Important Business News Extracts – December 18 2016
Government to borrow from forex reserve for mega projects
The government has decided to issue bonds as an instrument to borrow money from the country’s foreign exchange reserve for financing the mega projects, finance minister AMA Muhith said. Earlier, members of a committee, led by central bank deputy governor Shitangshu Kumar Sur Chowdhury, submitted a report to the minister detailing the process of creation of a sovereign wealth fund and issuance of bond. The fund will be of USD 5.0 billion, but will start with a couple of billions. The minister said the rate of interest on loan will be higher than that of the concessional loans taken from foreign sources, and it will be near the rate of non-concessional loans. Earlier in 2015, the government cleared a proposal of International Finance Corporation (IFC) for issuing USD 1.0 billion ‘Taka bond’, making way to borrow from global financial markets. Later, the government showed less interest in issuance of the bond as the foreign exchange reserve went up significantly. Subsequently, the IFC has reconsidered the issuance. Presently, the foreign exchange reserve stands at around USD 31.0 billion.
The government plans to issue a green bond to facilitate low-cost financing of environment-friendly and sustainable initiatives in Bangladesh, an official of Sustainable & Renewable Energy Development Authority said yesterday. “We have already started discussions with the development partners on this issue,” said SREDA Member Siddique Zobair at a daylong conference held at The Daily Star Centre. NeoSTAR Innovation, a green technology-focused company, in association with Dhaka Bank, Rahimafrooz Solar, NCC Bank, IFIC Bank and Social Islami Bank organised the event to discuss policies for green business, explore effective business models and identify low-cost financing opportunities. The rate of interest is relatively high to make a green project commercially viable, Zobair said. Banks charge 9.0% interest on lending to green projects under Bangladesh Bank’s BDT 2.0 billion revolving fund, formed in 2009 to give out low-cost loans for solar energy, biogas and effluent treatment ventures.
No utilization of 29.0% of capital market refinancing fund
About 28.65% of the BDT 9.0-billion capital market refinancing fund remains unutilized due to poor response from the investors, affected during the 2010-11 stock market debacle, officials said. Despite repeated attempts the fund supervision committee and Investment Corporation of Bangladesh (ICB) could not disburse over BDT 2.6 billion of the affected small investors’ assistance fund, an ICB official said. The timeframe has been extended by one more year, until December 2017, for smooth implementation of the incentive package. Earlier, the scheme was set to end in December 2016. In June, the government also reduced the fund’s interest rate by 1.5%. At present, the interest rate is 7.5%, which was 9.0%. Meanwhile, loans amounting to BDT 297.2 million were sanctioned in favor of 751 small investors of seven merchant banks and broker houses. But they did not come forward to take the loan, the officials also said. ICB Managing Director Md. Iftikhar-uz-zaman in a recent letter informed the fund’s update to the Ministry of Finance (MoF).
Investment in information technology not only raises the efficiency of banks but also improves their profitability, according to a study of the Bangladesh Institute of Bank Management. If a Bangladeshi bank invests BDT 1.0 in its IT systems, it yields more than BDT 136.0 in output. On the other hand, a single taka of investment for the non-IT segment brings BDT 58.0 in output. Every BDT 1 investment in IT can generate BDT 16.49 in income for banks, while non-IT investments can increase the income by BDT 14.24 per BDT 1.0, showed the BIBM study, which will be unveiled at a programme today. The study also showed that spending on IT professionals helps increase efficiency. In 2015, the ratio of IT and non-IT employees was a maximum of 1:197 at state-owned banks, 1:506 at specialized banks, 1:80 at private banks, and 1:34 for foreign banks. All branches of foreign and private commercial banks were computerized in 2012. By the end of 2015, more than 96.0% of the branches of state-owned commercial banks and 31.6% of branches of state-run specialized commercial banks were computerized. Banks invested BDT 11.4 billion for running their IT operations last year, up from BDT 8.2 billion in 2014, according to the study. The amount does not include IT spending by the central bank. Since 2000, the sector has invested about BDT 104.5 billion in the IT systems, according to estimates.
Bourses seek 1 more year to sell shares to strategic investors
The Dhaka and Chittagong stock exchanges have sought another one year time to the Bangladesh Securities and Exchange Commission to get strategic investors for the demutualized-bourses as the entities failed to reach in any final agreements with the stipulated time. On December 9, 2015, the BSEC under the Demutualization Act, 2013 directed the DSE and the CSE to get strategic investors within a year that ended last week. The two bourses became demutualized on November 21, 2013 as per the recommendation of capital market investigation committee on 2010-11 market crash to separate their management from ownership. ‘We have given a letter to the commission seeking another one year to get strategic investor for the bourse as the process is yet to be finalized,’ CSE managing director Md Saifur Rahman Mozumder told New Age on Saturday. The DSE signed a memorandum of understanding with three organizations including one foreign organization and two local entities to start the process of selling stakes to strategic investors. The CSE, on the other hand, signed a memorandum of understanding with state-owned Investment Corporation of Bangladesh as part of the process. According to the demutualized scheme of the stock exchanges, the DSE consists of 180,37,76,500 shares and the CSE 63,45,24,840 shares of BDT 10.0 each considering BDT 18.0 billion and BDT 6.3 billion paid-up capital of the entities.
