BANGLADESH: An Introduction to Corporate & Finance
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Corporate & Finance: A.S & Associates
Authored by- A.S & Associates.
Despite the COVID-19 pandemic, Bangladesh’s economy shows remarkable resilience and signs of recovery backed by record-breaking export and remittance inflows. As reported by Export Promotion Bureau, the garments sector saw a surge of 23% export to $15.75 billion in the first four months of the fiscal year compared to that of the same period last year. According to Bangladesh Bank, Bangladesh attained 6.1% GDP growth in FY 21, increased per capita GDP and witnessed declining inflation of 5.56%. The Asian Development Bank forecasts that Bangladesh will enjoy growth of 6.8% in 2022, though the Government has set a growth target of 7.2% for the fiscal year.
The economic rebound is supported by the Government’s timely financial stimulus and relief packages equivalent to BDT1.31 trillion, which is 4.59 per cent of GDP to recover from the COVID-19 related economic losses. Export-oriented industries, CMSMEs, large industry and service sectors, CMS (cottage, micro and small) entrepreneurs, cinema halls, the tourism sector, young entrepreneurs, low-income professionals and farmers benefit from these packages. Foreign entities operating in EPZs/EZs/HTPs may access finance from the concerned stimulus packages. Further, CMS entrepreneurs may avail the Credit Guarantee Scheme (CGS) from a fund of BDT20 billion. In addition, foreign-owned entities (both manufacturing and service providers) are permitted to avail short-term borrowing, with interest payable on the principal amount, from their parent companies/shareholders abroad during the first six years of commercial operation.
Other economic responses include relaxation of foreign exchange regulations for simplifying the process of outward remittance by industrial entrepreneurs and remittance of admissible expenses up to 1 per cent of annual sales as declared in the previous year's income tax return of the concerned remitter-companies or USD100,000, whichever is higher. In addition, the foreign exchange trade facilities pertaining to the period for realisation of export, the period of submission of bill of entry, usage period of back to back LCs opened under the supplier’s/buyer’s credit, settling loan under EDF etc. has been extended until 31st December 2021. On the issue of loan classification, the moratorium on bank loan repayment shall be extended till 31st December 2021 if the client pays 25% of the loan payable, and the rest shall be payable in the next one (1) year.
Moreover, to simplify the business entry regulation for foreign entities, the central bank has asked to simplify the process of bank account opening for foreign investors, particularly through the OSS portal of the investment promotion agencies; and has relaxed regulations, allowing banks to transfer up to 75 per cent of net monthly income of the expatriate employees, by converting taka into equivalent foreign exchange, to their foreign currency (FC) accounts in line with the employers' request.
To facilitate foreign investment in the capital markets of Bangladesh, the Bangladesh Securities & Exchange Commission (BSEC) has permitted the foreign company or investor to be a sponsor of any mutual fund either singly or jointly with any local eligible sponsor. Also, the Government has exempted Value Added Tax (VAT) on various SPV (Special Purpose Vehicle), i.e. sukuk (Islamic security), which would also facilitate investment in the capital markets of Bangladesh.
Generally, the Government has given focused priority to the power sector development in Bangladesh and is committed to making electricity available to all citizens by 2021. For that, the Government has also initiated the implementation of 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 22,000 MW as of FY2021. According to the Power Sector Master Plan, the government plans to increase installed capacity of an additional 22,000 MW of new generation by the end of the Year 2025. To reach this goal, the Government is facilitating establishment of multiple LNG, coal, solar and wind based power plants on BOT or BOO basis. All these big projects are being implemented with involvement of foreign lending.
Moreover, Bangladesh’s pharmaceutical industry is valued at about US$3 billion in 2021. The market is witnessing extraordinary growth that may lead the sector to surpass US$6 billion by 2025 with an increase of 114% from 2019, creating export opportunities of US$450 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.
The ICT sector is the most emerging sector with registered export earnings worth US$1.54 billion and is posited to earn US$5 billion by 2025. IT and IT-enabled services enjoy tax credit until 2024 and may obtain various incentives to register facilities at the Bangladesh Hi-Tech Parks. The National Digital Commerce Policy 2018 has been amended to allow 100 per cent foreign investment in e-commerce entities, dropping the previous condition of a joint venture with local companies. To nurture the growing industry, recently, the Digital Commerce Operations Directives 2021 imposed obligations on e-commerce site operators, rules for associated payment services, rules for promoting products and services, quality assurance, data security, and so on. A Digital Security Agency has been established to maintain, regulate and coordinate digital security issues of national interest and coordinate the suppression of crimes related to digital security.
In the telecom sector, the fifth-generation (5G) network roll-out plan is progressing, and new entrants will be able to obtain 5G technology-neutral spectrum. Further, the Bangladesh Telecommunication Regulatory Commission (“Commission”) will issue two licences for Submarine Cable Systems and Services in Bangladesh under the International Long Distance Telecommunication Policy, 2010, in the backdrop of increased bandwidth consumption. The Commission has also framed regulatory guidelines for ISP, rules for e-waste management and social responsibility fund, and imposed registration and enlistment requirements for A2P SMS Aggregators.
Foreign investment in lucrative sectors such as ICT, renewable energy, shipbuilding, automobile, light engineering, agro-processing, blue economy, tourism and knowledge-based hi-tech industries is expected to grow in the upcoming years.
The Government has also focused on the legislative framework to support the revolution. It has recently introduced the Textile Industry (Registration and One Stop Service Centre) Rules, 2021. This will provide OSS for the whole textile industry. Furthermore, the Automobile Industry Development Policy, 2021 declared a 10-year attractive tax holiday, financial incentives, interest waiver on loans for local manufacturing and assembly of electric vehicles.
Last but not least, the Government is currently working to modernise the insolvency regime for better exit and recovery of distressed business. The legislative framework for allowing movable collateral for better access to credit and tracking commercial disputes through a dedicated bench is under consideration.
High-growth domestic markets, government support, lower valuations of takeover targets and ready access to capital have provided unprecedented opportunities for investors worldwide to explore new markets 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 & multinational businesses expanding their operations in Bangladesh.
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 help.