Project Finance 2023 Comparisons

Sponsors

In Bangladesh, the promoters of project companies generally act as sponsors. In most cases, the promoters also act as shareholders of the project company. Such sponsors may include private shareholders and their parents/affiliates, public shareholders or even the government itself where a state-owned enterprise is a sole or joint shareholder of the project company.

For listed companies, the shareholders that were shareholders before the initial public offering are considered as sponsors for listed companies, and at all times need to maintain a 30% shareholding in the company along with the directors of the company.

Lenders

In Bangladesh, the following institutions generally participate as lenders in the project financing ecosystem.

• State-owned commercial banks – there are six state-owned banks operating in Bangladesh, which are authorised to perform project financing in local currency.
• Specialised banks – there are also three state-owned banks that have been set up to serve specific sectors and areas.

• Private commercial banks – there are 43 local licensed banks operating in Bangladesh, along with nine licensed branches of foreign banks. Private commercial banks also have offshore banking units, which can provide foreign currency loans.
• Non-bank financial institutions – there are 35 non-banking financial institutions operating in Bangladesh.
• Foreign multilateral development banks (MDBs)/finance institutions are allowed to finance local projects.
• Foreign export-import banks generally act in import and export financings.
• Export credit agencies do not take part in the financing directly, but issue insurance to reduce the financing cost against a small insurance fee.

• Foreign commercial banks/financial institutions are allowed to finance local projects.
• Government funds – the government on its own maintains certain funds to finance public-private partnership (PPP) projects, such as Viability Gap Financing, PPTAF and some funds in collaboration with MDBs, such as Investment Promotion & Financing Facility, Export Develop Fund, etc, channelled through the banks stated above.
• Specialised autonomous public enterprises such as Infrastructure Development Company Ltd. and Bangladesh Infrastructure Finance Fund Limited maintain funds under grant from the government, and MDBs also participate in such projects.

Given that project development in Bangladesh still makes extensive used of foreign capital investment, for large/infrastructure projects the local banks and institutions generally act under syndication to raise adequate funds or provide bridge loans until full financial closing is achieved under the facilities extended by foreign lenders.

The concept of the PPP was first introduced in Bangladesh through the Private Sector Power Generation Policy in 1994, which allowed concessions for the first time in the power and energy sector. For procurement, the Public Procurement Act 2006 read with the Public Procurement Rules 2008 was adopted as the procedural legislation, but the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act 2010 was later introduced for this sector, to facilitate direct procurement.

In 2010, PPP projects were also allowed for other infrastructure sectors under the Policy and Strategy for Public-Private Partnerships (PPP) 2010, which was later replaced by the PPP Act, 2015. Other than for the power sector (as stated above), the PPP Act, 2015 is the current statute and the PPP Authority established therein is the supreme authority to identify, perform feasibility, develop and oversee the bidding, implementation and monitoring of PPP projects in Bangladesh. The following procurement procedures are currently available in the procurement of private partners in such projects:

• the Procurement Guideline for PPP Projects, 2018 outlines the detailed procedure for the identification, assessment, development and implementation of PPP projects, including mandatory competitive bidding requirements;
• the Guidelines for Unsolicited Proposals, 2018 outline the treatment of unsolicited proposals and bonus marks allocated to the unsolicited bidder for the development of the PPP project adopting the mandatory bidding procedure, as stated above; and
• the Policy for Implementing PPP Projects through Government to Government (G2G) Partnership, 2017 allows PPP projects to be developed as per the terms of the framework agreement entered into among governments, where the participant government can nominate the selected partner overriding the mandatory bidding process as stated above.

In the development of a PPP project, the implementing authority sends its proposal through the line ministry to the PPP Authority, along with a feasibility report. The PPP Authority runs its own assessment following the PPP Screening Manual and, upon being satisfied, initiates the procurement of a private partner after approval is granted by the Cabinet Committee of Economic Affairs (CCEA). After the final selection of a private partner, a final approval is required from the CCEA.

All types of project finance structures are available in Bangladesh – ie, recourse, semi-recourse and no recourse. Guarantees by principal or affiliates are seldom drafted as prerequisites in the finance documents for private sector projects, but for projects involving state-owned enterprises as sponsors, the government may only issue sovereign guarantees to the extent of the shareholding ratio of such state-owned enterprise in the project vehicle. Both conventional interest-bearing project financing and Sharia-based facilities such as buy-leaseback/murabaha are allowed. Most of the common law securities are allowed for issuance in favour of the lenders, as described in detail below. Asia Pacific Loan Market Association templates are frequently used as base finance documents in project financing in Bangladesh.

In project finance in Bangladesh, major emphasis is required to be placed on ascertaining the best margin/interest achievable, the revenue sources of the project, revenue certainty and other risk exposures, such as foreign exchange volatility, force majeure, political events, changes in law and tax escalation. The maximum debt to equity ratio currently allowed in general is 70:30, with the exception of 80:20 being allowed in priority sectors such as power, energy, etc. This ratio is further reduced to 50:50 if the lender is a local bank. Tax exemptions on project revenue, lender profit and security perfection costs are also important aspects to look at.

