At a recent meeting discussing alternative financing led by Finance Minister Amir Khosru Mahmud Chowdhury on June 20, the suggestion was made by the Bangladesh Bank governor to consider issuing the country’s inaugural international sovereign bond as a $50 million panda bond in China’s onshore market. This proposal will be evaluated by an inter-ministerial committee in comparison to a traditional dollar Eurobond.
Despite initial concerns regarding the relatively small amount in the context of Bangladesh’s substantial budget and increasing external repayments, totaling around $6 billion annually, the focus of the debut bond should not solely be on raising funds. The primary objective should be to establish a market presence and framework for future transactions once concessional funding diminishes. A successful debut bond would establish a market rate for Bangladeshi sovereign risk, introduce necessary disclosure and reporting mechanisms, and provide valuable experience in managing bond issuance processes.
Drawing on Pakistan’s recent panda bond issuance experience, where they secured approximately $258 million with a 2.5 percent coupon and strong investor interest, it is evident that the success of such bonds lies in their structure rather than creditworthiness alone. By considering a small, credit-enhanced bond with proceeds earmarked for specific projects, Bangladesh could replicate this success and establish credibility in the international capital market.
It is crucial to approach the issuance with caution and foresight, recognizing potential challenges such as currency mismatches and political implications. Addressing these concerns through proactive measures like swap lines or hedging strategies would mitigate risks associated with the debut bond. Emphasizing capability over immediate financial gains, engaging with rating agencies, and exploring partial guarantees from multilateral institutions like the ADB or AIIB would enhance the bond’s attractiveness to investors.
Ultimately, the success of Bangladesh’s first sovereign bond issuance should be evaluated based on the groundwork laid for future engagements rather than the immediate financial outcome. By strategically navigating potential hurdles and leveraging lessons from successful precedents, Bangladesh can pave the way for sustained access to international capital markets through a well-executed debut bond issuance.
