Thengamara Mohila Sabuj Sangha (TMSS), a leading NGO in the country, on Monday got the securities regulator's approval to issue bonds worth Tk200 crore.
The bond proceeds would be used to fund two microfinance programmes of the organization that are empowering rural women, said The Bangladesh Securities and Exchange Commission (BSEC) after its 785th commission meeting that decided the approval.
The bond will be a non-convertible zero-coupon bond – meaning there is no option to convert the debt into equity after the tenure of five years. Also, the investors would buy the bond units at a discounted price as they would avail no interest through coupons.
Against the total face value of Tk200.1 crore, the total discounted present value of the bond would be Tk173.45 crore, while the discount rate would be 7.5%. That means the issuer would collect the smaller amount and ultimately pay the bigger amount at maturity.
The face value of the bond units would be Tk10 lakh each, while an investor must buy at least a lot of 3 units or multiples thereof.
Only financial institutions, corporate investors and other eligible investors can buy the bonds.
Local investment bank MTB Capital is the trustee of the bond while Eastern Bank is working as the Arranger who helps to accomplish issuing processes and secure subscription.
However, the bond would be placed among investors privately instead of a public offering.
Income from zero-coupon bonds is tax-free in Bangladesh as long as the taxpayer is not a bank or financial institution or insurer.
The tax benefit on top of above-average return made zero-coupon bonds popular among many institutional investors and also some financially literate individuals who prefer diversifying their investments among various asset classes that include equity, fixed income debt securities, mutual funds and many others such as real estate, gold.
Brac, the world's top NGO, also opted for bonds this year to fund its gigantic microfinance programme as the NGOs are in need to diversify their sources of funds amid decreasing international funding.