PPP projects may also be eligible for viability gap financing as per the Rules for VGF for PPP Projects 2018 to facilitate financial support to PPP projects that are socially and economically beneficial but not viable financially. In the case of government support through the PPP Technical Assistance Fund (PPTAF) for the development of the project under Rules for PPTAF, 2018, such contribution is generally made reimbursable by the awardee under the concession terms.

Direct agreements between the contracting authority (off-taker) and lenders are common financing arrangements in PPP projects for corresponding step-in and substitution rights, but other than PPP projects the government is reluctant to enter into such direct agreements for other projects such as independent power plants (IPPs) unless they are part of a large infrastructure development.

Given that the condition of physical infrastructure in Bangladesh is still under-developed, the development of such infrastructure is a priority for the government of Bangladesh. Accordingly, the development of power and energy infrastructure such as liquefied natural gas (LNG) terminals, independent power plants (especially renewables), liquefied petroleum gas (LPG) plants and transmission infrastructure is expected to rise in the coming months. In addition, a number of PPP projects relating to toll roads, ports/container terminals, metro-rail, economic zones and multimodal hubs are under development or in the process of development.

In the private sector, agri-business, fast moving consumer goods (FMCG) manufacturing such as edibles, snacks and pharmaceuticals, chemical plants and other manufacturing industries are anticipated to form the major portion of total project finance requirements.

The following assets are typically available as collateral to lenders:

• immovable property such as land and buildings;
• movable property such as plant, machineries, equipment, vehicles, inventories, etc;
• book debts, fixed deposits and bank accounts;
• actionable claims, contractual rights and receivables;
• securities such as company shares, stocks, debentures and bonds; and
• intellectual property rights.

The following types of securities are typically available to lenders.

• Mortgages over immovable properties are created under Chapter IV of the Transfer of Property Act 1882 by way of executing a mortgage deed along with an Irrevocable General Power of Attorney (IGPOA). Perfection requires:
1. the attachment of stamp duty (typically BDT5,000 for the first BDT10 million and an additional duty at the rate of 0.1% for the remainder, but not exceeding BDT50 million);
2. registration with the Office of the Sub-Registrar within 90 days of execution; and
3. for a company mortgagor, perfection as a charge with the Registrar of Joint Stock Companies and Firms (RJSCF) within 21 days by paying the applicable fees.
• Hypothecation over movable assets, including bank accounts, is created under Section 159 of the Companies Act, 1994 by way of executing a deed of hypothecation (can be through a fixed or floating charge, or both), along with an IGPOA. For a fixed charge, the content is fixed but for a floating charge the content may vary until crystallisation. Perfection requires registration with RJSCF within 21 days by paying the applicable fees.
• Assignment of contractual rights is created under Section 8 of the Transfer of Property Act 1882 by way of executing an Assignment Agreement with an IGPOA Contract to assign contractual rights, concessions, insurance proceeds, intellectual property rights, etc. Perfection requires:
1. acknowledgement from the grantor of the original rights of such assignment as security; and
2. the attachment of stamp duty (typically BDT5,000 for the first BDT10 million and an additional duty at the rate of 0.1% for the remainder, but not exceeding BDT50 million).
• A pledge of movables such as company shares, stocks, debentures and bonds is created under Section 172 of the Contract Act 1872 by way of executing a pledge agreement along with an IGPOA. Perfection requires:
1. the deposit of the original certificates and other documents of title; and
2. the attachment of stamp duty (typically 0.5% of the secured value except for marketable securities such as shares/bonds/debentures, etc). In addition, for dematerialised shares and debentures, the executed pledge form is perfected with Central Depository Bangladesh Limited (CDBL) or otherwise executed transfer instruments are deposited to lenders.
• A lien is a kind of pledge and is created as per Sections 170–171 of the Contract Act 1872 by way of executing a lien agreement along with an IGPOA, or as per Section 172 by way of executing a pledge agreement along with an IGPOA. In the absence of a contract to the contrary, bankers, factors, wharfingers, lawyers and policy brokers may retain any goods bailed to them, as a security for a general balance of account.

The central bank of Bangladesh allows local banks to act as security agents for cross-border lenders to hold the above securities on behalf of the lenders without any additional approval.

Section 159(f) of the Companies Act, 1994 allows a universal security interest in form of a floating charge on the undertaking or over all present and future properties of a company.

As referred to in 2.1 Assets Available as Collateral to Lenders, in addition to the stamp duties incorporated therein, a mortgage over immovable property is required to be registered with the Office of the Sub-Registrar within 90 days of execution, with a registration fee equal to 0.1% of the secured value. Mortgages and hypothecation, as referred to in 2.1 Assets Available as Collateral to Lenders, need perfection with RJSCF within 21 days of execution and the corresponding registration fee is calculated as follows:

• for a secured amount up to BDT500,000, the registration fee is BDT250;
• for each additional BDT500,000 or part thereof, up to BDT5 million, the registration fee is BDT200; and
• for each additional BDT500,000 or part thereof after the first BDT5 million, the registration fee is BDT100.

