StanChart to issue Tk850cr zero coupon bond

Standard Chartered Bangladesh has applied to the securities regulator to issue a zero coupon bond of Tk850 crore, the first foreign bank in the country to do so.

The Bangladesh Securities and Exchange Commission (BSEC), now in a serious drive to develop the bond market, has welcomed the issuer and is processing the application with a view to approving the debt securities sooner, said Mohammad Rezaul Karim, BSEC spokesperson and executive director (current charge) of the capital issue department.

He, however, declined to talk further about the proposed bond before the official procedures were finalised.

However, available information suggests that the bank is planning to offer the bond in private placement initially and later the bond may be listed with the stock exchanges.

The tenure has been planned to be three years, and the bank intends to issue the bond in tranches.

Naser Ezaz Bijoy, the country chief executive officer of Standard Chartered Bangladesh, told The Business Standard, "The proposed bond would give depositors a new avenue to invest their money and would be rewarding to tax-paying investors."

"Even our depositors might get a better return from the bond compared to that from the deposits. The planned bond is part of our initiative to take part in the capital market development here," he added.

The income from zero coupon bonds is tax-free in Bangladesh if the investor is not a financial institution. On the other hand, the income in the form of interest from bank deposits is taxable for all.

Zero coupon bonds offer the securities at a discounted price depending on the rate of return and tenure while coupon bearing bonds pay interest from time to time.

Because of the tax incentive, zero coupon bonds have gained popularity among high-net-worth individuals and also among the institutional investors over the last one decade.

Standard Chartered is a reputed and reliable issuer with its AAA credit rating for years in a row. A bond from them would benefit the capital market, said Shahidul Islam, managing director of VIPB Asset Management and also the immediate past president of CFA Society Bangladesh.

It would be better for the capital market if the bond gets listed with the stock exchanges as that will offer liquidity to the investors, he added.

"If you have the freedom to buy and sell a bond instantly, you will not mind the return to be little more or less," said Islam, also a certified financial risk manager.

Md Moniruzzaman, CFA, the managing director of IDLC investments, said the Bangladesh capital market needs sufficient debt securities products, and Standard Chartered's planned one is a good move the market is likely to welcome.

A slow approval process, cost of issuance and stock exchange listing – all have been blamed for the underdevelopment of the bond market in Bangladesh in the past decades.

In the last one year, Bangladesh is in a serious drive to bring the costs down with some effective reduction of trust deed registration cost and also reducing the tax on brokerage commission on bond trading in stock exchanges.

The BSEC, in collaboration with other regulators and stakeholders, is trying to build a vibrant market for government bonds, municipalities bonds, corporate bonds and asset-backed securities like Sukuk sooner.

BSEC Chairman Professor Shibli Rubayat-Ul-Islam told The Business Standard that his commission was encouraging all the good issuers to come up with bonds instead of putting pressure on the banking system by borrowing long-term money.

"Alongside corporates, we are encouraging the two city corporations of Dhaka to finance their projects through municipal bonds, also getting ready to have some diversified debt securities essential for a developed capital market," he added.

His commission, after he joined there in May last, has very quickly approved some perpetual bonds of local commercial banks to help them achieve adequate capital bases as outlined in BASEL-III, the international guideline to strengthen banks.

Also, an increasing number of corporate issuers are offering bonds nowadays.

However, the first of its kind by a foreign bank is also cause of some legal complexities and awaiting some unprecedented legal clearances as the issuer is not a locally incorporated company. 

The bank applied for the bond a year ago. 

A BSEC official handling the applications said Standard Chartered Bangladesh is not a local incorporation, but the existing BSEC rules need the issuer to be one.

Standard Chartered Bangladesh, like many other foreign banks in the country, instead operates here as a branch office of an international bank incorporated abroad. Of course it is operated under the central bank regulations. It also files updates with the company registrar and the tax authority here.

If the mother company were the issuer, the BSEC could have cleared the approval sooner. The same could have been done if the bank could submit a No Objection Certificate from the Bangladesh Bank, the BSEC official said, seeking anonymity.

However, the new debt securities rules, which are under processing now, might allow the BSEC to approve such bonds without any complexity, he also said. 

BSEC Chairman Professor Shibli Rubayat-Ul-Islam said the new rule might be approved in the next commission meeting and the bond would be approved without delay.

Financial sector bond issuers need the BSEC's approval first and then they also need the consent of the Bangladesh Bank.