The securities regulator and intermediaries have harped on different tunes about the market capacity of absorbing the bonds so far approved.
Most of the bonds are being issued by banks to strengthen their capital base.
The Bangladesh Securities and Exchange Commission (BSEC) said the market has a much higher capacity than what is needed for absorbing the bonds so far approved.
But some market intermediaries said the appetite among investors for bonds was not yet up to the mark. Some others said banks were purchasing the bonds through negotiations in an effort to help each other. The types of bonds are being issued now will not help develop a vibrant secondary bond market that is desired most, they added.
"The aggregate size of bonds so far approved by the commission is not that large compared to the capacity of the market," said Prof Shibli Rubayat Ul Islam, chairman of the BSEC.
Dr Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), said a vibrant bond market will continue to be a distant dream as long as bonds are traded among a select group through negotiations. The bonds need to be made tradable and taken to the general investors to achieve the goal, he said.
During the tenure of the incumbent commission led by Prof Islam, 16 banks, one financial institution and five other entities including BEXIMCO got the approval to raise an aggregate amount of Tk 144.60 billion (14,460 crore) in capital by issuing bonds. The debt instruments comprise subordinate, green-sukuk, perpetual and zero coupon bonds.
Green Delta Insurance Company, MTB Capital, EBL Investment, IDLC Finance, Sena Kalyan Insurance, IDLC Investments, and Investment Corporation of Bangladesh (ICB), among others, are working as trustees or arrangers of many of the bonds issued by the banks and corporate entities.
The issuers are allowed to complete the subscription or sale of units of the bonds within a time period ranging from six months to one year.
Green Delta Insurance Company is acting as the trustee to the majority of bonds approved since May, 2020.
Asked, a senior official at the Delta Life Insurance said subscriptions to all of their bonds were completed within the stipulated timeframe set in the prospectuses.
Md Syadur Rahman, managing director at EBL Securities, said the bond issued by Ashuganj Power Station Company (APSC) saw under-subscription despite being government-backed debt securities.
"The case of APSC bond indicates that the appetite for bonds is yet to be up to the mark due to the lack of sufficient efforts to make such debt securities popular," said Mr Rahman, also president of Bangladesh Merchant Bankers Association (BMBA).
Officials at the MTB Capital, which has been working for bonds issued by 14 companies, said they had not yet found any problem with the sales of bonds, especially those issued by banks, within a stipulated timeframe.
"However, the corporate bonds are not drawing that much response compared to the debt securities issued by banks," said an official at the MTB Capital.
Preferring anonymity, an official at a merchant bank said banks' bonds were sold out among the banks as they were helping one another through negotiation.
"This practice brings no benefit to the bond market," said the official.
Asked, an official at the Bangladesh Bank (BB) said so far only the Padma Bank was unable to sell its bond due to a turmoil that happened after issuance of its debt securities.
"All banks, other than Padma Bank, were able to sell their bonds," said the official of the central bank.
BSEC Chairman Mr Islam said the bond market's capacity would be enhanced gradually as such debt securities started becoming the main source of long term financing instead of bank loans.
He said the securities regulator already issued a directive regarding making a public offer of at least 10 per cent of a perpetual bond.
"The provision on public offer has been introduced to contain the practice of selling bonds among the banks through negotiation," Prof Islam said.
While speaking on the security issue, the BSEC chairman said no investment tool was risk-free.
"The payments to bond holders will be settled, if needed in any case, by selling the assets of an issuer," Mr Islam said.
He said the securities regulator also introduced the provision of classification in the event of the issuer's failure to pay interest on the bonds.
The BSEC has asked the issuers of the perpetual bonds to ensure at least 20 per cent provisioning in addition to annual interest or coupon payment each year.
If there was any shortage of funds or profit during any particular year to make any payment of interest or coupon, the issuer of the perpetual bond will have to pay the due interest or coupon in full using funds from the accumulated coupon or interest provision account.
The units of different bonds are sold to financial institutions, banks, corporate entities and high net worth individuals, among others, through private placements.
In a directive, the securities regulator has asked the market intermediaries, including merchant bankers and portfolio managers, asset managers, and stock dealers, to invest at least three per cent of their own portfolios in listed debt securities by June 30, 2022.
And they will have to maintain the ratio of investment in the listed debt securities for all time.
The securities regulator said the directive was issued in order to diversify the portfolio risk of the market intermediaries.
Of the 16 banks, The City Bank, Jamuna Bank, One Bank, United Commercial Bank, Trust Bank, and Mutual Trust Bank got the regulatory nod to raise Tk 4.0 billion each by issuing bonds.
Of the others, Standard Bank, NCC Bank, Al-Arafa Islami Bank, Southeast Bank, Dutch-Bangla Bank, Social Islami Bank, EXIM Bank, and IFIC Bank have been allowed to raise Tk 5.0 billion each.
Islami Bank, First Security Islami Bank and EXIM Bank will raise capital worth Tk 6.0 billion each while the Standard Bank got the nod to raise Tk 8.5 billion.
The financial institution IDLC Finance has been allowed to raise Tk 5.0 billion by issuing zero coupon bond.
Of the five other entities, BEXIMCO has been allowed to raise the highest ever capital worth Tk 30 billion by issuing asset-backed green sukuk-bond.
BRAC got the approval to raise Tk 13.50 billion through its zero coupon bond.
Pran Agro has been allowed to raise Tk 2.10 billion and Tk 1.50 billion separately.
SAJIDA Foundation for the first time got the regulatory approval to issue green bond worth Tk 1.0 billion.
Aamra Network also got the BSEC approval to raise Tk 1.0 billion (100 crore).