Each item of collateral does not need to be identified individually in the security document to grant a valid security interest in that item, as long as the collateral does not contain any immovable property. A general description of the movable assets is sufficient, such as the nature, character and/or location that are essential for identification of the assets. For immovable properties, the exact location and land markings are required to grant a valid security interest.

A guarantee is a very common form of security rendered in favour of the lenders by third parties. Except for guarantees or mortgages granted by a scheduled bank or financial institution, there is no prohibition on any third party issuing such mortgage or guarantee in favour of a lender. For such guarantee or mortgage by a scheduled bank or financial institution, a separate approval is required to be obtained from the central bank.

As per the Companies Act, 1994, a company can neither give loans nor issue guarantees or securities in favour of a lender for a loan being availed by:

• its director;
• any firm in which any of its directors is a partner or any private company of which any of its directors is a director or member; or
• any public company whose managing agent, manager or director is under the control of any of its directors.

The above restriction does not apply to a banking company or a private company that is not a subsidiary of a public company, or if such company as a holding company makes the loan or provides the guarantee or security to its subsidiary; nor does it apply if the loan is sanctioned by the board of directors of the company and approved by its general meeting, and the balance sheet makes specific mention of the loan, guarantee or security, as the case may be. However, the total amount of the loan cannot exceed 50% of the paid-up value of the shares held by such director in their own name.

Please see 4.2 Restrictions on the Granting of Security or Guarantees to Foreign Lenders regarding the required approvals to grant securities/guarantees in favour of foreign lenders.

In Bangladesh there is no central registry where all information on liens over the assets of an entity is available. However, the following searches give the lenders a partial idea about such liens, leaving only a few securities for which such information is not readily available:

• the Regional Office of the Sub-Registrar and/or the Assistant Commissioner of land for mortgages over immovable properties;
• RJSCF for all mortgage or charges created over the assets of a company;
• CDBL for any lien created over dematerialised shares of a company; and
• the statutory mortgage register maintained by the company.

For a mortgage over immovable property, a redemption/release deed and revocation of IGPOA, if applicable, need to be executed and recorded with the Office of the Sub-Registrar with which it was earlier perfected, within 90 days of execution.

For a mortgage over immovable property or hypothecation over the movable assets of a company, a deed of release needs to be executed along with the release instrument (Form-XIX) executed and recorded with RJSCF. Revocation of IGPOA in connection with the hypothecation is also needed.

For pledges of shares, a pledge release agreement is required to be executed, and the corresponding share certificates and share transfer instruments are returned to the pledgor. For dematerialised shares, release instruments are required to be recorded with CDBL.

For agreements for the assignment of contractual rights, a release deed is required to be executed, with due notice given to the grantor of such contractual rights. For all other contractual securities, such as securities over intellectual property rights, a release deed is required to be executed, with due recordation with the corresponding regulator, as applicable.

A secured lender may enforce its collateral upon the occurrence of any event of default under the facility agreement, as contractually agreed. The enforcement of loans, guarantees and typical security interests can be achieved by the following means. The enforcement may be conducted directly by a security agent as agent for the lenders.

Self-help Remedies

Whereas the Transfer of Properties Act, 1882 allows self-help remedies for mortgages over immovable properties if so agreed in the mortgage deed, in reality an IGPOA is obtained from the mortgagor duly perfected as stated above, to secure such a resolution. Similarly, corresponding IGPOAs are obtained to secure all other securities over movable properties, including the assignment of contractual rights. For a pledge over shares, undated transfer instruments are obtained along with an IGPOA to perform the transfer of shares as a self-help remedy.

As an additional statutory self-help remedy, under the Money Loan Court Act, 2003 any bank constituted under any law, any licensed financial institution and MDBs specifically named therein are required to settle their debts fully or partially by way of auctioning any securities granted to them to secure the loan before pursuing the outstanding balance in the Money Loan Court.

Judicial Remedies

The following judicial remedies are available.

• Money suit: to recover a debt, a money suit may be filed against the guarantor or debtor in a district court or in the Money Loan Court (this option is only available to banks, financial institutions and MDBs). Once the money judgment is available, it must be filed in the same court of first instance for enforcement along with a list of the debtor's assets for foreclosure.
• Creditors' winding-up action: alternatively, a creditors' winding-up action may be brought against the debtor (borrower/guarantor) in the original company jurisdiction of the High Court of Bangladesh under Section 245 of the Companies Act, 1994 read with Section 241(v) of the same act. If the debtor is unable to pay its debt, the company is ordered to be liquidated and the proceeds are distributed among the creditors.
• Arbitration: another option is arbitration if the facility/guarantee agreement expressly allows it. Once the arbitral award is available, it is required to be filed with the district court for enforcement. Foreign arbitral awards are required to be filed in Dhaka District Judges Court for enforcement. Unless otherwise waived by the parties under Section 7A of the Arbitration Act, 2001, the High Court may grant an interim injunction to protect the rights of any party in an injunction to preserve the subject matter (it has also been extended to international/foreign arbitrations by case law).
• Foreclosure of collateral: a summary procedure may be instituted for foreclosure under the Code of Civil Procedure, 1908. Alternatively, banks, financial institutions and allowed MDBs can apply to the Money Loan Court for the foreclosure of collateral if it is not possible to perform self-help remedies in auctioning the collateral.

