TERM PAPER ON CORPORATE BONDS

COURSE: Financial institution and markets

COURSE CODE: FIN 335

SUBMITTED TO:
Dr. Tanbir Ahmed Chowdhury
Professor, Dept. Of Businesses Administration
East West University

SUBMITTED BY:
Monisha Bhattacharjee
Id 2018-1-10-256
Dept of business administration

Date of submission: 28th August, 2021

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 LETTER OF TRANSMITTAL

Date: 28/08/2021

Dr. Tanbir Ahmed Chowdhury,

Professor, Business Administration,

East West University.

Dhaka.

Subject: Submission of the term paper on Corporate Bond Market of Bangladesh.

Dear Sir,

I'm Monisha Bhattacharjee, Id 2018-1-10-256, students of your course fin335. It's a great
pleasure to work on the given topic ‘The corporate bond market Bangladesh’ as it is to our study.
Sir I tried my best to complete this work with my full efforts and efficiency.

I have tried to make this report as comprehensive as possible within the given time and I would
feel gratified if my paper serves its purposes. Therefore, I would be obliged if you could please
accept this report and Forgive my mistakes.

Sincerely,

Monisha Bhattacharjee

Id 2018-1-10-256

Dept.of business administration.

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ACKNOWLEDGEMENT
(All praises belongs to Almighty, the most beneficent, more merciful) I would like
to take this opportunity to express my profound gratitude and deep regard to our
honorable course instructor, Professor Dr. Tanvir Ahmed, for his exemplary
guidance. His valuable suggestions were of immense help throughout my work. His
perceptive criticism kept us working to make this paper in a much better way.
Working under him was an extremely knowledgeable experience for me.

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Table of Contents
1.0 What Is a Bond? ............................................................................................5
1.1 Types of bond ...............................................................................................5
1.2 What is Corporate Bond Market? ...................................................... 5-6
2.0 Overview of Bangladesh Corporate Bond Market ........................................6
2.1 Corporate Bond Market Scenario in Bangladesh ................................. 6-7
2.2 Financial Instruments Available In Bangladesh ......................................8
3.0 List of Corporate Bonds in Bangladesh .........................................................9
3.1 Private Placement of Corporate Bonds .............................................. 9-10
4.0 Comparison of Bangladesh Bond Market with Other Asian Countries .... 10
5. Conclusion ....................................................................................................... 11
6. Bibliography .................................................................................................... 11

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 1.0 What Is a Bond?
A bond is a fixed-income product that represents an investor's debt to a borrower (typically
corporate or governmental). A bond can be regarded as an I.O.U. between a lender and a borrower
that includes the loan's terms and payments. Bonds are used to financing projects and operations
by corporations, municipalities, states, and sovereign governments. Bondholders are the issuer's
debtholders or creditors. Bond specifics typically contain the end date when the loan's principal is
due to be paid to the bond owner as well as the terms for variable or fixed interest payments made
by the borrower.

1.1 Types of bonds:

There are at least five different types of bonds. They all have various sellers, motives,
purchasers, and risk vs return levels.

i. Treasury Bonds: The main bonds are the Treasury bills, notes, and bonds given by the
Treasury Department. They are utilized to set the rates for throughout the entire another
term, fixed-rate securities. The Treasury offers them at closeout to finance the activities of
the national government.
ii. Savings Bonds: The Treasury Department also issues savings bonds. Individual investors
are supposed to buy these. They are supplied in small enough quantities to be affordable to
people. I bonds are similar to savings bonds, with the exception that they are updated for
inflation every six months.
iii. Agency Bonds: Semi legislative organizations, as Fannie Mae and Freddie Mac, sell bonds
that are ensured by the national government.
iv. Municipal Bonds: Various cities issue municipal bonds. These are tax-free, however, their
interest rates are slightly lower than those of corporate bonds. They are slightly riskier than
government bonds issued by the federal government. Cities will occasionally default.
v. Corporate Bonds: Corporate bonds are issued by a wide range of companies. Because
they are riskier than government-backed bonds, they offer a greater rate of return. They are
offered by the representative bank.
Now I'll give a quick overview of corporate bonds.

