In order to facilitate the attraction of foreign Loan investment in the private sector by means of more accessible long-term financing for industrial projects at reduced costs, and to alleviate the strain on foreign currency reserves, the Government of Bangladesh has been granting permission for foreign Loan borrowing, subject to approval by the Scrutiny Committee.
The extant regulations governing the act of procuring funds from foreign Loan sources are hereby delineated as follows:
1. Category and eligibility
Industrial enterprises operating within the private sector, duly incorporated under the provisions of the Companies Act 1994 and duly registered with the Board of Investment (BOI), shall be deemed eligible for the aforementioned benefits and privileges.
(ii) Foreign Loan Borrowings;
The term “foreign Loan borrowings” pertains to the acquisition of commercial loans, encompassing financial loans, bank loans, buyer’s credit, supplier’s credit, and debt issues in the international capital market, among other forms of financial assistance, obtained from institutions or individuals located outside the jurisdiction in question.
(iii) Recognized Lenders;
The borrowers have the ability to procure foreign Loan borrowings from reputable international sources, including but not limited to international banks, international capital markets, and various multilateral financial institutions such as IFC, WB, ADB, CDC, DEG, FMO, OPIC, OPEC Fund, and others that are internationally recognized. (ii) The export credit agencies, (iii) the suppliers of equipment, and (iv) any approval of borrowing from foreign equity holders and their connected interests shall be granted with caution, and only in the form of short-term bridging arrangements.
(iv) All-in-cost ceilings;
The all-in-cost encompasses the rate of interest as well as various annualized fees and expenses, including but not limited to the commitment fee, syndication fee, front-end fee, project appraisal fee, legal fee, and others. It is important to note that these payments are to be made in foreign Loan currency, with the exception of the pre-payment fee and fees payable in Bangladesh Taka.
The interest rate and accompanying charges pertaining to the foreign borrowing must be deemed reasonable when compared to the prevailing lending rates at the international markets for the respective currencies and relevant duration. In accordance with standard practice, it is customary for the interest rate to be determined by referencing the prevailing government treasury bond rate in the relevant currency for the specified duration, along with a reasonably moderate country risk premium.
It is important to note that the inclusion of excessively high risk premium margins may result in heightened scrutiny during the approval process. The client’s stipulation is that the foreign Loan borrowings must be obtained at rates that are competitive in nature, and furthermore, the overall cost incurred should align with the prevailing borrowing costs observed within the international market.
(v) End use;
Foreign Loan borrowing shall be permitted solely for the purpose of investment, specifically for the acquisition of capital goods for new projects, the modernization or expansion of existing production units in the industrial sector, including small and medium enterprises (SMEs), as well as infrastructure and priority sectors as defined in the Industrial Policy periodically announced.
Pursuant to the applicable regulations, it is impermissible to utilize the proceeds from foreign loans solely for the purpose of working capital or investment in the capital market by corporate entities.
It is typically impermissible for banks and financial institutions to engage in the provision of guarantee/stand by letters of credit or letters of comfort in connection with foreign borrowing. The provision of such guarantee, stand by letter of credit, or letter of comfort, etc., is contingent upon adherence to the prevailing prudential regulations set forth by the Bangladesh Bank.
The prepayment of duly authorized foreign borrowings shall be contingent upon the concurrence of the esteemed Bangladesh Bank prior to its submission for the approval of the esteemed BOI Scrutiny Committee.
(viii) The client seeks to engage in the refinancing of their previously approved foreign borrowings. Specifically, they intend to replace their outstanding foreign loan with fresh loans obtained at a lower cost. It is important to note that such refinancing can only be undertaken with the prior approval of the Scrutiny Committee.
In the aforementioned scenario, it is imperative that the maturity of the newly acquired loan is not of a lesser duration than the remaining maturity period of the original loan.
(ix) Payment of arrears (if any):
The payment of any outstanding arrears, whether they be for interest or principal, shall be made in accordance with the approved installment plan as determined by the Scrutiny Committee.
(x) Quality/Commercial viability of the project;
To determine the quality/commercial viability of the project feasibility report alongwith the following financial analysis are required;
a) Internal Rate of Return (IRR) of the project
b) Pay back period
c) Break-even point at what capacity and what period of year
d) Sensitivity analysis in terms of IRR.
e) Debt Service Coverage Ratio (DSCR)
(xi) Indebtedness and creditworthiness of the borrowing company;
To determine the existing indebtedness structure and creditworthiness of the borrowing company as well as its sponsors;
(a) CIB report : CIB report will be required for processing of all proposals. BOI will collect the CIB report from Bangladesh Bank.