The Bangladesh courts uphold a choice of foreign law or tribunal agreed among the parties while entering into the contract. It was decided in PLD 1964 Dacca 637 that when the intention of the contractual parties as to the law governing the contract is expressed in words, this expressed intention determines the proper law of the contract and in general overrides every other presumption.

Foreign Judgments

According to Section 44A of the Civil Procedure Code, 1908, only foreign judgments passed by the courts of another reciprocating territory are enforceable in Bangladesh. India is currently the only such reciprocating territory, as evidenced by gazette notification. Formal requirements for the enforcement of foreign judgments are as follows:

• the foreign judgment must be conclusive and given on the merits of the case;
• the judgment must have been pronounced by a court of competent jurisdiction;
• the judgment must be capable of enforcement in the original court;
• if they were the defendant in the original proceedings, the judgment debtor must have been duly served with the process of the original court;
• the judgment may not have been obtained by fraud;
• the judgment is not contrary to public policy or the laws of Bangladesh where applicable;
• the judgment may not sustain a claim founded on a breach of a law in force in Bangladesh; and
• there is no pending or possible appeal against the judgment of the original court.

Foreign judgments from a non-reciprocating territory are required to be filed as fresh money suits, where the court shall examine the merit of the case again but the judgment from the foreign court shall be considered as prima facie evidence of indebtedness, as per the Bangladesh Evidence Act. Once a decree is pronounced, it needs to be filed for enforcement in the same court of first instance, and thus it entails a very long process.

Foreign Arbitral Awards

Bangladesh is a party to the New York Convention on the Enforcement of Arbitral Awards. Accordingly, as per the Bangladesh Arbitration Act, 2001, foreign arbitral awards are enforceable in Bangladesh. Section 7A of the Arbitration Act, 2001 enables the parties to invoke ad interim injunction to preserve any subject matter of dispute. This was earlier accorded to domestic arbitrations only but later extended to include foreign arbitral awards by an order from the Supreme Court. While enforcing a foreign arbitral award, the court takes into account whether the party against whom it is invoked furnishes proof to the court that:

• a party to the arbitration agreement was under some incapacity;
• the arbitration agreement is not valid under the law to which the parties have subjected it;
• the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present their case due to some reasonable cause;
• the foreign arbitral award concerned contains decisions on matters that are beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced;
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, in the absence of such agreement, was not in accordance with the law of the country where the arbitration took place; or
• the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Enforcement of the award may also be denied if the District Court in which recognition or execution of the foreign arbitral award is sought finds that:

• the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force in Bangladesh; or
• the recognition and execution of the foreign arbitral award is in conflict with the public policy of Bangladesh.

Parties are free to choose the arbitral tribunal and underlying rules. It should be noted that an arbitral award from an international commercial arbitration held offshore cannot be set aside.

Subject to the pre-approval of the foreign borrowing along with the necessary provisions of underlying securities, as applicable, there are no impediments to a foreign lender’s ability to enforce its rights under a loan or security agreement. However, lenders need to keep in mind that the court process is very slow in Bangladesh.

However, for certain matters – such as perfection and enforcement of mortgages over immovable properties and corresponding IGPOAs – a local security agent is appointed to smooth such process, as the regional Sub Registrar or Land Office occasionally mixes this up with the prohibition of ownership of immovable property by non-residents in Bangladesh. The central bank has authorised local scheduled banks to be appointed as security agents for lenders without any additional approval requirements.

Foreign lenders are not restricted in any way from granting loans in favour of residents of Bangladesh. However, the borrower in such cases is required to fulfil certain conditions before availing such loan under the Foreign Exchange Act, 1947, as follows.

• Private sector industrial enterprises in Bangladesh need to secure approval for borrowing from abroad in the form of buyer's/supplier's credits or the issuance of securities in capital markets from the governmental authority nominated by the central bank of Bangladesh, as follows (this covers loans from commercial lenders, MDBs, institutional lenders and shareholder corporations/individuals):

1. for private industries located inside Bangladesh Economic Zones, the processing governmental authority is the Bangladesh Economic Zones Authority (BEZA);

1. for private industries located inside Bangladesh Export Processing Zones, the processing governmental authority is the Export Processing Zones Authority (BEPZA);

1. for private industries located inside Bangladesh Hi-Tech Parks, the processing governmental authority is the Bangladesh Hi-Tech Parks Authority (Hi Tech Park); and
2. for all other private sector entities, the approving and processing governmental authority is the Bangladesh Investment Development Authority (BIDA).
• For public sector entities, approval is required from the Standing Committee on Non-Concessional Loan (SCNCL), as long as the loan is a non-concessional loan (ie, contains a grant element below 25%).
• All other entities that do not come within the scope of industrial enterprises are required to apply to the central bank directly through their bank.
• Fully/partially foreign-owned industrial enterprises and service industries (but not trading entities) may avail working capital loans from shareholders with a maximum tenure of six years and a maximum margin/interest rate of 3%, subject to post facto reporting through their authorised dealer banks to the Foreign Exchange Policy Department (FEPD) of Bangladesh Bank within one week of availing the loan.

