The People's Republic of Bangladesh is firming up plans to issue its first sovereign bond denominated in dollars, but looming elections may prevent it from achieving the goal this year. In an exclusive interview with IFR, Bangladesh Bank governor Atiur Rahman said: "A lot of technical work is going on and we will be launching this bond at a very opportune moment, but we are quite far, I would say."
Bangladesh is expected to elect a new parliament within 90 days of the expiration of the term of incumbent lawmakers on December 29. The political uncertainty ahead of the polls may make a bond offering this year impractical. However, as the country seeks to boost infrastructure investment, it will need to raise foreign debt, Rahman said. IFR first reported on a potential US dollar sovereign from Bangladesh in March.
Rahman said that, apart from the technical work and the hurdles next year's general elections pose, Bangladesh is confident that it will be successful when it finally hits the market. "There is a lot of money in developed countries at a very low cost and investors are looking at new markets," he said. "The new markets also need these funds for infrastructure and they offer a high-yielding investment."
In addition, rating agencies have kept Bangladesh's credit status unchanged for a while, something that has reassured global investors. "I think the government of Bangladesh has rightly decided to go for a funding like that, but the timing is also important - it has been fuelled by the consistent four-time stable outlook from Moody's," Rahman said.
"Also, S&P and Moody's have given us stable outlooks, despite all the problems we are having in politics. They are giving us a lot of good weight in the way forward, in terms of achieving higher levels of consistent growth. So, that gives us an extra confidence in going for a bond," he added. S&P rates Bangladesh BB-, and Moody's has holds it at Ba3, both with stable outlooks.
While Bangladesh wants to take advantage of the appetite for risk to lock in cheap funding, Rahman said that bond proceeds should be earmarked for infrastructure development to ensure they generate revenue to repay investors. "The money has to be invested immediately, otherwise your debt service will be fuelling deficits," Rahman said. "That's why this money has to be raised when the project is laid down, so you just invest in it and get the results. Unless you have that situation, I would not advise the government to borrow money to keep it in reserve. That's not the best idea."
There is no shortage of investment opportunities demanding foreign money. "We have some infrastructure projects in the pipeline - we have bridges, four-lane roads ... we also want to go for a deep sea port," he said. "It has to be focussed. You cannot get this money for your budget support." In fact, he said that the government should not rely on foreign debt alone, even for infrastructure investment.
"Part of it will be funded with bonds, the other part will be loans or our own resources," he said. "Our reserves have been growing at a very phenomenal rate. In the last four years, since this government came in, investment has literally tripled. It was US $5bn-$6bn. Now, it is a US $15bn reserve." The government had also been developing the local markets as a way to increase its funding and create a new avenue for financing for local companies, Rahman said.
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