(b) Bank certificate: Existing indebtedness structure and creditworthiness of the sponsors concerned duly certified by their bankers will be required for approval process of foreign borrowings. The nominated bank will submit the relevant inquiry forms and undertaking from the Sponsor Directors of the borrowing company to BOI.
(xii) Repayment period: Approval requests should normally be for medium and longer term borrowing and that short term borrowing approvals will be considered only sparingly by way of bridging arrangements.
2. Criteria for foreign Loan borrowing
i. Debt equity ratio;
Debt-equity ratio based on proposed borrowing should be sector wise at a tolerable level. The debt-equity ratio of the borrowing enterprise should reflect sufficient equity stake of the entrepreneurs, with moderate rather than high leveraging and also that while relatively higher debt levels may be warranted for long gestation infrastructure projects, total debt including the proposed borrowing should not breach 70:30 debt equity ratio even for these projects;
ii. Liabilities to the Government;
There should be absolutely no liability either in Taka or in foreign Loan exchange for the Government of Bangladesh and any of its entities or Bangladesh Bank.
iii. Status of implementation & utilization report of approved foreign Loan borrowing;
The borrowing company should submit the status of implementation and utilization report of the approved loan as per prescribed format to the BOI on semi annual basis.
iv) Quality, price and economic life of capital machinery and equipments to be procured;
The capital machinery and equipments to be procured with the proposed borrowing should either be brand new; or in case there are reconditioned should be of such sufficient useful life as required by the Governments Import Policy Order.
v) Validity of the approval;
Approval of the foreign Loan borrowing given by the Scrutiny Committee will be valid upto 6(six) months from the date of approval letter issued by BOI.
vi) Common Terms;
a) The borrowing company shall have to abide by the rules and regulation of Bangladesh Bank in respect of utilization and repayment of the said loan and interest thereon.
b) The borrowing company shall have repayment of the said loan alongwith interest out of their own sources.
c) The borrowing company shall have to bring in the proceeds of the loan through any Authorized Dealer(AD) bank only operating in Bangladesh as
nominated in application for approval of foreign Loan borrowing.
d) The borrowing company shall have to submit the certified/attested copy of the final agreement made between the borrower and non-resident lender of the approved loan to the Director (R&I-I), Board of Investment, Jiban Bima
Tower, 10, Dilkusha CIA, Dhaka, General Manager, Statistics Department, Bangladesh Bank, Head Office, Dhaka and other concerned agencies.
3.Procedure for application:
Applications as per proforma at “Annexure-A” for approval of proposals for borrowing from abroad should be submitted to the Board of Investment (BOI) with the following analysis and supporting documents;
i) Application form (Annexure-A) duly filled in;
ii) MOU signed by both parties. In case of draft agreement the borrowing company shall have to submit a consent letter from the non-resident lender summarizing the major terms and conditions (such as principal amount, rate of interest, repayment period other fees and expenses if any etc);
iii) Copy of BOI project registration (full set);
iv) Board’s resolution relating to proposed borrowing;
v) Repayment period alongwith repayment schedule in details;
vi) Gracelgestation period if any for repayment;
vii) Calculation of all-in-cost with schedule as defined in the application form (Annexure-A);
viii)Feasibility report of the project;
ix) Financial analysis
x) Please provide a comprehensive account of any previous instances of foreign Loan borrowing
, if applicable, in accordance with the enclosed format, Annexure-B.
xi) The historical record of foreign Loan direct investment (FDI) shall be duly examined and scrutinized.
xii) Please provide the credentials of the sponsors.
xiii) Please be advised that we require a certified copy of the Memorandum & Articles of Association of the aforementioned company, accompanied by Schedule-X and Form XII.
xiv) I hereby request the preparation and submission of a certificate of incorporation to the Registrar of Joint Stock Companies & Firms.
xv) With regards to the acquisition of the CIB report from Bangladesh Bank, it is imperative that the pertinent inquiry forms and undertaking be obtained from the Sponsors Director.
xvi) Pursuant to the aforementioned request, we hereby submit the revised rendition of the user’s text in a manner befitting legal parlance: “Please be advised that we have obtained the bank certificate pertaining to the indebtedness and creditworthiness of the borrowing company and its Sponsors from the nominated bank/designated bank, as stipulated.”
xvii) The undersigned, representing the L/C opening bank, hereby provides undertakings and grants consent for the opening of a 4C in favor of the project, specifically in the case of suppliers credit.
The Scrutiny Committee, under the leadership of the Governor of Bangladesh Bank, shall be presented with meticulously substantiated proposals for their ultimate endorsement.