Issuing Bangladesh’s first corporate green bond
We issued Bangladesh’s first corporate green bond amid challenging market conditions to incentivise issuers and investors within the debt market. This demonstrates the potential value of such activity in unlocking much needed capital in the market.
Like many countries around the world, the impacts of climate change are among the most serious challenges to Bangladesh’s future development.
As part of efforts to help mitigate climate change, Bangladesh has committed to reducing greenhouse gas (GHG) emissions by 5 per cent unconditionally by 2030 from 2011 levels, based on business-as-usual scenarios; and conditionally with support from the international community by 10 per cent by the same date.
However, government action is only part of the solution. Private sector participation is also essential.
One example of a private company that is taking action is PRAN Agro Limited (PAL), one of Bangladesh’s largest conglomerates focusing on agricultural processing and distribution. The company directly employs over 140,000 people, with over 1.5 million people across the globe reliant on it for employment.
In early 2023, PAL decided to boost its sustainability efforts through the deployment of technological solutions, combined with employee and partner upskilling. The plan included investing in new machinery to process greater volumes of its food waste into compost; implementing more energy-efficiency initiatives, so that its manufacturing operations emit less GHG; and increasing the efficiency of its effluent water treatment plant, which treats the company’s wastewater, enabling water-reuse. The company additionally intends to upskill its 100,000 contract farmers on the latest sustainable farming best practices, while encouraging them to use organic compost and solar irrigation through raw material sourcing, best practice sharing, and technical support.
To support its ambitions, PAL chose to raise capital via the bond market, to take advantage of Bangladesh’s maturing capital market and growing investor pool.
Bangladesh’s bond market is dominated by government bonds, with corporate debt relatively underdeveloped. The private bond market is largely limited to commercial banks issuing subordinated debt to meet capital adequacy requirements. Zero-coupon bonds have also been prevalent, deterring potential investors from participating in the corporate bond space.
To help raise the necessary capital, PAL approached Standard Chartered Bangladesh.
To finance PAL’s green and energy-efficient initiatives, we issued the country’s first green bond with a face value of BDT1.5 billion (over USD13.60 million). PAL issued the bond at a 9.00 per cent fixed coupon rate, locking in the interest cost at a time when the financial markets and interest rates were volatile, and market liquidity was tightening.
Due to strong credibility and reputation of the Group, and Standard Chartered Bangladesh’s capabilities, the deal was fully subscribed, even amid difficult market conditions.
Bond issuance incentivises both the issuer and investors – a move that encouraged PAL to seek a debt-raising alternative beyond traditional bank financing, while addressing the attractiveness of the green bond segment.
The deal also broke new ground by presenting the first coupon-bearing bond for a local corporate, which is intricately linked with sustainability initiatives. This novel approach not only diversifies the country’s bond market landscape; it also marks a significant departure from the conventional bond structures in Bangladesh.