Sarwar A Chowdhury
The government plans to raise Tk 4,200 crore from capital market for the construction of the country’s largest civil engineering project — Padma Multipurpose Bridge.
The amount, which will meet the fund deficit to construct the bridge, may be raised through issuance of equity shares and securitised, convertible, zero coupon and amortised bonds.
A proposal for raising the fund is awaiting approval of the cabinet committee on economic affairs, finance ministry officials said.
Investment Corporation of Bangladesh (ICB) has prepared the proposal and submitted it to the finance ministry last month.
“We have submitted the proposal to the finance ministry in mid-September,” said Iftikhar-uz Zaman, general manager of ICB.
Although the proposal was scheduled to be placed in the last meeting of the cabinet committee for its approval, it will be placed in the next meeting as the commerce minister was absent in the previous meeting, the officials said.
The 6.01-km-long bridge between Mawa and Jajira over the Padma river will cost around Tk 17,000 crore, of which financing of around Tk 12,800 crore has been ensured from different sources, including Asian Development Bank, World Bank, Islamic Development Bank, Japan International Cooperation Agency and Abu Dhabi Fund.
The bridge will connect the southwestern region directly with the capital and other parts of the country.
The ICB in its proposal has recommended three alternatives for raising the fund from the public.
According to the first alternative, the fund can be raised through issuing bonds and equity shares. The debt-equity ratio will be 70:30, meaning bonds worth Tk 3,000 crore will be issued, while Tk 1,200 crore will be raised through equity shares.
In the equity portion, the government and public ratio will be 51:49, which means the government will buy shares worth Tk 612 crore, while Tk 588 crore will be raised from general public.
In the second option, the ICB said, the fund may be raised through issuance of securitised bonds at an eight percent annual interest rate in four phases.
The ICB suggested issuance of Tk 1,500 crore securitised bonds in the first phase or in fiscal year 2009-10, Tk 1,000 crore bonds in second phase or in 2010-11, Tk 1,000 crore bonds in third phase or in 2011-12 and Tk 700 crore in the last phase or in 2012-13.
Here the grace period of the bond will be five years and the total time will be 25 years including moratorium period.
Securitisation is a structured finance process, in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment. It involves the selling of financial instruments, which are backed by the cash flow or value of the underlying assets.
The ICB in the third alternative recommended that the fund can be raised through issuing convertible, zero coupon and amortised bonds during FY2009-10 to FY2013-14.
Convertible bonds worth Tk 500 crore may be issued in FY2009-10. The bonds can be converted into shares after two or three years.
Another Tk 200 crore may be raised by issuing convertible bonds on toll collected by Bangabandhu Multipurpose Bridge Authority (BMBA) in the same year.
In the second fiscal year, the ICB proposed issuing convertible zero coupon bonds worth Tk 1,000 crore, of which 50 percent will be converted into shares and the rest 50 percent will be interest bearing.
In the third and the fourth fiscal year, each Tk 1,000 crore may be raised through issuing amortised bonds.
Amortisation is the gradual repayment of a debt over a period of time, such as monthly payments on a mortgage loan or credit card balance.
In the fifth year, the BMBA will issue convertible bonds worth Tk 500 crore.
The ICB said the proposed bonds may be considered as “approved securities” to encourage banks and financial institutions to invest in such securities for statutory liquidity reserve benefits.
The proposed bonds or shares may be traded in both Dhaka and Chittagong stock exchanges.
Those who will invest in the bonds should enjoy tax benefits, but not less than the benefits to be enjoyed by the investment in zero coupon bonds.
The tax benefit to zero coupon bonds, which was given previously, should be provided, the ICB said.
Considering the social benefits of the project, the government may consider relaxation of VAT fully or partially from income of the Padma bridge.
Bangladesh Bridge Authority will need to appoint or form a company, trustee, issue manager, assets management company and law firm to perform their respective duties and responsibilities.