How defaults and delayed justice trap bond investors

Highlights:

• Investors face delays, defaults, and prolonged recovery in bonds
• Weak enforcement and regulation erode trust in bond market
• Major issuers default; recovery often begins years after collapse
• Beximco, Regent, Sea Pearl highlight systemic repayment failures
• Bank subordinated bonds freeze thousands of crores amid mergers
• Lack of transparency, oversight hinders market growth and confidence

Bangladesh's bond investors are caught in a prolonged limbo, facing stalled coupon payments and expired tenures without redemption, while recovery efforts often drag on for years, typically starting only after the issuers collapse.

The crisis has exposed weak enforcement, delayed legal action and regulatory blind spots, eroding confidence in what was once promoted as a safer investment alternative.

Corporate bonds were marketed as a middle ground between volatile equities and low-yield bank deposits – offering predictable coupons, fixed maturities and asset-backed security. Mutual funds, banks, state-owned institutions and other institutional investors poured money into these instruments on the assumption that risks were limited and well regulated.

Infograph: TBS

That assumption has increasingly proved misplaced. 

One of the most telling cases is Regent Spinning Mills, a concern of the now-defunct Chattogram-based Habib Group. In 2015, Regent raised Tk200 crore through a five-year corporate bond to finance expansion. The bond matured in 2020, but investors, including RACE Asset Management and trustee Investment Corporation of Bangladesh (ICB), are still struggling to recover their funds.

Although Regent was formally declared in default in June 2020, legal action to recover the money was initiated only in August 2024. By then, the Habib Group had unravelled: factories were shuttered, Regent Airways grounded and key directors had fled the country amid multiple cases and arrest warrants.

A similar pattern is emerging in Beximco's Green Sukuk Al Istisna'a, where 94% of the five-year sukuk remains unpaid even as its maturity approaches in December 2026. The trustee has proposed extending the tenure by another five years, effectively locking investors in for a decade.

Earlier, a senior Beximco official, requesting anonymity, said that in light of the group's setbacks after 5 August 2024, repaying the principal by 2026 is "not possible", although a five-year extension could make full repayment feasible.

Beximco's owner, Salman F Rahman, remains in jail facing multiple cases, but the company is still paying profit instalments to Sukuk investors.

ICB is also yet to recover Tk325 crore invested in Sea Pearl Beach Resort & Spa's convertible bond, despite collateral backing and an eight-year tenure that is nearing its end.

While corporate bond failures highlight issuer weakness and sluggish trustee action, a separate – and potentially more systemic – risk has surfaced in bank-issued subordinated bonds. These instruments, though governed by similar regulations, are fundamentally different: they are designed to absorb losses in times of stress. 

In practice, however, prolonged non-payment and regulatory ambiguity following bank mergers have frozen more than Tk4,000 crore of institutional funds.

Abu Ahmed, chairman of ICB and a former economics professor at Dhaka University, said bonds often appear risk-free because they are backed by collateral. "However, private corporate bonds are not always risk-free, and investors should keep this in mind," he told The Business Standard. 

Failure to repay interest or principal, he added, primarily hurts institutional investors and weakens their balance sheets. "Regulators should take measures against defaulters to protect investors' interests."

Market participants said weak enforcement has prevented the bond market from maturing. Shahidul Islam, CEO of VIPB Asset Management, said delayed coupon payments and non-repayment of principal are the main reasons the market has failed to gain depth or credibility.

"The regulator approved bonds despite knowing the issuer's weak financial condition. Approving Beximco's Tk3,000 crore bond despite its default history is a regulatory failure," he said, recalling that Beximco's debentures in the 1990s had also defaulted.

Shahidul argued that poor financial disclosure is another major constraint. "Without credible financial reporting, it is impossible to assess an institution's real condition. Regulators must be stricter so reports reflect reality," he said, adding that only financially transparent institutions should be allowed to issue bonds.

Market growth, hidden risks

 According to the Bangladesh Securities and Exchange Commission (BSEC), the current commission – reformed after the change of government in August 2024 – has allowed 24 firms, including banks, to raise Tk14,000 crore to meet regulatory capital requirements and for business expansion.

Before that, the previous commission had approved around Tk41,000 crore in bond fundraising. At present, 16 bonds are listed on the stock exchange, with a combined market capitalisation of Tk3,334 crore as of June 2025.

