Banga Building Material Ltd (BBML) – the maker of RFL uPVC doors, sheets, ceiling panels, and furniture – has received the securities regulator's nod to raise Tk300 crore through Sukuk for capacity expansion at its Habiganj Industrial Park unit.
This is going to be the second corporate Sukuk, after the Tk3,000 crore Beximco Green Sukuk which was issued last year.
On Wednesday, the Bangladesh Securities and Exchange Commission (BSEC) in a statement said only banks can invest in the Sukuk – an asset-backed Islamic instrument.
Unlike Beximco Sukuk, BBML Sukuk will be non-convertible and fully redeemable.
Of the six-year tenure, the first year will be a grace period when the company will not pay any sum to investors.
Investors' annual rate of return will be at least 8% and will not exceed 11% as the return would be 300 basis points higher than the floating Islamic deposit rate in the banking industry.
BBML, as the originator or user of the funds, will pay the profits twice a year, except for the first year and give the principal back after maturity.
The trustee First Security Islami Capital and Investment Ltd will bridge between the investors and BBML.
Following the successful advisory and issuance services to Beximco Sukuk, local investment bank City Bank Capital Resources Ltd is working as the issue advisor and arranger of the BBML Sukuk.
Of the Tk300 crore proceeds, Tk160 crore would be used to refinance BBML's existing machinery to help it save some in finance costs, while the remaining amount would be used to purchase new machinery.
The face value of each unit of the Sukuk, to be privately placed instead of a public offer, will be Tk5,000 and a lot will have 20 units. That means, a bank must subscribe for Tk1,00,000 Sukuk.
The Sukuk units will be traded on the alternative trading board of the Dhaka Stock Exchange (DSE).
How Sukuk works
Unlike bonds that offer debts to businesses, Sukuk is a project financing instrument which is offered to investors against specific underlying assets.
The investors earn rental income over a predetermined period against the assets they helped purchase.
A trustee remains the bridge between investors and the company.
The company, which uses the assets and pays investors back, is called the originator of the Sukuk, while the trustee is the legal issuer.
After the end of the instrument's tenure, the originator buys the assets and returns the capital to the investors.
Since Sukuk does not directly offer interest income, the instrument is a Shariah-compliant one and is gaining popularity among the world's Muslim investors.
The financial cost of a Sukuk is usually less than what commercial banks charge for loans.