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Now’s the time for Bangladesh to get the best bang for its buck

By Virginia Furness
15 Apr 2014

Bond investors seem desperate to get their hands on anything other than Chinese property and frontier market sovereigns are stepping up to the plate. Recent and lauded sovereign bonds from Sri Lanka and Pakistan have provided much needed diversification and appetite for frontier credits continues to be rife. Bangladesh has been waiting in the wings and now is the perfect time for it to take the plunge.

Despite continuing political instability and an onslaught of natural disasters - including the terrible blow it took last year after the Rana Plaza factory collapsed outside Dhaka resulting in the loss of 1,138 lives - Bangladesh is certainly a country characterised by extraordinary resilience. Economic growth has remained a steady 6.2% average over the last 10 years making it a positive prospect for investors.

With such a solid economic position, the country should be a prime candidate to do an international bond, and in January last year, the sovereign was said to be looking to issue a $500m five year Reg S/144A trade. But the deal never arrived. 

Those in the know said that the country’s political instability was to blame and while this has by no means completely dissipated, January’s elections, which the opposition party boycotted, have created at least a temporary calm.

So the setback may only be temporary. Several factors are aligning for Bangladesh to take its place in the international bond market.

Perhaps most importantly, Bangladesh’s economy has been bolstered by a $987m three year loan from the IMF signed in 2012. The IMF made the loan to address the country’s mounting balance of payments deficit and declining foreign exchange reserves.

IMF backing proved highly conducive to Pakistan, which issued a $2bn five and 10 year dual tranche bond on April 8. The sovereign is rated Caa1 by Moody’s and B- by Standard & Poor’s, lower than Bangladesh’s rating of Ba3 by Moody’s, yet that did not stop it from attracting an order book of over $7bn.

Like Pakistan, Bangladesh’s foreign exchange reserves were bolstered by the IMF injection and are now at record highs, reaching $14.8bn in April 2013 according to a Standard & Poor’s report. Because of this, the central bank is increasingly comfortable with the concept of cross-border flows, which makes issuing an international bond more likely.

With such strong appetite for Asian sovereign credits, Bangladesh is also likely to find a receptive investor base. Asian sovereign supply is dwarfed by demand, as illustrated by Sri Lanka printing 100bp tighter than it did in January, so a bond from a new issuer like Bangladesh would go down a storm.

An international sovereign bond would also be good news for the country’s corporates who are struggling to raise money in an underdeveloped credit market and facing punitive borrowing costs onshore. Banglalink Digital Communications is attempting to become the first corporate from the country to issue a dollar bond and is marketing a five year deal via Citi. But life would be much easier for it and others if the sovereign came first.

With liquidity abundant and sovereigns in demand and pricing tight, Bangladesh won’t get a bigger bang for its buck than now.

By Virginia Furness
15 Apr 2014