Of the Tk41,000 crore approved, the banking sector accounted for the largest share at Tk27,350 crore, followed by manufacturing with Tk6,600 crore. Financial institutions were approved to raise Tk2,100 crore, while NGOs received approval for Tk2,000 crore, with Green Sukuk bonds alone amounting to Tk3,000 crore.

BSEC data also show that City Sugar Mill, Akij Food and Beverage, CDIP, Sajida Foundation, Mir Akhter Hossain Limited, Runner Auto, Pran Agro and Envoy Textile have raised funds from the capital market through bonds. 

Yet despite widespread defaults in coupon and principal repayments, there is currently no comprehensive database of defaulters at the regulator's end.

Ahsan H Mansur, the previous governor of Bangladesh Bank, at a seminar on 28 January said lack of investor confidence remains the biggest obstacle to developing Bangladesh's corporate bond market, and restoring trust requires strict regulatory action against issuers who fail to honour coupon payments. 

Without restoring investor trust, any attempt to deepen the bond market would be futile, he said, pointing out that weak enforcement of rules has badly damaged confidence, particularly in cases where issuers have failed to pay bond coupons without facing consequences. 

In developed markets, he said, even a single missed coupon payment is treated as a serious default that triggers regulatory action and reputational damage. "But in our country, there is hardly any consequence if a company fails to pay bond coupons. No one seems to care."  

Regulator shifts responsibility to trustees

BSEC spokesperson Abul Kalam told TBS that if any bond issuer defaults, meaning it fails to make coupon payments or repay the principal, the trustee must inform the commission.

"The trustee is responsible for overseeing whether coupon payments and principal redemptions are being made properly. If any legal proceedings or liquidation become necessary, the trustee will notify the commission, and the commission will then take necessary actions," he said.

Asked specifically about the Regent Spinning Mills default, Abul Kalam said, "It is the trustee's responsibility to take initiative. If any assistance is required, the commission will take action and provide support in accordance with the law."

He added, "At present, the commission has taken an initiative to create a database of bond defaulters, similar to the CIB database." 

Regent Spinning fallout 

Regent Spinning floated a Tk200 crore corporate bond in 2015, approved by the BSEC in May that year. ICB was appointed as trustee. Several institutional investors, including ICB itself and RACE, invested.

RACE allocated Tk150 crore, or 75% of the total bond amount. In June 2020, the trustee identified Regent as a defaulter. Investors stopped receiving coupons, and RACE was required to make accounting provisions against the investment.

In a written comment to TBS, Regent said it was a core subsidiary of Habib Group, which once ranked among Bangladesh's most influential conglomerates.

"In the initial years following the bond issuance, the group maintained its financial obligations and paid out coupons to investors regularly. However, the conglomerate eventually suffered a historic financial collapse that extended far beyond a single bond default," the company said.

The fallout was severe, with Regent Airways grounded, factories shut and top directors fleeing the country to avoid legal cases and arrest warrants.

"Today, many of the remaining assets of the Habib Group are subject to court-ordered liquidation processes as part of the effort to settle outstanding debts with various creditors and bondholders," the company said.

Despite being declared in default in June 2020, ICB only filed a recovery suit in August 2024, four years later. By then, the issuer's financial position had deteriorated sharply.

Seeking anonymity, an ICB trustee division official said, "To protect the investors' funds poured into the bond, ICB initiated legal proceedings and filed a suit, which is pending in court."

Sea Pearl convertible bond

In 2017, Sea Pearl raised Tk325 crore through a 20% convertible bond, fully subscribed by ICB. The bond was backed by mortgages on hotel properties and equipment and was issued to repay debts and complete the Sea Pearl Beach Resort & Spa in Cox's Bazar.

It had an eight-year tenure, including a two-year moratorium, and carried a 10% coupon. Green Delta Insurance was the trustee.

After the moratorium, repayments were to begin in April 2020. But citing the pandemic's impact, the company failed to pay and repeatedly sought waivers. 

Managing Director Md Aminul Islam did not respond to calls.

Subordinated bonds: Money stuck

In the banking sector, Tk4,010 crore in subordinated bonds issued by four Shariah-based banks – Exim Bank, Social Islami Bank, Union Bank and First Security Islami Bank – remain effectively frozen following mergers and restructuring. 

Exim Bank alone accounts for Tk1,890 crore.

Bangladesh Bank spokesperson Arif Hossain Khan said investors would "eventually" receive their principal, though he acknowledged it could take time – offering little clarity on timelines or interim compensation.