Bangladesh to issue maiden dollar bond this year

Bangladesh is hoping to issue its first-ever $500 million sovereign bond by the end of the year, the country’s finance minister Abul Maal Abdul Muhith told Emerging Markets in an exclusive interview.

If the landmark dollar-bond issuance goes to plan, a second sale will be launched within the next 12 months, raising a total of $1 billion in fresh capital for the fast-growing South Asia nation.

“At my level, I have made [the decision], but it still needs approval by the prime minister and the cabinet,” Muhith said, adding that he expected a decision on the sale one way or the other “within the next week”.

In a perfect world, he added, “we would like to issue $1 billion, but because it’s the first time we have sold [sovereign debt] it may have to be trimmed down. But I am quite sure that given the current strength of the economy, we will be able to raise $1 billion over the course of the coming year.”

Muhith expects demand for the sale to be vigorous and said the yield would likely be pitched “somewhere close to the 5% mark”. “Our current national debt is around $21 billion,” he noted. “The interest on that debt is 1.4%. The country is into the 42nd year of its existence and it has never defaulted. Economic growth has averaged 6% a year since 2001. We are a strong story for investors.”

Capital that would be raised from both sales has already been earmarked for the building of Padma Bridge, a vast road-and-rail river crossing linking the southwest of the country to the rural northern and eastern regions.

Questions remain over the timing of the sale. Bangladesh’s next general election must take place within 90 days of the expiration of the current government, whose term expires on 29 December. A new prime minister and cabinet may delay or restructure the pending bond sale.

Bangladesh is not the only regional sovereign pushing ahead with landmark debt sales aimed at improving the country’s infrastructure. Sri Lanka’s economy is motoring along, four years after the end of a bloody 26-year civil war, and demand for investment into multiple sectors has never been higher. 

Talking to Emerging Markets on the sidelines of the ADB conference, deputy minister of finance and planning Sarath Amunugama said the country was keen to use its public banks to channel capital into major national-development projects.

Three state-run banks – National Savings Bank (NSB), Development Finance Corporation of Ceylon (DFCC) and NDB Bank – would each issue $1 billion in debt over the next six months, Amunugama said. Only NSB’s sale had previously been made public: that issuance will be co-lead managed by Barclays, Citibank and HSBC, with the sale set to be completed this month.

The aim with all three bonds is to build the country by proxy. Rather than issue any more sovereign debt – something Amunugama says the government has “no interest” in doing – financial officials in Colombo are opting to strengthen the country’s economic superstructure by issuing debt via leading state lenders.

“Rather than issuing sovereign debt, we are opting essentially to issue bonds aimed at boosting specific industries – sectoral bonds, if you like,” the deputy minister said. “The capital raised will focus on urban development, tourism development, and building out our services sector. Banks with good balance sheets are being asked to borrow direct [from local and global investors].”

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