1.2 What is Corporate Bond Market?

By offering a greater selection of assets, the corporate bond market can strengthen financial
stability, bring competition to the private sector, and allow for more effective allocation of savings.
A well-functioning corporate bond market is an important component of a growing
economy's financial sector development. This paper provides an outline of the Bangladesh

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corporate bond market and compares it to the global market. It also outlines certain limitations to
the development of the corporate bond market, such as government borrowing crowding out,
administrative bottlenecks, and a lack of liquidity. It also cites certain constraints to the
development of the corporate bond market, such as government borrowing crowding out the
market, administrative bottlenecks, and a lack of liquidity in the corporate bond market. Finally,
the study finishes with a review of prospects and policy recommendations for the development of
Bangladesh's corporate bond market.
Even if one channel of financial intermediation is stressed, the complementary
responsibilities of corporate bond markets and banks can preserve financial stability. The lack of
developed bond markets is frequently cited as a contributing factor to the severity of the Asian
crisis. As in the United States in 1990, well-functioning bond markets may have been able to pick
up the slack from the banking sector and give much-needed cash to the private sector. A corporate
bond market can help improve financial sector stability by reducing borrowers' rollover and
interest risk. If interest rates rise as a result of monetary policy or currency rate concerns,
enterprises that rely on short-term bank loans may face greater debt servicing costs at rollover and
may be unable to borrow in the event of a credit crisis.
There are three types of corporate bonds:
Junk bonds, often known as high yield bonds, are corporate bonds issued by corporations
that have a significant risk of default. To compensate for the danger, they provide higher interest
rates.
Preferred equities are technically stocks, but they behave more like bonds. They pay you a fixed
payout regularly. In the event of a bankruptcy, they are marginally safer than stocks. Holders
receive their payments after bondholders but before common stockholders.
Certificates of deposit are similar to bank bonds. You essentially lend your money to the bank for
a set length of time in exchange for a guaranteed fixed rate of return.

2.0 Overview of Bangladesh Corporate Bond Market:

The financial system is important to the economy. The entire economic progress of a
country is mostly determined by the establishment of a secure, effective, and efficient financial
system in that country (Mu, 2008). The financial system contributes to economic performance
through numerous channels, including mobilization, savings, directing funds to their most
productive uses, monitoring managers, and transferring and sharing risks (World Bank Report
2001). It is critical to have a diverse range of investment options to attract a big number of potential
small investors to build an effective capital market. The debt market contributes to the
development of the economy by allocating funding to various deficit sectors. The debt market is
made up of the money market, the bond market, the mortgage market, and the derivatives market.
The enhanced development of the bond market is required for the expansion and diversification of
the capital market, as well as for a country's economic prosperity. The establishment of a secondary
bond market will broaden the financing choices available to both bond issuers and investors. A

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bond market, in this way, can promote financial stability by contributing to a more diverse financial
system. Furthermore, the establishment of bond markets may lessen the negative impact of
financial crises or minimize the likelihood of future crises; the logic is that bond markets may
provide an alternative source of financing if other financing channels, such as bank lending,
become unavailable (Jiang, 2001). As a result, a country's stable and efficient bond market is
heavily reliant on a well-developed bond market. Bangladesh is a developing economy with
sporadic issuance of corporate bonds in the market (Jahur, 2009). In comparison to neighboring
nations such as India, Sri Lanka, Nepal, and Pakistan, the debt market plays a minor role in this
country (World Bank Report 2007).

