BANGLADESH: An Introduction to Corporate & Finance

Corporate & Finance:  

Contributed by A.S & Associates.

Despite the prolonged impact of COVID-19, the recovery and growth projection for Bangladesh remained impressive in the last fiscal year and as per Asian Development Bank, Bangladesh is projected to achieve a strong and healthy economic recovery in FY20-21. According to Bangladesh Bureau of Statistics, Bangladesh attained 5.24% GDP growth during the last fiscal year and the government is targeting 8.2% growth for FY2021. The nation’s gross domestic product (GDP) is expected to grow by 6.8%, backed up by strong manufacturing and exports. Per capita income, purchase power and the habit of consumers, and business climate are all improving in the ever expanding market.

In addition to the BDT1.03 trillion (nearly USD12.5 billion) financial stimulus and relief packages declared during the pandemic, to support sustainability of the investment climate, the central bank of Bangladesh has made provision for working capital loans at a reduced rate for large industries, service sector enterprises, export-oriented industries and the CMSME sector. In particular, BDT70 billion (approx. USD825 million) in working capital loans to foreign entrepreneurs/investors of the economic and export processing zones, and hi-tech parks was made available. Also, borrowing from overseas parent company, refinancing schemes for pre-shipment credit, the export development fund, the agricultural sector, low-income professionals, etc. have become available.

Other economic responses include relaxation of foreign exchange regulations for trade transactions thereby extending the period for realization of export, the period of submission of bill of entry, and the usage period of back to back LCs opened under the supplier’s/buyer’s credit. Similarly, export development fund loans have been extended up to 180 days for settling the payment. Furthermore, banks on bona fide grounds may permit repatriation of export bills at a discounted price up to 10% of the FOB value without prior approval of the central bank. On the issue of loan classification, there is a moratorium on bank loan repayment extended till 31st December 2020. In the capital market sector, a circuit breaker was imposed along with temporary relaxation of compliance requirements in the sector.

Though due to COVID-19 foreign direct investment (FDI) declined by 31.79% in the first half of 2020, net FDI inflows have been growing constantly in last couple of years, hitting over USD3.88 billion in 2019. Currently, Bangladesh is looking to simplify the foreign direct investment (FDI) policy as well as the corporate taxation system to attract more companies seeking to move their manufacturing base to alternative countries. The increased need of investment is facilitated by various investor friendly legislations, including the development of infrastructure through public-private partnerships, improved digital connectivity and support provided commercially by multiple commercial banks, financing corporations and NBFIs (as per Bangladesh Bank’s report, 59 scheduled banks, 6 state-owned commercial banks, 33 financial institutions and 9 foreign commercial banks are currently operating in Bangladesh).

The major exports and imports of Bangladesh (about 85%) depend on its ports. To facilitate the process, in addition to the two existing ports, a new deep-sea port has commenced operation. The government has also given highest priority to the power sector development in Bangladesh and is committed to making electricity available to all its citizens by 2021. For that, the government has also initiated implementing reform measures in the power sector, including significant development programs. The utility electricity sector in Bangladesh has one national grid with an installed capacity of more than 21,500 MW as of FY2020. According to the Power Sector Master Plan, the government has planned to increase installed capacity to 30,000 MW by the year 2021. To reach this goal, the government is facilitating the establishment of multiple LNG, coal, solar and wind-based power plants on BOT or BOO basis.

The real estate sector has grown rapidly with a 100 times increase over 30 years in the number of companies involved in the sector. The tourism and hospitality sector has witnessed growth with many international hospitality chains opening their hotels and resorts in Bangladesh.

Bangladesh’s pharmaceutical industry was valued at about USD2.2 billion in 2018, expected to grow at more than 3 times the rate of GDP growth. The market has been witnessing excellent growth in recent years and is expected to surpass USD6 billion by 2025 with an absolute growth of 114% from 2019, with export opportunities of USD450 million by 2025. The majority of this growth will be contributed by local companies as the Bangladeshi pharmaceutical industry currently meets around 98% of the local demand for medicines, which is estimated to be a market of USD3 billion a year.

A number of national incentives and facilities are provided by the government for investors seeking investment opportunities in Bangladesh, including tax holiday, tax exemptions and Special Economic Zones. Additionally, remittance of dividend to non-resident shareholders has been made easy for both specialized zones and non-specialized zones. Furthermore, for catering to the need of foreigners, subject to few restrictions, the government has allowed dividend payable to the foreign shareholders payable in their foreign currency accounts. Shares can be purchased out of the fund held in the foreign currency accounts which shall be treated as foreign investment. Declared dividend may also be used as inward remittance for re-investment for the aforementioned purpose of the purchase of shares. Recently, the central bank has relaxed procedure relating to repatriation of sales proceeds of shares up to foreign current equivalent of BDT10 million without prior permission and independent valuation reports. Bangladesh is also opening up to allow outbound investments from local businesses, creating opportunity for increased global collaboration with overseas entities.

To cater to this improving investment climate and to improve the regulatory regime, process reengineering of G2G and G2B services are ongoing, reflected in the World Bank’s Ease of Doing Business Ranking. Bangladesh has been identified as one of the top 20 reformers in the 2020 report and drastic further improvement is predicted in the coming year. Following enactment of One Stop Service Act 2018, currently Bangladesh Investment Development Authority (BIDA) is providing 22 services through one stop service (OSS) and plans to offer 25 more by this year. Bangladesh Economic Zones Authority (BEZA) offers a total of 32 services under the OSS to investors at home and abroad. The government is also in the process of modernizing key investment-related legislation, including legal framework related to governance of companies, insolvency, dispute resolution and access to credit.

High-growth domestic markets, government support, lower valuations of takeover targets and ready access to capital have provided unprecedented opportunities for investors all across the world to explore a new market in Bangladesh. It is evident that Bangladesh truly has become one of the prime destinations for investors, resulting in the ever increasing presence of international and multinational businesses expanding their operation in Bangladesh. It is predicted that in the coming years the legal practice would be dominated by corporate/project financing, investment deals, M&A and joint venture deals, creating demand for specialized corporate lawyers and law firms with superior understanding of global business trends and an extensive global reach.

A.S & Associates, with its specialist legal professionals and global network is eager to provide diligent services to its global clientele for their every legal need.