Beximco's Green-Sukuk Al Istisna'a, the first-ever Sukuk from the country's private sector, debuted on both Dhaka and Chattogram bourses on Thursday.
At "Ring the Bell" ceremonies, the capital market regulator and stakeholders praised the debut of the Shariah-compliant asset-backed financial instrument.
They termed it a milestone event for the country's equity-dependent capital market since it appeared to be a breakthrough in terms of diversifying capital market products.
The Prime Minister's Private Industries and Investment Adviser and Beximco Group Vice-Chairman, Salman Fazlur Rahman, said in his chief guest speech that the Bangladesh capital market has two structural weaknesses – equity dependence with a lack of debt instruments, and the dominance of retail investors.
Since Professor Shibli Rubayat-Ul-Islam joined the Bangladesh Securities and Exchange Commission (BSEC) as its chairman in 2020, the commission has been working to improve the situation and Beximco Sukuk is a part of that effort, he said.
Citing the fact that in other countries, the debt securities market is equal or even bigger than that of equity, he said the BSEC's efforts in product diversification would contribute to economic development.
Beximco's Green-Sukuk Al Istisna'a would cater well to the needs of investors who seek fixed income securities as it offers at least 9% guaranteed annual profits with an added margin, while bank deposits offer less than 6% in annual returns.
10% of the difference between Beximco Limited's annual dividend and the base rate of 9% will be the "margin", which is expected to be several hundred basis points.
The Tk3,000 crore Sukuk with a five-year tenure also offers a convertibility option whereby investors can convert 20% of their Sukuk units into Beximco Limited shares each year at a 25% discount from the 20-day average price of listed company shares.
Convertibility is completely an additional benefit the lucrative fixed-income instrument is offering, said investment banker Ershad Hossain, managing director of the Sukuk's co-issue manager, City Bank Capital Resources.
Beximco will launch its two solar power projects of 230MW total capacity in North Bengal, alongside the green expansion of its textile division with the Sukuk funds.
BSEC Chairman, Shibli Rubayat-Ul-Islam, speaking as a special guest at the DSE Ring the Bell event, said diversified capital market products like Sukuk makes the life of entrepreneurs easier, as the accumulation of the Tk3,000 crore fund was much easier for Beximco than availing bank loans.
His commission is rigorously working on expanding such capital market arenas and many corporates are opting for issuing debt securities nowadays.
The Pran-RFL Group is going to raise Tk300 crore through Sukuk to expand its plastic door business and other relevant ventures. The two city corporations of Dhaka will also issue bonds for their project financing, said the BSEC chairman.
The Bangladesh government raised Tk8,000 crore for its nationwide water purification project in fiscal 2020-21 with the first-ever Sukuk in the country. It is also planning another Sukuk for improvement of the country's primary school infrastructure.
However, the government Sukuk is yet to be opened for public trading.
Investment banker Ershad Hossain told The Business Standard, the country would need $300 billion in infrastructure investments in the next decade, and $600 billion by 2040.
"Bonds and Sukuks have an instrumental role to play in this," he said.
Before that, the legal infrastructure must be fully supportive of the needed issuance of securities and the investments therein.
For example, the government waived some taxes and duties to inspire Sukuk, but the high land registration and transfer fees still exist that would discourage Sukuk, he said.
Sukuk is an Islamic way to finance projects and businesses.
Unlike bonds where an issuer takes money from investors and pays them interest, Sukuk investors earn either from the beneficiaries' rental expenses or shared profits.
Post-Islam Arab merchants used to finance their businesses through Sukuks as their religion prohibited taking or giving interest payments, but allowed profit sharing.
Jordan in the late 1970s, and Turkey in the 1980s, issued their modern Sukuks first.
Malaysia, by issuing the first-ever corporate Sukuk in the 1990s and later flooding financial markets with the instrument, emerged as the Sukuk Mecca of the world.
Middle-Eastern economies have also grown very fast in Sukuk issuance and investment.
With the increasing popularity among both Muslim and non-Muslim investors, western financial districts are also opting to issue Sukuks.
According to international rating agency Fitch, in 2021, global Sukuk issuance was $252.3 billion, a 36.1% growth compared to that in 2020.
Central banks, governments, and multilateral institutions dominated Sukuk issuance, while the Gulf countries, Malaysia, Indonesia, Turkey, and Pakistan, accounted for $230 billion of 2021 Sukuk issuance.
Global Sukuk Issuance has already exceeded its $1 trillion milestone of aggregate issuance, while more than two-thirds of the amount is outstanding.