2.1 Corporate Bond Market Scenario in Bangladesh:

Bangladesh's corporate bond market is characterized by a low base market and is still in its
early stages of development. Fixed income securities initially appeared in the Bangladesh Bond
Market in 1987, with the floating of debentures by two businesses. After 1999, however, no
debentures were issued. Government Treasury bonds were first traded on the Dhaka Stock
Exchange in December 2005. (DSE).
Reasons for Non-existence of Corporate Bond Market:
1. The corporate bond market is hampered by high-interest rates. The government continues
to borrow at high interest rates through various national savings programs, and banks
continue to take deposits at high-interest rates in competition with government securities.
High-interest rates discouraged corporate borrowings, undermining the predicted
establishment of a corporate debt market.
2. The lack of a secondary bond market is a major reason for the lack of a corporate bond
market in Bangladesh. They are referring to the secondary organized market for corporate
bonds, which encompasses the OTC market and the private placement market.
3. In the corporate bond market, a lack of awareness and education makes it difficult to attract
suitable issuers and investors. SOEs, multinational corporations, infrastructure projects,
and large and medium-sized businesses all avoid it. The Bangladeshi business sector, for
example, insurance firms, provident funds, and pension funds of various enterprises,
mutual funds, and so on, are not involved in this effort.
4. A key cause for the inactive corporate bond market is a lack of knowledge-based trading,
even for government bonds. Bangladesh Bank has awarded nine PD licenses, however,
they have yet to begin operations. PDs can play a significant role in activating the
secondary market for treasury bills and government securities in the government bond
market. Later on, PDs will be able to promote this knowledge-based trading to the business
sector.
5. The market has remained unappealing due to a lack of creative products. Securities with
zero and set coupons, as well as bonds based on Islamic Shariah, are currently accessible
in Bangladesh. Bonds such as Treasury Inflation-Protected Securities (TIPS), Islamic

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 Bonds (SUKUK Bond), High-Yield Bonds (HYB), and Deep Discount Bonds may aid in
the creation of the Bangladesh corporate bond market.

2.2 Financial Instruments Available In Bangladesh:

The instruments accessible in the Bangladesh capital market are depicted in the bar chart
(Figure-1). Deposits and bank loans are the most important sectors, accounting for 37% and 32%
of total assets, respectively, as compared to corporate bonds, debentures, treasury bills,
government bonds, government saving certificates, and term loans. Corporate bonds represent the
smallest percentage of all instruments (0.01 percent).

As of late, around 70% of the homegrown reserve funds are held as bank stores, while just 30%
are put resources into the obligation market which is altogether overwhelmed by government
instruments. Till the finish of December 2016, eight debentures, 111 depository securities with
various developments, and 3 corporate bonds(IBBL-Mudaraba Perpetual Bond, BRAC bank 25%
convertible security, and ACI 20% convertible Zero-Coupon Bonds) are being exchanged in the
Bangladesh capital market (Bangladesh Bank Report, 2016).

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 3.0 List of Corporate Bonds in Bangladesh:
The significance of the local corporate bond market in securing reliable long-term funds for the
private sector is critical (Hawang 2016). Corporates have several alternatives for raising funds
from the debt market by issuing bonds. Even though the corporate bond markets in Bangladesh
have not expanded concerning the equity market. Table-2 contained a list of bonds issued by firms
in Bangladesh. According to the table, just three corporations (Islami Bank Bangladesh Ltd.,
BRAC bank Ltd., and Advanced Chemical Industries (ACI) Ltd.) have issued bonds.

Table 2: List of Corporate Bonds in Bangladesh

Average
Name of the Issue Time for Rate of Face profit or
Category
issue Year maturity Interest value Coupon
payment
Perpetual 1%(profit) +
IBBL
Profit (No 10% of 1000*12.47
Mudaraba 2007 Tk. 1000
Sharing maturity declared 6%=124.6
Perpetual Bond
period) dividend
Sub bonds of
Zero Interest Margin
BRAC Bank 2010 3 years Tk. 1000 00
Coupon + 12.5%
Ltd.

ACI Zero Zero Discount rate of

2011 2 years Tk. 1000 00
Coupon Bond Coupon 10.5%

The note was taken from researchers' sources: IBBL, BRAC BANK, BB, ACI Limited.