Britain’s destined exit from the European Union had no impact on Bangladesh’s export receipts although the referendum had sent in major shocks for shipments from the country, according to last four months’ trade turnover. Such an evaluation is evident in a note prepared by the finance division for government appraisal. People in many circles, including those involved with major exports, had aired their concern after the referendum in the United Kingdom that produced overwhelming ayes on the question of breaking away from the EU. But the finance brief says the government should observe further whether it will impact trade in the near future. Demand for Bangladesh’s products on the EU market and in other parts of the world is more or less immune to any kind of changes.
Bangladesh’s exports will fall between 5.5% and 7.0% if the country loses duty-free market access upon its graduation from the grouping of the least-developed countries, the Centre for Policy Dialogue said yesterday. “Both product and market diversification will be critical to Bangladesh’s smooth graduation,” said the think-tank in its analysis on the United Nations Conference on Trade and Development’s Least Developed Countries Report 2016. Exports will fall 6.5% to 7% if only Bangladesh graduates from the LDC status and loses duty benefits while the other nations retain their existing preferential treatment, said Towfiqul Islam Khan, research fellow of the CPD. But the fall in exports will stand at 5.5% if all LDCs lose the duty-free market access together, he said while presenting the analysis at an event held at the Brac Centre Inn in Dhaka. Even if Bangladesh graduates from the LDCs in 2024, the country will still retain all the privileges it enjoys under the current arrangement until 2027 to facilitate a smooth transition. The cost of losing LDC-specific international support can be offset by momentum and sound preparation, the think-tank said. As LDCs, 48 countries are entitled to a total of 136 support measures including special treatment on official development assistance, climate finance, preferential market access and rules of origin, patent flexibilities and aid for trade.
Overseas calls in free fall as mobile apps take hold
International call volume through the legal channel continued its slide in fiscal 2015-16 as free mobile applications like Viber, WhatsApp and Skype are fast becoming the chosen medium for communication. The total outgoing international call minutes stood at 278.3 million last fiscal year, down 16.85% year-on-year, according to Bangladesh Telecommunication Regulatory Commission’s annual report, which was published last week. The incoming international voice calls, which help the government earn foreign currency, declined 11.03% to 31.6 billion minutes in fiscal 2015-16. Senior officials of the telecom regulator said the 33.0% price hike by the IGW Operators’ Forum (IOF), which was formed in September 2014, to transmit international calls from Bangladesh might be another reason for the decline. The official incoming international call termination rate is 1.5 cents for every minute, but IOF is charging 2 cents.
The government will modernize 24 public sector jute mills with Chinese funding — a move expected to generate annual net profits of USD 119.0 million and 24,000 new jobs. The state-owned jute mills have been loss-making units for several years now, and in the last fiscal year their losses amounted to BDT 5.9 billion. The production capacity of the mills is 275,500 tons but the actual annual production is 108,656 tons, yielding BDT 10.4 billion or USD 130.0 million in revenue. About 82,000 are employed in the mills and the government has to give subsidy every year to keep the mills running. Subsequently, the government has decided to take up a project worth USD 350.0 million or BDT 28.0 billion for balancing, modernizing, rehabilitating and expanding the mills, where China will put in about USD 280 million or BDT 22.4 billion. The mills suffered losses every year over the last nine years, save for fiscal 2010-11, when only a profit of BDT 140.0 million was made. From fiscal 2006-07 onwards, they made losses of BDT 660.0 million to BDT 7.0 billion each year, according to the finance ministry statistics. Once the project is complete, the mills’ total revenues would more than treble to BDT 37.4 billion.
North American fashion brands and retailers have cut business relations with six more Bangladeshi supplier readymade garment factories on charge of failure in making required progress in factory remediation. According to an announcement of the Alliance for Bangladesh Worker Safety, the platform of North American buyers, the factories have been suspended from its compliant supplier list due to unethical behaviour, failure to provide evidence of remediation and failure to remove lockable exits. The suspended factories are: Opex Designers Ltd and Opex Ready Wears Ltd at Kanchpur in Narayanganj, Link Wear Limited (Building-2) in Chittagong, Haesong Sweater Ltd at Gazipur, HDF Textiles Ltd at Ashulia in Dhaka and Evergreen Products Factory (BD) Limited at Uttara EPZ in Nilphamari.
US-Bangla Airlines is set to increase its flights to Muscat from Dhaka and Chittagong to cater to the growing passenger traffic on the route. The airline will operate two more weekly flights starting today in addition to the existing four weekly flights from Dhaka and Chittagong, the private carrier said in a statement. It will fly from Dhaka at 9:30pm and from Chittagong at 10:45pm every day, except Saturday, and will arrive in Muscat at 2:00am (local time). The flight will start from Muscat at 3:00am every day, except Sunday. Since the introduction of its flights on the route on November 11 this year, US-Bangla has received tremendous response from passengers, leading the airline to increase the number of flight operations on the route. The return fare on Dhaka-Muscat route, including taxes and surcharges, starts from Tk 38,607 and on Chittagong-Muscat the fare starts from Tk 40,557. A one-way ticket will cost minimum Tk 17,760.
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