Hossain, managing director of City Bank Capital Resources.
To ensure the exchange trading of as many debt instruments as possible, the capital market regulator had asked the 11 issuer banks to directly list the bonds worth over Tk5,000 crore on the main trading platforms of the bourses after subscription so that investors can buy and sell those onscreen.
Unlike an initial public offering (IPO), a direct listing is a process to list scrips on stock exchanges without issuing fresh shares or units.
Of the 11 perpetual bonds, approved by both the banking and capital market regulators, only four secured the necessary investments to get the bond units sold.
They are The City Bank, Trust Bank, Mutual Trust Bank, and Jamuna Bank Ltd.
Some of the remaining banks are yet to secure the investments worth Tk400-600 crore each, as the banking industry, still the key investor of bonds, is hesitating to subscribe, according to sources.
Why?
Ershad Hossain, whose firm is working as the lead arranger of majority perpetual bonds approved, said the central bank's stance not to exclude banks' investment into the bonds from their capital market exposure calculation is the main reason behind that.
"The Reserve Bank of India excluded perpetual bonds from their banks' exposure calculation and we requested the Bangladesh Bank for the same as the bonds are not too volatile listed securities by nature," he said.
In Bangladesh, the rallying stock market has already increased banks' concern over limiting their capital market exposure and apparently, they are not too interested in adding to the exposure through investing in the limited-income debt securities right now.
Banks can maintain their exposure in listed securities up to 25% of their total equity and as the exposure is calculated based on the market value of the securities, banks often face pressure to sell off in a bull market amid fear of missing further capital gains.
BSEC Chairman Professor Shibli Rubayat-Ul-Islam has recently told The Business Standard, the perpetual bonds are to strengthen the banks' additional Tier 1 capital to comply with the central bank's Basel III guidelines and expect the Bangladesh Bank's cooperation to get them subscribed and listed.
"We pushed for listing the bonds which will offer investors an ease to buy and sell and also help build our much needed secondary bond market," he said.
The 11 bonds the BSEC approved over the first half of this year were instructed to sell the units in private placements and later get directly listed within 30 days of the subscription.
On the other hand, the bonds being approved after that have been instructed to privately place 90% units and float 10% units in a public offer and ensure their exchange trading.
To comply with the 10% minimum free-float rules, the unitholders of the previous 11 perpetual bonds will offload 10% units in the secondary market within 90 working days of direct listing.
"For the listing, the bonds need to be subscribed first," said the BSEC chairman.
Investment bankers' pleas to BSEC
BSEC instructed the banks to make 20% provisions against the issued bonds so that the provision can be utilised to pay future interests in any unexpected situation and Ershad Hossain said the discouraging factor should be waived.
In a recent letter to BSEC, his firm requested the capital market regulator to allow banks and financial institutions to underwrite the gigantic bonds as traditionally licensed underwriters with a smaller financial base are feeling the risk of non-subscription of bond units as the market is yet to love debt securities.
An underwriter absorbs the unsubscribed portion of any issue of securities.
The letter also requested the BSEC to extend the time for offloading 10% units after the instructed direct listing of the 11 perpetual bonds as the market might not be ready to absorb the supplies in the stipulated period of 90 trading days.
Beximco Limited's Sukuk worth Tk3,000 crore is not attracting sufficient investors as most are busy with the rallying stock market, a frustrating development to the people interested in seeing a vibrant bond market here in Bangladesh.
"Listing fees for bonds at local bourses is the highest in the region and we have requested the Dhaka Stock Exchange (DSE) to rationalise it for corporate bonds," said Ershad Hossain.
The DSE in the last year waived the listing fee for the treasury bonds in a bid to begin exchange trading of the government securities, but the move still falters.
The BSEC has recently approved Al Arafah Islami Bank's Tk500 crore and Islami Bank Bangladesh Limited's Tk800 crore Shariah-compliant perpetual bonds on condition of 90% private placement and 10% in the public offer and Prime Bank Investment Ltd is working as the lead arranger for both the bonds.
Perpetual bonds have no tenure and cannot be surrendered by investors until the issuer recalls those on some specific grounds with regulatory approval after a rational period like a decade.
The banks have also gotten options to convert their perpetual bonds into equity to fulfil the Tier I capital or equity requirement and until that the bonds will help build their additional Tier I capital.