The Dhaka Stock Exchange (DSE) has slashed listing and other fees tied to corporate bonds by 80 per cent in a major move to revive the largely inactive corporate bond market.
The premier bourse has taken the initiative to reduce the cost of issuing and listing corporate bonds, which market participants believe could encourage more companies to tap the debt market for long-term financing.
Previously, the listing fee for fixed-income securities was 0.25 per cent for issues up to Tk 100 million and 0.15 per cent for issues above Tk 100 million.
The fee reduction is expected to remove a major cost barrier for potential issuers and make the capital market a more attractive source of funds for businesses, particularly at a time when companies are facing higher borrowing costs and tighter access to bank financing.
Market participants have long identified high listing costs, limited secondary-market liquidity, a narrow institutional investor base, and weak investor confidence as key obstacles to the development of the bond market.
Currently, only 16 corporate bonds are listed on the premier bourse, compared with 217 government securities and 360 listed companies, highlighting the glaringly small footprint of corporate bonds despite the growing need for diversified sources of long-term financing.
DSE Chairman Mominul Islam recently said the high listing fees had previously discouraged companies from bringing their bonds to the main board. "With the substantial reduction in fees, companies will now have greater incentive to issue and list corporate bonds on the DSE main board," he added.
At a training session on Friday, Bangladesh Securities and Exchange Commission (BSEC) Chairman Masud Khan expressed hope that a significant number of corporate bonds would be listed within the next three to six months.
Citing an example, he said BRAC Bank had started preparing to issue a Tk 10 billion social bond, with listing on the DSE main board as a condition.
Mr Khan also said the regulator wanted all eligible bonds to be listed on the main board to help create a more organised and liquid secondary market.
The development of a vibrant bond market is considered important for creating alternative sources of long-term financing for businesses while providing investors with more fixed-income investment opportunities.
Mr Khan also highlighted the relatively attractive coupon rates offered by corporate bonds, saying many of the instruments provide a spread of around 3 percentage points over the six-month fixed deposit receipt (FDR) rates of Category-A banks.
As a result, investors can earn coupon rates of around 12 to 12.5 per cent from some corporate bonds.
For example, an investor who buys Tk 1 lakh worth of a bond carrying a 12 per cent coupon rate would receive roughly Tk 12,000 a year in interest. At maturity, the issuer would repay the principal.
The BSEC chairman expressed optimism that lower listing costs and attractive yields would encourage both issuers and investors to participate more actively in the corporate bond market.
Lack of liquidity, institutional investors remain key challenges
While the reduced fees remove cost barriers for issuers, market analysts say a vibrant corporate bond market would ultimately require improved secondary-market liquidity, a broader institutional investor base, and greater confidence in the creditworthiness and governance of bond issuers.
"The sharp cut in listing fees is a welcome step, but that alone may not be sufficient to create a vibrant bond market," Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage, told The Financial Express over the phone.
Concerns remain over issuer quality and credit risk, he pointed out.
Mr Shawon stressed the need for greater market participation by pension and mutual funds and improved investor confidence to ensure sustained growth of the bond market.
Transparent disclosure and appropriate credit assessment are also imperative for a well-functioning corporate bond market, he added.
Dominance of retail investors
Meanwhile, the BSEC is taking measures to increase institutional participation in the capital market, as retail investors account for around 90 per cent of the investor base.
The dominance of retail investors has remained a major structural weakness of the capital market, said the BSEC chief.
As part of the measures, the securities regulator is working to change the investment framework for provident and gratuity funds, he said.
Referring to relevant provisions of the Trust Act, the BSEC chairman said provident funds currently rely heavily on government bonds and savings certificates for investment.
Although provident funds are allowed to invest in the stock market, the existing mechanism needs improvement to encourage greater participation, said Mr Khan, adding that the commission is working to facilitate the allocation of institutional funds between the stock market and the corporate bond market.
