Bangladesh: Government's sukuk auction sparks huge interest

Published 29 Dec,2020 via The Financial Express - The Tk. 40 billion Sukuk was over-subscribed nearly four times to Tk. 151.53 billion in its first auction held on Monday at the central bank.

For the first time, the government is mobilising funds from the financial institutions by issuing the Islamic bond.

The Bangladesh Bank held an auction, where a total of 39 institutions-both conventional and Shariah-compliant financial institutions-took part.

This is the first bidding for the Tk. 80 billion Sukuk, the next auction for the remaining Tk 40 billion will be held on June 28, 2021.

Official of Bangladesh Bank said that the participation by both conventional and non-conventional banks was allowed as a part of diversifying the investment base for the government-guaranteed securities and promoting the financial inclusion.

They said the Sukuk has been distributed proportionately to the participating institutions where each gets on an average 25 per cent of their buy-orders.

Islami Bank Bangladesh, the first Shariah-compliant bank in Bangladesh, placed an order to buy Sukuk worth Tk 15 billion.

A source at the bank told the FE that they wanted to buy it as part of its SLR requirement.

He said this is a risk-free Shariah product and it will help create a benchmark profit rate for similar other products.

However, the denomination of each Sukuk is Tk 10,000. Any Islamic-minded individuals institutions, even those who respect the Shariah business values can purchase it.

Individuals can purchase it through the banking channel and need to open a separate account with the bank for this purpose.

An individual may buy a minimum of such a bond and there is no upper limit.

Investors will receive 4.69 per cent yield on their aggregate investments in the Islamic bond.

The yield will be paid to investors on a semi-annual basis.

The government will raise Tk 80 billion for the implementation of a safe water supply project, the work for which will start from January 01, 2021.

Islamic bonds are different from those of traditional debt instruments. There is a need for a project to mobilise the fund and special purpose vehicle as well as trust to manage it.

The fund to be raised will be invested in the project titled "Safe Water Supply for the Whole Country".

The Department of Public Health Engineering (DPHE) will implement the project by June 30, 2025.

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