Perpetual bond making DSE debut after 14 years
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WEDNESDAY, JULY 06, 2022
Perpetual bond making DSE debut after 14 years

Stocks

Salah Uddin Mahmud
02 December, 2021, 09:25 pm
Last modified: 02 December, 2021, 11:24 pm

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Perpetual bond making DSE debut after 14 years

AIBL Mudaraba Perpetual Bond is the second such security to get listed on the country’s bourses

Salah Uddin Mahmud
02 December, 2021, 09:25 pm
Last modified: 02 December, 2021, 11:24 pm
Perpetual bond making DSE debut after 14 years

After a hiatus of 14 years, a perpetual bond, which is known as debt security without maturity, is going to debut on local stock exchanges on Sunday.

AIBL Mudaraba Perpetual Bond is the second such security to get listed on the country's bourses.

Earlier, in 2007, IBBL Mudaraba Perpetual Bond got listed as the first such debt security to enter the capital market.

Perpetual bonds have no maturity date and they pay interest to investors in the form of coupon payments, just as with most bonds, but the bonds' principal amount does not come with a set date for redemption (repayment).

Perpetual bonds are gaining momentum in Bangladesh as a large number of commercial banks are on their way to strengthening the Tier-I capital base to comply with Basel III guidelines.

Tier-I capital consists of equity and perpetual debt securities, which are deemed to be similar to equity in nature.

Market insiders said the issuer has several advantages to raise capital through issuing perpetual bonds because unlike Tier-II subordinated bonds, perpetual bonds have only a one-time flotation cost, cheaper than common stock, having call option issuer has the right to retire the bond and issue a less costly bond.

Earlier, in July last year, the Bangladesh Securities and Exchange Commission (BSEC) decided that all the perpetual bonds issued by banks must be tradable on the mainboard of local bourses. However, no perpetual bonds have been listed yet.

After that, both regulators – the Bangladesh Bank and the BSEC - decided that perpetual bonds issued by banks must be listed on the stock exchanges within 30 days of their subscription closure.

Since mid-2020, commercial banks have begun getting regulatory approval for perpetual bonds. Sixteen banks are collecting Tk7,700 crore in total through the newly popularised instrument.

Besides, four banks are waiting for approval from the BSEC for issuing Tk2,100 crore perpetual bonds.

BSEC Executive Director Mohammad Rezaul Karim said it will play an important role in the development of the bond market as well as long-term financing.

He said bank borrowing costs will be reduced through this bond.

The commission considers perpetual bond applications with priority so that entrepreneurs do not face hassle, he added. 

In August this year, the BSEC approved Al-Arafah Islami Bank Ltd to issue a Mudaraba perpetual bond worth Tk500 crore.

The bank has issued Tk50 crore through public offering and the remaining Tk450 crore was issued through private placement.

The Shariah-based listed commercial bank will strengthen its additional Tier-1 capital base with the collected money.

Bond investors' returns will be measured based on the floating rate.

The coupon rate will be 6% to 10% of the bond. The minimum subscription amount of the bond regarding private placement will be Tk5 crore, and Tk5,000 for public placement.

Bangladesh / Top News

Perpetual Bond / DSE / AIBL Mudaraba Perpetual Bond / Bangladesh Securities and Exchange Commission

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