3.1 Private Placement of Corporate Bonds:

Aside from the previously mentioned recorded securities, corporates in Bangladesh have
additionally raised assets through the private arrangement of securities. In contrast to privately
owned businesses, nearby banks are genuinely dynamic in the security advertise and have raised
assets by giving subjected bonds. Throughout the last three years21, 55 organizations have secretly
given bonds worth USD 2.7 billion. In 2018, bonds worth USD 1.2 billion were given, which was
66.3% more than the capital raised by secretly positioned bonds in FY 2017. The organizations
gave various sorts of securities, for example, non-convertible, redeemable, and unstable securities
at drifting rates. Over 20% of the organizations gave zero-coupon bonds. These bonds have a most
extreme development time of seven years. In 2018, the commission endorsed 20 backers to raise
an all-out capital of USD 1.2 billion through the private arrangement of bonds. These securities
would be offered to numerous banks, monetary establishments, insurance agencies, corporate

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bodies, resource the executive's organizations, common assets, and high total assets people.
Among the 20 backers, four Islamic banks for example Al-Arafah Islami Bank Limited, Islami
Bank Bangladesh Limited, Social Islamic Bank, and Shahjalal Islamic Bank, plan to raise an all-
out capital of USD 276 million using subjected securities with drifting rates, and with a
development time of seven years. Moreover, there are ten banks and three material organizations
(Generation Next Fashions Limited, Flamingo Fashion Limited, and Tarasima Apparels Limited),
which will raise an absolute capital of USD 768 million and USD 66 million, individually through
the issuance of bonds.

4.0 Comparison of Bangladesh Bond Market with Other Asian

Countries:
The nearby cash security market in Asia, expanded essentially by 12.7% to USD 5,370 billion in
FY 2018 from USD 4,771 billion in FY 2017. China overwhelms the Asian neighborhood money
security market with 47% offer, trailed by South Korea and Japan. Indonesia, the Philippines,
Vietnam, and Bangladesh have more modest security advertisements when contrasted with other
Asian nations. The presence of the optional market plays had a fundamental influence in the
advancement of the security market in Asian nations. As a level of GDP, in 2018, South Korea
had the biggest corporate obligation market (73% of GDP) trailed by Malaysia (46% of GDP). In
India, the corporate security market is 16% of GDP. In Indonesia, 87% of all-out remarkable
securities are exchanged the auxiliary market, trailed by 70% in India.

Total Outstanding bonds (USD billion) in Asian Countries

3200

2400 2511

1600

1195
800 723
422
164 112 103 94
0 17 9.3 2.8 13.7 31.2 9.8 21.2 21
20.8 29
10.5 16
4.9 50
3

Oustanding bonds (USD billion) Growth rate

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 5. Conclusion:
The examination has explored the current status and possibilities of the corporate security market
in Bangladesh. In the wake of analyzing both the essential and optional information, it is
discovered that Bangladesh's security market appears to be exceptionally thin in contrast with other
Asian nations. Investors‟ approach toward various speculations (i.e normal stock, business bank
stores) appears to be exceptionally higher than that of corporate security. In addition, financial
backers have likewise viewed the security market in Bangladesh as a wasteful one. Deficient
quantities of securities, exceptional yields in the financial exchange or currency market, absence
of financial backer’s mindfulness are considered as the significant impediments to foster the
corporate security market in this country. There is a huge possibility to create a long-term corporate
obligation market if strategy creators can attempt appropriate measures. In such a manner, strategy
producers ought to make sufficient stage so that the security market can undoubtedly be expanded.
Furthermore, it is additionally prescribed to take appropriate measures to impact of giving
corporate security in Bangladesh.

6. Bibliography:

1. https://www.researchgate.net/publication/332222755_Corporate_Bond_Market_The_Cas
e_of_Bangladesh
2. https://www.scribd.com/doc/95173460/Bond-Market-in-Bangladesh
3. https://www.google.com/url?sa=t&source=web&rct=j&url=https://guarantco.com/gco/w
p-content/uploads/2019/Documents/news/Study-of-Bangladesh-Bond-
Market.pdf&ved=2ahUKEwjB4LqgldTyAhVh63MBHRMoCjY4ChAWegQIBxAB&usg
=AOvVaw2mPuf_KkV4L6eE0CFVTv17
4. https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.sec.gov.bd/hom
e/trusty&ved=2ahUKEwiouIKgkdTyAhU473MBHTERBs8QFnoECAMQBQ&usg=AO
vVaw2Ukf_BEGwlwYxDgQJWJAjo&cshid=1630169120380
5. https://www.thebalance.com/what-are-the-different-types-of-bonds-3305600

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