The Foreign Exchange Regulation Act, 1947 prohibits the granting of securities or guarantees in favour of non-residents, unless approval for such has been secured from the central bank. However, foreign lenders may be granted such securities under general or specific approval from the central bank. No other licence or qualification is required to be a beneficiary of such securities, nor is the establishment of a presence in Bangladesh.

For cross-border lending, only a pledge of securities and hypothecation in favour of the lender have automatic approval, as long as such foreign borrowing has already obtained relevant approvals as per the Guideline to Foreign Exchange Transactions issued under the Foreign Exchange Regulation Act, 1947. Third party guarantees (except by banks or financial institutions) are also allowed, as approved by the central bank in general under a circular. For all other securities, approval is required to be obtained from the relevant foreign exchange regulator.

Conventionally, all security requirements are incorporated in the application for approval of foreign borrowing and these are generally considered and approved along with the foreign borrowing approval, except for a bank guarantee, which still needs separate approval from the central bank and is rarely approved for issuance. It is not mandatory, but lenders typically appoint a local security agent to hold the securities in their name for easier perfection and better enforceability. Such appointment of security agent is allowed without any further approval from the central bank (see 3.4 A Foreign Lender's Ability to Enforce).

The Foreign Private Investment (Promotion and Protection) Act, 1980 grants protection to foreign investments in Bangladesh, including fair and equitable treatment and protection against discrimination, unilateral changes to adversely alter the operating conditions and unlawful expropriation. As per the Bangladesh Industrial Policy, foreign and domestic private entities can establish, own, operate and dispose of interests in most types of business enterprises. However, the following four sectors are reserved for government investment:

• arms and ammunition, and other defence equipment and machinery;
• forest plantation and mechanised extraction within the bounds of reserved forests;
• the production of nuclear energy; and
• security printing.

In addition, there are 17 controlled sectors that require prior clearance/permission from the respective line ministries/authorities (by way of public procurement or licensing or public private partnership):

• fishing in the deep sea;
• bank/financial institutions in the private sector;
• insurance companies in the private sector;
• the generation, supply and distribution of power in the private sector;
• the exploration, extraction and supply of natural gas/oil;
• the exploration, extraction and supply of coal;
• the exploration, extraction and supply of other mineral resources;
• large-scale infrastructure projects (eg, flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station);
• crude oil refinery (recycling/refining of lube oil used as fuel);
• medium and large industries using natural gas/condensate and other minerals as raw material;
• telecommunications service (mobile/cellular and land phone);
• satellite channels;
• cargo/passenger aviation;
• sea-bound ship transport;
• seaports/deep seaports;
• VOIP/IP telephone; and
• industries using heavy minerals accumulated from sea beaches.

While discrimination against foreign investors is not widespread, the government frequently promotes local industries, and some discriminatory policies and regulations exist. For example, the government requires majority or more than majority local ownership of new shipping, logistics, freight forwarding, banking and insurance companies, etc, albeit with exemptions for existing foreign-owned firms.

There are currently no additional filing, screening or clearance requirements for foreign investments in any sector in Bangladesh. Prior permission of the Bangladesh Bank is not required for the incorporation of a company or the issue of shares in favour of non-residents against foreign investment (ie, any foreign currency coming into Bangladesh in consideration of the issue of shares to non-residents) in Bangladesh, subject to certain conditions, as follows.

• Registration with the Office of The Registrar of Joint Stock Companies & Firms (as part of the incorporation of the company) or, in the case of a listed company, obtaining permission from the Bangladesh Securities and Exchange Commission (BSEC).
• Shares may be issued in exchange for freely convertible foreign exchange brought in from abroad through the banking channel or in exchange for imported capital machinery. Payment for such imported machinery must be made from abroad. However, foreign exchange brought in must be converted into BDT before the issuance of shares. In the issuance of shares in exchange for capital machinery, the machinery must first be cleared by the Bangladesh Customs.
• The Foreign Exchange Investment Department, Bangladesh Bank, Head Office must be informed through the authorised dealer concerned about the issue of shares to non-residents pursuant to the above, within 14 days of such issue, along with relevant documents.

