Corporate bond market struggles due to high treasury yields, political uncertainty
Nearly two dozen companies have failed to complete their bond subscriptions within the scheduled time and have had to seek extensions from the commission
Although the corporate bond market saw a significant boost from the former Shibli commission, which approved bonds worth around Tk41,000 crore between May 2020 and July 2024, it is now grappling with a severe crisis due to the ongoing economic slowdown and political instability, industry insiders say.
According to the Bangladesh Securities and Exchange Commission (BSEC), nearly two dozen companies have failed to complete their bond subscriptions within the scheduled time and have had to seek extensions from the commission.
Officials from the companies attribute the lack of investor interest in corporate bonds to the high interest rates on government treasury bills and bonds.
According to them, currently, treasury bills and bonds offer returns of up to 12.5%, while corporate bonds provide only around 10% or less. As a result, institutional investors, including banks and non-bank financial institutions, have shifted their focus to government securities for safer and higher returns.
Keep updated, follow The Business Standard's Google news channel
They added that political uncertainty has further deepened the crisis in the bond market. Many corporate and individual investors have delayed investment decisions due to concerns over the unstable political climate. This hesitation has weakened investor confidence and negatively impacted bond subscriptions.
In addition, the overall economic downturn – characterised by a bearish stock market, high inflation, currency depreciation, and irregularities in the banking sector – has reduced enthusiasm for new investments. Industry insiders suggest that these combined factors have significantly dampened interest in corporate bonds.
Market insiders emphasise that Bangladesh has one of the smallest corporate bond markets in Asia. The size of the market is only 0.19% of GDP, highlighting its fragility. In such a limited market, political and economic turbulence has added further pressure on the bond issuance and subscription process.
According to Bangladesh Bank data, as of 24 March 2024, the yields on treasury bills were as follows – 10.90% for 91-day bills, 11.25% for 182-day bills, and 11.30% for 364-day bills.
However, as these rates have started to decline, stakeholders are hopeful that corporate bond subscriptions will soon normalise.
According to the BSEC, of the Tk41,000 crore worth of bonds approved during the tenure of former chairman Shibli Rubayat Ul Islam, 16 bonds have been listed on the stock exchange, significantly contributing to fund mobilisation across various sectors.
The banking sector raised the highest amount, totaling Tk27,350 crore, followed by Tk6,600 crore raised by the manufacturing sector. Financial institutions collected Tk2,100 crore, while NGOs secured Tk2,000 crore through bond issuance. Additionally, Green Sukuk bonds accounted for Tk3,000 crore, reflecting growing interest in sustainable finance initiatives.
As per the BSEC, in 2024, several institutions received subscription deadline extensions from the commission. These include banks and financial institutions such as Premier Bank, National Bank, BRAC Bank, One Bank, NRB Commercial Bank, Rupali Bank, United Commercial Bank, Southeast Bank, Shahjalal Islami Bank, National Housing Finance and Investment, and LankaBangla Finance.
Manufacturing companies that received extensions include IFAD Autos, Renata, Alif Industries, City Auto Rice and Dal Mills, Rancon Motor Bikes, and Navana Pharmaceuticals. Among other organisations, Nagad, the Centre for Development Innovation and Practices (CDIP), and Sajida Foundation also received time extensions.
For example, Renata Ltd received BSEC approval in January 2024 for a Tk660.15 crore zero-coupon bond intended for private placement to repay bank loans. However, even after a year, the subscription has not been completed, prompting the regulator to grant a six-month extension, following an earlier extension in September 2023.
Md Jubayer Alam, company secretary of Renata, said political uncertainty was a major issue, along with the high interest rates on treasury bills and bonds, which diverted investor attention from corporate bonds. "Now that treasury yields are declining, we hope investors will return to corporate bonds," he added.
He noted that yields on treasury bills had exceeded 12.5%, leading investors and institutions to focus on government securities instead. "Many companies have faced the same problem," he said.
An asset manager, speaking on condition of anonymity, explained that banks issue two types of bonds – capital bonds and corporate bonds. Capital bonds require at least 50% of investment from non-bank investors, which is difficult to mobilise. At the same time, banks are losing interest in corporate bonds due to the high, risk-free returns offered by government securities.
As a result, corporate issuers now need to offer significantly higher rates to attract investors, the asset manager added.
