Bond market yet to be exploited to the benefit of economy: UCB Investment chief

The bond market plays a crucial role for economic development and has the potential to replace banks for long-term financing, but Bangladesh is yet to tap into the alternative source of funds, said UCB Investment chief.

In a recent interview with The FE, Tanzim Alamgir, founding managing director and chief executive officer of the organisation, drew attention to the merchant bank's contribution for the diversification of investment opportunities over the last four years.

During this time, he said, UCB Investment emerged as the leading investment bank in Bangladesh, serving as the issue manager of eight out of the 16 corporate bonds listed on the Dhaka Stock Exchange (DSE).

Alamgir suggested encouraging banks to offer a range of financial products, including bonds, insurance, fixed deposits, equity, and mutual funds, through a comprehensive wealth management platform so that investors can diversify their portfolios and optimise returns.

"UCB Investment, in partnership with United Commercial Bank, has already pioneered this approach, offering a broader selection of investment opportunities to clients."

Alamgir pointed out that Bangladesh's bond market lags far behind its regional peers, with government securities (G-Secs) accounting for about 11.44 per cent of GDP, whereas corporate bonds represent a mere 0.19 per cent.

DSE also exhibits this disparity between listed Treasury securities, 236, and corporate bonds, 16.

Marking the fourth anniversary of UCB Investment on October 5, Alamgir also spoke about the present market situation, ongoing reform initiatives, and future plans.

"Bond investment is still limited to institutional investors," he said, emphasising the need for financial literacy and some policy incentives to popularise the bond market.

However, UCB Investment celebrated its remarkable growth and achievement in facilitating fund collection and supporting clients in making investment decisions.

The new generation investment bank is offering comprehensive 360-degree investment services, including IPOs, right share issue management, syndication loan arrangements, preference share issuance, mergers and acquisitions, and other investment banking services.

When the inflow of initial public offerings (IPOs) slowed down and the market for equity management services was already overcrowded by a huge number of merchant banks, UCB Investment shifted focus to corporate bond issuance and their fund arrangement.

The UCB Investment chief said they prioritised sustainable economic growth and client-focused solutions, striving to be a long-term partner to its clients.

"When a company seeks support, we assess financial data before suggesting a way to raise capital - be it IPO, rights offer, bonds, syndication loan arrangements, mergers or acquisitions."

The new generation investment bank helped companies raise an aggregate amount of Tk 120 billion through bonds, IPOs, and rights issues, the figure "unmatched by any other investment bank in Bangladesh", said Alamgir, while discussing his firm's competitive strength in the industry.

"We have not only thrived but have also emerged as a trusted partner for leading banks, financial institutions, and corporate entities in Bangladesh."

The organisation has three separate teams working for three segments-bond, equity and syndication loans services, said Alamgir.

Plans of several banks are in the pipeline for raising funds through bonds. "We hope to help raise Tk 20 billion by December this year."

"2-S" which consists of "strategy" and "services," is the winning mantra for UCB Investment, added Alamgir.

'Capital market modest compared to economy'

Alamgir said the size of the country's capital market is still insignificant compared to the size of the economy mostly because companies prefer banks as a source of capital to the market.

"Presently, only a handful of 20 stocks are investable. Foreign investors generally invest in those stocks."

Many well-performing conglomerates do business with bank loans. The central bank should make rules to compel them to list on stock exchanges after their turnover crosses a certain level to improve the supply of good stocks, said Alamgir.

The government should also incentivise businesses by widening the tax gap between listed and non-listed companies, he said.

Welcoming the recent reform initiatives in the financial sector, including the capital market, Alamgir said that to restore investor confidence and ensure transparency in the market surveillance systems should be improved.

The regulator should not focus on index rise or fall. They should rather focus on ensuring good governance and making rules and regulations for establishing best practices, said the head of UCB Investment.

Since equity-based securities are not lucrative investment instruments now and only a few of stocks are investable, Mr Alamgir said, UCB Investment has diversified more than 70 percent of its investable funds to fixed-income securities, a practice of ‘active wealth management’.

The merchant bank earned a profit of Tk 60.4 million in 2023, 49 per cent higher than in 2022, while many merchant banks are struggling to survive in the highly competitive market.

Unlike many other merchant banks, UCB Investment did not expose itself to the vulnerability of margin loans.

"That's why the company and its clients are free from the burden of negative equities. We are very selective in providing margin loans to clients," said Alamgir.

UCB Investment has achieved remarkable success, earning several prestigious accolades, including "Best Securities House" in Bangladesh by Euromoney in 2024, as well as "Best Investment Bank" in Bangladesh by Euromoney and FinanceAsia in 2024 and 2023 and by Asiamoney in 2023.

It also received the Shadinata Subarna Jayanti Puraskar - 2021" from the BSEC for its outstanding achievement in the inaugural year.

"We are working to be a global investment bank in the near future," said Alamgir.

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