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A project report on

Valuation of
Corporate Bond
market in
Bangladesh
Grou
pMembers
8
Sajeed Mahmud Mahee
(B1506045)
Sabiha Mir (B1506070)
Fairuz Fariha Adila
(B1506130)
3

Corporate
Bond Cont
Corporate
Bond Market
ents
of
Bangladesh
Methodol
IBBL ogy
MUDARAB
A BRAC Bank
PERPETUA 25%
ACI 20%
LConvertible
BOND Subordinat
Zero ed
Corpo
rate
Bond

A corporate bond
is a bond that a
corporation issues
to raise money in
PERPETUAL BOND
A bond with no maturity date.
Not redeemable but pay a steady stream of interest
forever.
Similar to stock dividend payments - as they both offer
some sort of return for an indefinite period of time.

ZERO COUPON BOND


Makes no periodic interest (coupon) payments but
instead is sold at a deep discount from its face
value.
No interest (coupon) is paid to the bond holders.
The difference between issue price (discounted price)
and redeemable price (face value) itself acts as interest
to bond holders.
Corporate
Bond Market
of
Bangladesh
Only 3 bonds listed in Dhaka Stock Exchange:
IBBL MUDARABA PERPETUAL BOND (IBBLPBOND)

BRAC BANK SUBORDINATED 25% CONVERTIBLE BOND


(BRACSCBOND)

ACI 20% CONVERTIBLE ZERO COUPON BOND


(ACIZCBOND)
mary sources of Data:
We have collected
the primary data
from the following
source:
Official records
Secondary Sources Data:
We have collected the
secondary data from
the following sources:
Annual report of METHEDO
Islami Bank Bangladesh
LOGY
IBBL MUDARABA
PERPETUAL BOND
BASIC INFORMATION
Listed in Stock Exchange: 2007
Market Category: A
Face Value: 1000.0
Market Lot: 5
Total no. of Securities: 3000000
Paid-up Capital: 3000 millions BDT
(The bank issued 3 million bonds of Tk. 1,000 each
worth Tk. 3000 million)
Credit Rating: A+by Credit RatingInformation and
Services Limited (CRISL)
Trustee: Investment Corporation of Bangladesh (ICB)
FEATURES

This bond is issued toraise the fund to


meet the capitaladequacy ratio of the
Islami Bank Bangladesh Ltd.
It has no redemption facility & pre-
determined interest rates.
It doesn't have any maturity period.
The Minimum subscription amount is Tk.
5,000 or multiple of Tk.5,000.
100% public share, which means
Value of the
Bond
The value of bond is determined by using the
following formula
Bond Value = Interest / Cost of Debt
For the purpose of valuing IBBL MPB, we have found the,
Face Value = 1000 taka
Interest Rate, i =13.5%
Interest= 1000*13.5%=135 taka
Tax Bracket= 30%
Cost of debt, Kd= i* (1-T) = 0.135(1-0.30) = 9.45%

Value of the bond = Interest / kd =


DSE has introduced an auto correction
pricing strategy which continuously update
the market price with supply and demand. In
addition to that, market sometimes do not
get the sensitive information. Also the Tax
Bracket mentioned in Bangladesh Bank
directory is not operated in real life scenario.
Therefore, the variance arises in current
trading price and theoretical price.
BRAC Bank 25% Subordinated
Convertible Bonds
BASIC INFORMATION
Listed in Stock Exchange: 2011
Market Category: A
Face Value: 1000.0
Market Lot: 5
Total no. of Securities: 3000000
Paid-up Capital: 3000 millions BDT
(The bank issued 3 million bonds of Tk. 1,000
each worth Tk. 3000 million)
Credit Rating: rated as A+ by Credit
RatingInformation and Services Ltd (CRISL)
FEATURES
This bond is issued toraisecapital
andundertake normal commercial banking
activitiesby BRAC Bank Ltd.
Upon maturity, this bond can be redeemed as
the entire face value in cash or can be
redeemed as 75% cash and remaining 25%
converted in the common stock of BRAC Bank
Ltd.
Maturity period of the bond is 7 years (84
months).
The interest (coupon) rate is set at 12.50
percent during the entire maturity period,
which means investor will annually gain 125 Tk.
Value of the
Bond
The value of bond is determined by using the following
formula
Bond Value = Interest / Cost of Debt
For the purpose of valuing BRAC Bank 25%
Subordinated Convertible Bonds, we have found the,
Face Value = 1000 taka
Market Price = 1054 taka
Interest Rate, i= 11.5%
Interest= 1000*11.5%=115 taka
Tax Bracket= 40%
Cost of debt/ discount rate, kd = 9.5%

Now the value of bond will be:


The commission does not take any
responsibility for the financial soundness
of the issuer , any of its projects or the
issue price of its securities or for the
correctness of any of The statements
made or opinion expressed with regard
to them. Such responsibility lies with the
issuer, its directors, chief executive
officer/chief financial officer, issue manager,
underwriter and/or auditor. Also the lack of
information are the reason of the variation
with the current market price.
ACI 20% Convertible Zero
Coupon Bonds
BASIC INFORMATION
Listed in Stock Exchange: 2010
Market Category: A
Face Value: 1000.0
Market Lot: 3
Total no. of Securities: 801510
Paid-up Capital: 802 millions BDT
(The company issued 801510 bonds of Tk. 1,000 each
worth 802 millions TK)
Credit Rating: rated as Aby Credit RatingInformation
and Services Limited (CRISL)
Trustee: Industrial & Infrastructure Development Finance
Co. Ltd (IIDFC)
FEATURES
This bond is issued as a source of alternative funding
arrangement ofAdvanced Chemical Industries Limited
(ACI).
Zero coupon, so it doesn't give any periodic interest to
the bond holders.
Upon maturity, this bond can be redeemed as the
entire face value in cash or can be redeemed as 80%
cash and remaining 20% converted in the common
stock of ACI.
Maturity periods ranging from 1 to 3 years
3bonds will be bundled together to make a lot having 3
different maturity periods ranging from 1 to 3 years;
which means at the end of each year, one bond from a
lot will mature.
Value of the
Bond
The value of bond is determined by using the following
formula
ZERO COUPON BOND Value = Market Price / (1+Kd)n
For the purpose of valuing 20% Convertible Zero
Coupon Bonds, we have found the,

Face Value = 5000 taka


Discount rate= 10.5%
Market Price = 3743 taka
Tax Bracket= 25%
Cost of debt= 10.5%(1-25%)= 7.88%
Value of the bond = Market Price /
Convertibility 20% of the redemption value
can be converted into the ordinary shares of
ACI Ltd. at each maturity date. So the
market price remains high of the bond than
the actual value.