Bangladesh - Project FinancingBangladesh - Project Financing
A 2015 Asian Development Bank (ADB) report noted that capital market intermediaries and insurance companies face significant challenges, both in terms of financial health and technical capacity. Access to finance in Bangladesh is tight and a study of firms nationwide suggested that more than 40 percent of firms found access to finance to be a major or severe obstacle to business, a higher percentage than the average for low and lower-income countries, and the highest in the region after Pakistan.
In addition, 69 percent of lending has a maturity of less than three years. A little less than half of the loans have maturity dates of one year. As a result, long-term financing is typically procured through accumulated earnings, and firms tend to under-invest. Companies often resort to financing long-term asset purchases with short-term financing causing asset-liability mismatches and sub-optimal capital structures increasing financial risk. Some companies rollover existing loans, which can be destabilizing to the financial system.
According to the ADB, the Private Equity industry (including venture capital) in Bangladesh is still largely at a nascent stage with only about $150 to $200 million committed capital from Bangladesh focused private equity and venture capital funds. Prior to 2008, the majority of private equity activity had originated in a much more limited way from the three major developmental finance agencies, namely, the International Finance Corporation (IFC) (part of World Bank Group), the UK’s CDC Group (formerly the Commonwealth Development Corporation) and the German Investment and Development Corporation (DEG). There were direct investments in the power and infrastructure sector, the financial sector, and selectively in the textile sector.
More recent examples of project finance include:
The ADB study goes on to explain that, given the relatively new status of private equity investment in Bangladesh, corporations still largely view private equity as simply an alternative source to debt financing rather than as a true partnership providing broader benefits such as improved corporate governance, strategic direction, access to broader ranges of financing, optimization of capital structure, market access and improved valuation of businesses.
The Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the Asian Development Bank and the World Bank. These institutions lend billions of dollars in developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The Commercial Liaison Offices help American businesses learn how to get involved in bank-funded projects, and advocate on behalf of American bidders. Learn more by contacting the Commercial Liaison Offices to the Asian Development Bank and the World Bank.
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
In addition, 69 percent of lending has a maturity of less than three years. A little less than half of the loans have maturity dates of one year. As a result, long-term financing is typically procured through accumulated earnings, and firms tend to under-invest. Companies often resort to financing long-term asset purchases with short-term financing causing asset-liability mismatches and sub-optimal capital structures increasing financial risk. Some companies rollover existing loans, which can be destabilizing to the financial system.
According to the ADB, the Private Equity industry (including venture capital) in Bangladesh is still largely at a nascent stage with only about $150 to $200 million committed capital from Bangladesh focused private equity and venture capital funds. Prior to 2008, the majority of private equity activity had originated in a much more limited way from the three major developmental finance agencies, namely, the International Finance Corporation (IFC) (part of World Bank Group), the UK’s CDC Group (formerly the Commonwealth Development Corporation) and the German Investment and Development Corporation (DEG). There were direct investments in the power and infrastructure sector, the financial sector, and selectively in the textile sector.
More recent examples of project finance include:
- $4.5 billion in loans from the Export-Import (EXIM) Bank of India for financing of various social and infrastructure projects.
- A $2.67 billion agreement with EXIM Bank of China for the Padma rail link project.
- $1,831 million under the Japanese government’s 39th Official Development Assistance (ODA) loan package for implementing six mega projects, including Matarbari Port Development Project, Jamuna Railway Bridge Construction Project, Dhaka Mass Rapid Transit Development Project (Line 5), Dhaka Mass Rapid Transit Development Project (III), Matarbari Ultra Super Critical Coal-Fired Power Project (IV), and Health Services Strengthening Project.
- An $801.5 million loan for developing the Rupsha 800-Megawatt Combined Cycle Power Plant Project in Khulna. The loan was extended by the ADB, the Islamic Development Bank, and Japan Fund for Poverty Reduction.
- The Asian Development Bank (ADB) approved $360 million as loans to Bangladesh so the country can support its ongoing reform in the railway sector.
- The Asian Infrastructure Investment Bank (AIIB) approved a loan of up to $60 million for developing a greenfield 220-megawatt combined cycle power plant in Bhola, Barisal.
- The World Bank approved $55 million in financing to expand the use of renewable energy in rural areas of Bangladesh. The funds will be used to finance the Second Rural Electrification and Renewable Energy Development (RERED II) Project.
The ADB study goes on to explain that, given the relatively new status of private equity investment in Bangladesh, corporations still largely view private equity as simply an alternative source to debt financing rather than as a true partnership providing broader benefits such as improved corporate governance, strategic direction, access to broader ranges of financing, optimization of capital structure, market access and improved valuation of businesses.
Multilateral Development Banks:
The Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the Asian Development Bank and the World Bank. These institutions lend billions of dollars in developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The Commercial Liaison Offices help American businesses learn how to get involved in bank-funded projects, and advocate on behalf of American bidders. Learn more by contacting the Commercial Liaison Offices to the Asian Development Bank and the World Bank.Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.