With first-ever Sukuk, Beximco bets big on green, publishes IM

Beximco Ltd has published the Information Memorandum (IM) online for Bangladesh's first ever 'Green Sukuk' for Taka 3,000 crore after getting approval from the Bangladesh Securities and Exchange Commission (BSEC) last Thursday.

The five-year term asset-backed Green Sukuk is convertible, redeemable and participative, the IM says.

The company will allocate 50 percent of the Sukuk issue through private placement. The 25 percent will be offered to the existing shareholders of the company, and the rest through public offer.  

The subscription of the private placement, which will be done on a first-come-first-serve basis, will close on August 22, 2021, while subscription for existing shareholders and the general public will open on August 25, 2021 and close on August 27, 2021.

With the Sukuk proceeds, the company plans to funnel Taka 2,200 crore into a 200 MW solar plant in Gaibandha and a 30 MW solar plant in Panchagarh.  

Together, they represent the largest solar project in the country. Revenue generation of the two solar plants is guaranteed by a 20-year Power Purchase Agreement (PPA) with the government, according to the IM.

The government has recently scrapped several coal-fired power projects and emphasized on climate-friendly green power generation projects instead.  

The IM notes that Beximco seeks to cash in on the lucrative incentives offered by the government in green power projects. Its power plants will enjoy tax holiday until 2034, duty-free import and certain tariff and VAT concessions.

Balance Taka 800 crore will be used to install high speed energy efficient machinery, expand and modernize the existing green infrastructure of Beximco's textile division, it adds.

Talking to BSS over the Beximco's green Sukuk, Chairman of Bangladesh Securities and Exchange Commission (BSEC) Prof Shibli Rubayat Ul Islam said that the scope for making investment is less in Bangladesh for those who want to make Islamic Shariah based investment.
 
As a result, he said, the SLR of around Taka 70,000 to 80,000 crore of the Islamic banks has long been remained idle side by side a large amount of those who do not want to enjoy interest also remained idle.

Since a scope has been created for making alternate investment for the religious minded people now wants to make investment in Shariah-based Sukuk Bond.

"This Sukuk Bond will be able to bring the idle money of the religious minded people into investment, which will play a big role towards national development and arrangement of capital. Then such idle money will also contribute towards country's industrialization and expansion of trade and commerce," he said.

The BSEC chairman also hoped that with the launching of Shariah-based Sukuk Bond, more large scale investment would come in future from abroad.

Beximco Ltd's Managing Director O K Chowdhury told the news agency that the Sukuk has already garnered a lot of interest. "Many financial institutions, high net worth individuals, foreign investors and non-resident Bangladeshis are approaching the company for private placement," he added.                                                                   
 Country's renowned economist and Agrani Bank Ltd Chairman Dr Zaid Bakht told BSS that the capital market of the country is mainly equity based while product diversification is especially needed to give protection to the investors.

He said the present government under the able leadership of the Finance Minister is giving due emphasis on it.

Dr Zaid said two Bonds of PRAN have already been issued with enough engagement of foreign investors. In addition to this, Green Sukuk Bond has now been added as many now prefer Islamic products.

"The added advantage of Green Sukuk Bond is that the religious minded people of Bangladesh like Shariah-based investment instead of the traditional bond. The special feature of Beximco Bond is that it is convertible and exchangeable. The shares can be converted in future if anyone wishes," he added.

Dr Zaid said the country's first private sector Islamic Sukuk Bond comes from renowned business conglomerate Beximco and the association of Agrani Bank Ltd which carries a good reputation.

He also hoped that following the footprints of Beximco, more institutions will come forward to bring bonds in the market.

In addition to the 9 percent base rate of the Sukuk, the holders will be entitled to a profit margin which will be calculated being 10 percent of the difference between base rate and annual dividend to be declared by Beximco Ltd for the specific year.

For example, the IM notes, if the dividend is 25 percent for a particular year, 10 percent of the difference is 1.6 percent, which means the Sukuk holder will get 10.6 percent in total.

The Shariah-compliant Sukuk, approved by a Beximco Shariah board comprising Islamic financial scholars, seeks to appeal to a large segment of the population who are wary of the traditional riba-based banking system.

"Sukuk has been wildly successful in many Muslim-majority countries," says Syed Waseque Md Ali, Managing Director of the First Security Islami Bank.

"In a country like Bangladesh, a lot of people are inherently hesitant to enter into transactions and financial arrangements that involve riba or interest. Therefore, this Sukuk will undoubtedly attract this section of the population as it offers a sound Islamic alternative to traditional saving instruments," he added.

Another very attractive feature of the Sukuk is convertibility.

Sukuk holders will have the option to convert up to 20 percent of the Sukuk to ordinary shares of Beximco Ltd annually at 25 percent  discount to the conversion price. The conversion price will be the weighted average price of 20 trading days prior to the record date.

According to a merchant banker, "If a Sukuk holder converts to shares, return would be 21%-27% approximately over a 3-year period assuming that 25% dividend is declared and taking into account fair value gain of the shares."

Each unit of the Sukuk has been fixed at Taka 100 while minimum subscription amount is Taka 5,000. The asset-backed Sukuk is secured by plant and equipment and future receivables of the solar projects and machineries of the textile division. In addition, Beximco is providing corporate guarantee.

The Investment Corporation of Bangladesh (ICB) will act as the Sukuk's Trustee and Trust Manager. The City Bank Capital Resources Limited (CBCRL) is the Issue Advisor, Issue Arranger and Issue Manager. Agrani Equity and Investment Limited (AEIL) will serve as Joint Issue Manager. AB Investment Limited and AIBL Capital Management Limited and AEIL are also Underwriter of the Sukuk.

Talking to BSS, Arif Khan, former CEO of IDLC Finance Ltd, said, "This Sukuk issue is a promising opportunity for investors. It creates a new investment avenue in a market where high yield saving instruments are limited."

In view of the excess liquidity in the banking system, this investment option will be especially attractive to banks, financial institutions and insurance companies, he added.