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Corporate Bonds in Bangladesh

  • Date Submitted: 02/22/2014 10:35 AM
  • Flesch-Kincaid Score: 52.4 
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Corporate Bonds in Bangladesh
Bangladesh corporate debt market is very small in size. The outstanding amount is only 0.15% of GDP. Thus corporate bond market in Bangladesh is at a budding stage. During 1988-2013, only 3 corporate bonds were issued by public offerings. Out of these 3, 2 of these bonds are partially convertible to common stocks. The biggest issue of corporate bond was made first in 2007. It was a perpetual bond named ‘IBBL Mudaraba Perpetual Bond’ with a size of Taka 3,000 million (approximately US$ 40 million). It is an Islamic bond on profit sharing basis since interest is prohibited by Sariah Principles. After two other corporate bonds have been issued ACI Zero Coupon Bond and subordinated Brac bonds.
The factors which determine the yields of this 3 bonds are :
Corporate bonds compete in the market for investor dollars. If prevailing interest rates should rise, the yields bonds provide at a given price become less attractive. Demand for the bonds falls, creating downward pressure on prices. Bond prices tend to decline with the effective interest rate climbing until it is competitive with new interest rate levels. Of course, if prevailing rates go down, the opposite effect is likely; increased investor demand for the now superior yields of corporate bonds drives bond prices up until the resulting yields fall to the new interest rate levels.
  * One of the most important factors that affects the interest rates of corporate bonds hence the yield is the credit risk. Corporate bonds are assessed based on the probability a company will be able to redeem (pay off) the bonds at maturity. Most investors rely on bond rating services to provide credit risk ratings. The bonds of companies with the best credit ratings pay lower interest rates as a rule because investors will accept lower yields in return for reduced risk. If the credit rating is bad, then the company needs to pay higher yield to compensate for the higher risk. For Bangladesh all the 3...

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