Permission from Bangladesh Bank is not required to set up a foreign-owned local company if the shareholders use their own funds. An entity may be partially or wholly owned by foreign investors without any domiciliation requirements being imposed on its directors. To avail the facilities and institutional support provided by the government (ie, support in terms of logistical services, investment facilitation services such as facilitating utility connections, approving foreign loans, facilitating import of capital machinery, registration/approval of foreign, joint venture and local project, approving work permits, etc), private sector industrial enterprises are required to be registered with investment facilitating authorities such as BIDA. For investment in Export Processing Zones and Economic Zones, BEPZA and BEZA are the relevant authorities.

The authorised dealers (banks) are allowed to remit dividends to non-resident shareholders upon receipt of an application in the prescribed form along with supporting documents (attested copy of the certificate of incorporation, audited balance sheet and profit and loss account, certificate from the auditor of the company to the effect that the taxes payable by the non-resident shareholder on account of the dividend earned have been deducted, etc).

For a sale of shares involving non-resident shareholders, a fair valuation is required and a post-closing notification to the central bank is essential. For foreign sellers, up to BDT10 million in sale proceeds may be repatriated without valuation and up to BDT100 million in sale proceeds may be repatriated by the bank, based on valuation by a chartered accountant/merchant bank without central bank approval. Prior approval must be sought from the central bank for repatriable sale proceeds over BDT100 million. In other cases involving a transfer from a local shareholder to a foreign buyer, or a transfer from a foreign seller to a foreign buyer, a simple post-closing notification to the central bank along with the valuation report shall suffice.

The fair market valuation must be conducted by an accredited chartered accountant or a licensed merchant bank, following an approximate mix of the asset-based, market value and income approaches. However, such valuation is exempted to repatriate the sale proceeds if the fair value of the shares is determined on the basis of the net asset value (NAV) approach, based on the latest audited financial statements together with tax returns without any consideration in tangible assets. Under such circumstances, an undertaking is issued by the target specifying that the impairment of assets has been adjusted in arriving at the NAV, and the remitting bank is satisfied that there is no abnormal growth in total assets in any of the last three years, particularly in the last year.

Liquidation of the project company can be a voluntary process or a court-administered process. In a simple case, voluntary liquidation is the most suitable process, where members resolve to voluntarily liquidate the project company, followed by the directors issuing a solvency certificate. Thereafter, a liquidator is appointed to carry out primary audits to ascertain indebtedness and creditors, settle all debts, publish public notification and distribute residual proceeds (if any) among shareholders.

For the repayment of principal, margin/interest or other fees against foreign loans or debt securities, the initial approval for such borrowing or offering of debt securities suffices, and repatriation is freely performed under the terms and conditions specified in such approval letters.

Whereas the foreign exchange regulations have accorded general approval for onshore foreign exchange accounts for debt servicing purposes, no permission has been granted in general for offshore foreign currency accounts, so prior approval from Bangladesh is required to open and operate such accounts.

However, other than large infrastructure, PPP or IPP projects, such approval for offshore foreign currency accounts is not generally granted.

Financing or project agreements are required to comply with the following local formalities in order to be valid or enforceable:

• approval for the foreign borrowing from the relevant authorities, such as BIDA (see 4.1 Restrictions on Foreign Lenders Granting Loans);
• finalised and executed facility and other finance agreements are required to be lodged with authorities such as BIDA and, in certain cases, with the contracting authority if so stipulated in the concession agreement;
• the security agreements are required to be perfected with the relevant authorities, as stated in 2.1 Assets Available as Collateral to Lenders; and
• bank account agreements and executed facility agreements are required to be filed with the central bank for approval for opening and maintaining onshore foreign exchange accounts for the purposes of debt servicing, maintaining debt reserve, etc.

In addition, in each foreign borrowing matter a corresponding bank is nominated, which oversees the disbursement or repayment of such foreign loan and needs to file periodic reports with the corresponding authority, such as BIDA, FEPD and the Statistics Department of the central bank of Bangladesh.

Foreign ownership of land is not allowed in Bangladesh. However, a partially or fully foreign-owned company can own land in Bangladesh.

On the contrary, there is no specific restriction against a foreign entity undertaking the business of ownership or operation of natural resources but certain sectors (mining, telecommunications, etc) come within the purview of controlled sectors, as outlined in 4.3 Foreign Investment Regime, so licences are needed to operate such businesses in Bangladesh.

The agent and trust concepts are recognised in Bangladesh under the Trusts Act 1882. Trust arrangements are frequently used to perform the securitisation of assets and to hold local securities in the name of security trustees for the benefit of a pool of beneficiaries.

An alternative to a trust arrangement is the agency arrangement under the Contract Act 1872. Similar to trusts, local agents are also used to hold local securities for a number of lenders acting individually or under syndication. Local banks are allowed to act as security agents to hold securities on behalf of foreign lenders without any further approval from the central bank.

Unless otherwise agreed among the parties, the priority of computing security interests in Bangladesh is determined by the date of their creation, subject to due perfection. As per Sections 78 and 79 of Transfer of Property Act, 1882, ranking shall be based on the date of mortgage, and prior mortgagees shall always have first right to be paid the secured amount. Within a pool of secured creditors, contractual security sharing arrangements can be established to facilitate pari passu sharing or with intended subordination. Contractual subordination provisions survive the insolvency of a borrower incorporated in Bangladesh, as long as such arrangement does not infringe the preferential ranking right of any other creditor.

