ADB, IFC offer to invest $10b in bonds to tap blue economy

The Asian Development Bank (ADB) and the International Finance Corporation (IFC) have expressed interest in investing at least $10 billion through bonds over the next 10 years in Bangladesh to tap into the vast resources of the Bay of Bengal.

Besides, the two international organisations will also invest in developing various city corporations and municipalities, the Bangladesh Securities and Exchange Commission (BSEC) said in a recent report sent to the Parliamentary Standing Committee on Planning Ministry.

In addition to Bay of Bengal-based financing, the two companies may also invest the money on various projects in the service sector through promising private sector bonds, which the commission believes will help Bangladesh's economic development and stabilise foreign exchange reserves.

It means the IFC and the ADB will fund the private sector by purchasing their bonds.

A bond is a type of debt security where the issuer (in this case, the private company) borrows money from the investor (in this case, the IFC and the ADB) and promises to pay it back with interest over a specific period.

By investing in private sector bonds, the IFC is providing capital to companies that may not have access to traditional bank loans or other financing sources and helping them grow and expand their operations.

BSEC Chairman Professor Shibli Rubayat-Ul-Islam told The Business Standard that as part of their interest, a Memorandum of Understanding (MoU) was signed with the IFC on Thursday.

On the agreement, he said the investment would be on extracting resources from Bangladesh's vast seabed, water resources and the sea belt.

A cooperation agreement on the National Sustainability Bond Guidelines was signed with the IFC on Thursday to issue the bonds properly.

Shibli Rubayat-ul-Islam and IFC Country Manager Martin Holtmann signed the agreement.

Under the agreement, the IFC will also help to develop the bond market – Green, Social, Sustainability, Climate and Blue bonds – in Bangladesh.

Apart from helping to build the capacity of sustainability bond service providers in Bangladesh, the IFC will also support the implementation of the National Sustainability Bond Guidelines.

After signing the agreement, Martin Holtmann said, "The National Sustainability Bond Guidelines will help mobilise finance for the development of the blue and green economy in Bangladesh, and IFC is committed to improving Environmental, Social and Governance [ESG] practices in the country as part of this effort initiated in partnership with the Swiss State Secretariat for Economic Affairs [SECO]."

The BSEC has already added special provisions in the Debt Securities Rules for issuing green and blue bonds for financing various environmentally-friendly projects for extracting marine resources, preventing carbon emissions and climate protection. 

Further details on the ADB agreement could not be gathered at the time of filing this report.

Apart from the IFC and ADB, various international organisations, including the World Bank and UNDP, are cooperating in launching the new securities, the BSEC told the parliamentary standing committee.

Calling the ongoing downturn in the stock market normal, the BSEC said in their report there was a slight decline in the stock market due to the Ukraine-Russia war, the rise in interest rates in the United States, the global economic slowdown and the unstable foreign exchange market.

After winning the maritime boundary case with India and Myanmar, various government agencies have started working on extracting marine resources. Still, there has yet to be any progress in this regard. 

Even in the deep sea, where extensive marine fish are available, Bangladesh has no fishing vessels.

Ministry of Foreign Affairs Maritime Affairs Secretary Rear Admiral (retd) Md Khurshid Alam said the world's marine resources are about $24 trillion. Of this, countries have so far been able to collect only $3 trillion in resources.

Advising investors to go offshore, Khurshid Alam said the government is ready to help business people if they invest in the blue economy.

Bangladesh's land area in the sea is equivalent to about 81% of the mainland. Bangladesh's exclusive economic zone goes up to 200 nautical miles from the Bay of Bengal's baseline. 

That means Bangladesh owns all the water and land resources in this expansive stretch. About 350 km from the baseline lies the high seas.

Officials in BSEC said they are working on launching new securities with the cooperation of various international organisations, including the IFC and ADB. 

The IFC has already invested in a bond of Tk600 crore proposed by BRAC Bank to provide low-cost housing for low- and medium-income earners. 

It has made similar investments in other companies as well.

The BSEC mentioned in the report that several securities, including derivatives, ETFs and commodity futures, are in the process of being made.

These organisations have also helped launch other securities such as the Affordable Housing Bond, Sajida Foundation Bond and Green Sukuk.

The commission plans to launch orange bonds for women entrepreneurs and pink bonds for small- and micro-entrepreneurs.

Besides, the agencies are helping the BSEC provide capital to entrepreneurs through Real Estate Investment Trusts (REITs) for the development of the housing sector.