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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 FY 2009-10 to FY
2013-14. Convertible bonds worth Tk 500 crore may be issued in FY
2009-10. 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.