A private limited liability company with a share capital is the most common form of project vehicle in Bangladesh. PPP projects and IPP project vehicles are statutorily required to be formed as limited liability companies incorporated in Bangladesh.

However, branches of foreign entities are also used as project vehicles to conduct such business in some specific sectors, such as hydrocarbon exploration and mining.

The compromise and reorganisation of companies are allowed under Section 228 of the Companies Act, 1994. Such a scheme is required to be agreed by 75% of 75% in value of creditors and then approved by the Company Original Jurisdiction of the High Court in order to be binding on all the creditors or the class of creditors. Subject to approval from the court if so escalated, the Companies Act, 1994 allows the acquisition of the shares of dissenting shareholders under such a scheme if 75% of the shareholders in general or the corresponding class, if applicable, consent to such scheme. This is also applicable for companies being wound up, as long as the court approves any such scheme placed by the liquidator and consented to by 75% of each of the creditors and shareholders.

The acquisition of substantial shares in a distressed company that is publicly listed, for the purpose of its rehabilitation, is allowed by way of public notice or negotiation under the Bangladesh Securities & Exchange Commission (Substantial Share Acquisition, Takeover and Control) Rules, 2018.

The restructuring of insolvent companies is covered under the Bangladesh Bankruptcy Act, 1997. Upon the admission of a bankruptcy application, a receiver is provisionally appointed (final appointment after adjudication) to take control over the estate (all movable, immovable and secured property) and operation of the corresponding company. Therefore, the receiver performs all contractual obligations of the company until it liquidates its assets to satisfy claims after adjudication. 

Before or after an order of adjudication, an eligible debtor may apply to the Bankruptcy Court to reorganise its debts, stating the grounds and providing a plan for reorganisation. Upon receipt of such application and within 90 days, the Bankruptcy Court will fix a date for hearing under due notice to the receiver and the eligible creditors. The eligible creditors may file written objection before the hearing. The Bankruptcy Court may order the reorganisation, taking into consideration the national interest, the interests of the creditors and the interests of the debtor, but such order needs two thirds in value of all creditors to give written consent. The Bankruptcy Court may amend the reorganisation as it deems appropriate and issue an order for the implementation of the scheme, subject to the submission of security amounting to 15%–65% and 25%–75% of the total unsecured creditors and creditors’ claims, as deemed appropriate by the court. Such a reorganisation order will be binding upon the debtor and the creditors.

During the reorganisation period, the estate lies vested into the receiver. If the court feels that the interest of secured creditors is not protected in such scheme, it may allow secured creditors to take possession of such property, upon application by such secured creditors. The Bankruptcy Court may withdraw such reorganisation order if the receiver or a creditor can convince the court that the reorganisation scheme was not being performed.

Section 54 of the Bankruptcy Act, 1997 stipulates that, after the order of adjudication of bankruptcy, the receiver will determine the secured creditors’ claims and satisfy them accordingly. If the value of the security is higher than the secured claim, the remaining part of the sale proceeds will be added to the estate. Any debt portion of the secured creditor that remains unsettled will be considered as an unsecured debt and will be settled according to the following preferential payment structure:

• taxes and other similar debts due to the government of Bangladesh;
• wages and salaries due to any clerks, servants, labourers or workers;
• debts of onshore banks and financial institutions; and
• other unsecured debts.

For unsecured claims, the priority ranking among local bank claims and other unsecured claims will be at a 2:1 ratio, with the claims having equal ranking within their classes. However, the receiver shall settle administrative and receiver fees before the settlement of any debt.

For banks (such as a bank guarantor and bank debtor), the preferential payment structure from the residual funds is as follows, as per the Bank Companies Act, 1991:

• depositors;
• revenue, taxes, cesses and rates to government authorities;
• wages and salaries due to any clerks, servants, labourers or workers;
• compensation payable under the Workmen’s Compensation Act, 1923;
• the expenses of any investigation conducted by an inspector appointed by the court;
• secured claims;
• any unsettled deposits by depositors remaining from the first item in the list; and
• unsecured claims.

If the borrower or guarantor becomes insolvent, the major disadvantage experienced by non-bank lenders is that the priority ranking among local bank claims and other unsecured claims will be at a 2:1 ratio, in addition to the fact that there might not be enough funds to meet the debts.

Under Section 31(4) of the Bankruptcy Act, 1997, an order of the court adjudging a debtor as bankrupt does not affect the right of any secured creditor to realise or otherwise deal with its security, but after allowing a reorganisation the court may annul the adjudication and such reorganisation order then becomes binding upon the creditors, and foreclosure of the security might not be possible.

Section 11 of the Bankruptcy Act, 1997 excludes the following entities from the scope of bankruptcy proceedings:

• any government organisation, including the Parliament and judicial bodies;
• any charitable or religious body;
• statutory non bodies whose principal object is not financial gain; and
• any autonomous body established by or with financial assistance from the government.

As per the Insurance Act 2010, only local insurance companies licensed by the Insurance Development and Regulatory Authority (IDRA) are permitted to undertake insurance business in Bangladesh and provide risk covers for assets located in Bangladesh. Pursuant to the Insurance Act 2010, no resident is permitted to insure outside Bangladesh any risk in respect of any property or interests in Bangladesh, unless a certificate has been obtained from IDRA to the effect that the risk in question cannot be insured in Bangladesh. However, in reality it is almost impossible to secure such foreign insurance.

Pursuant to the Insurance Corporations Act, 2019, 50% of all insurance relating to any public property is required to be placed with the Sadharan Bima Corporation (SBC), a state entity that provides non-life insurance and reinsurance. The remaining 50% may be placed either with the SBC or with any other insurer in Bangladesh. The Insurance Corporations Act, 2019 defines “public property” as:

• any kind of movable or immovable property that is under the direct control or protection of the government, and the legal responsibility for maintenance of which lies with the government;
• property vested to the government or any local authority;
• any company, firm, institution, organisation, enterprise or any other establishment that is managed or controlled by the government or a local authority, or in which the government, by itself or jointly with a local authority or a company, holds a financial share or interest or any company guaranteed by the government to finance;
• any project operated by a foreign loan or financial aid guaranteed by the government; or
• any other property determined by the government.

In relation to reinsurance, the Insurance Corporations Act, 2019 provides that every insurer registered and carrying on insurance business in Bangladesh shall reinsure, on generally acceptable terms and conditions, such portion of their insurance business as they cannot retain on their own account. It further requires local insurers to reinsure 50% of the reinsurable general insurance business with SBC and the remaining 50% with SBC or with any other insurer, whether in or outside Bangladesh. Furthermore, the Insurance Act, 2010 provides that, in order to ensure that the interests of policy holders and the insurer are adequately safeguarded, an insurer may reinsure with another insurer any liability in or outside Bangladesh arising out of an executed and effective contract or policy of insurance. As such, foreign reinsurance is frequently availed for projects in Bangladesh.

Insurance policies are subject to stamp duties at the prevailing rate as per the Stamp Act, 1899.

Insurance policies over project assets are payable to foreign creditors to the extent such policies have been used as security for the repayment of the underlying debts. Such security can be in the form of assignment or incorporation of the creditor as the beneficiary of such insurance.

Repayments are not subject to tax, but margin/interest or other payments made to lenders are subject to withholding tax at the rate stipulated by the Bangladesh Income Tax Act, 2023. The concurrent rate of tax over margin/interest earned is 20%.

A general exemption from tax over margins/interest against loans undertaken by industrial enterprises or state-owned enterprises previously accorded has been revoked. However, such tax over margins/interest has been exempted for certain sectors, such as PPPs, IPPs and industries inside BEPZA/BEZA. In addition, under the Double Taxation Avoidance Agreements to which Bangladesh is a party, truncated margin/interest rates are applicable for tax over such margins/interest, but availing such incentive requires an exemption certificate to be obtained from the National Board of Revenue.

There are no other taxes, duties, charges or tax considerations relevant to lenders, other than the withholding taxes detailed in 8.1 Withholding Tax and similar charges in connection with the perfection of finance documents and securities, such as stamp duty and registration fees.

Margin/interest is subject to various directives and circulars issued by regulatory bodies such as the central bank in Bangladesh from time to time. The central bank has imposed a market-driven interest rate for local banks and financial institutions -issuing loans in Bangladesh based on the Six-Month Moving Average Rate of Treasury Bill (SMART) as offered by the central bank. The current maximum allowable margin/interest rate for local loans to industrial enterprises is SMART+3%; for the agricultural sector, it is SMART+2%; and for pre-shipment export financing, the rate is SMART+2%. The maximum default margin/interest rate allowed is 1.5%.

Whereas the latest Procedure and Guidelines for Foreign Private Borrowing have now excluded any recommended interest rate and states that the all-in cost/interest should be reasonable compared to the prevailing lending rates in the international markets, the earlier all-in cost ceiling recommended (ie, SOFR+4% – it was previously LIBOR) is still the highest benchmark for foreign borrowing approval from BIDA and from other authorities such as BEZA, BEPZA and SCNCL.

Project agreements among residents are generally governed by Bangladesh law. Bangladesh courts uphold a choice of foreign law or tribunal agreed among the parties while entering into the contract, and in project/facility/concession agreements involving any non-resident, English law is the most commonly adopted governing law.

For foreign lenders, English law is the most commonly adopted governing law. Other financing documents such as securities are generally governed by Bangladesh law for perfection, summary foreclosure procedure and priority in insolvencies. For guarantees, both Bangladesh and English law are adopted. However, the central bank requires the bank account agreement to be governed by Bangladesh law.

Securities, guarantees and bank account agreements are mostly governed by Bangladesh law.