Private equity (PE) refers to the investment of capital into private companies that are not publicly traded on stock exchanges. The private equity industry in Bangladesh is still in its early stages of development, but it has been showing steady growth in recent years.
Bangladesh has a rapidly growing economy, with a GDP growth rate of around 7% in recent years. The country has a large and young population, a growing middle class, and a rapidly expanding consumer market. These factors make Bangladesh an attractive destination for private equity investment.
Private Equity Industry in Bangladesh:
The private equity industry in Bangladesh is dominated by domestic players, with a few international firms also active in the market. The main sectors that attract private equity investment in Bangladesh are consumer goods and services, healthcare, education, and infrastructure.
One of the main challenges facing the private equity industry in Bangladesh is the lack of a well-developed legal and regulatory framework. The country’s legal system is not fully developed and there are significant gaps in the laws and regulations that govern private equity transactions. This makes it difficult for private equity firms to invest in Bangladesh and for companies to access the capital they need to grow.
For example, there are no specific rules or regulations for the registration and reporting of private equity funds, and there is no specific legal framework for the protection of minority shareholders. This lack of legal protection makes it difficult for private equity firms to invest in Bangladesh and for companies to access the capital they need to grow.
Another challenge facing the private equity industry in Bangladesh is the lack of a developed exit market. Private equity firms typically invest in companies with the expectation of exiting their investments after a certain period of time. However, in Bangladesh, there are very few options for private equity firms to exit their investments. This makes it difficult for private equity firms to achieve a good return on their investments.
New Rules for the regulation of Private equity fund and venture capital fund in Bangladesh:
In June 2015, the Bangladesh Securities and Exchange Commission approved new rules for private equity and venture capital firms, allowing them to pool funds and make equity investments in non-listed companies.
To create and manage funds for equity financing, private equity and venture capital firms must adhere to the Alternative Investment Rules.
The fund managers, who must be registered with the BSEC, will raise capital from eligible investors, which could include institutions, high-net-worth individuals, and foreign fund managers.
The funds cannot be raised through a public issue or an initial public offering; they can only be raised through a private placement and, unlike other mutual funds, will not be listed or traded on stock exchanges.
BSEC approved the draft Alternative Investment Rules and published it on the commission’s website as well as in national dailies for public comment.
|Introduction||Bangladesh Securities and Exchange Commission (BSEC) introduced the regulation on June 22, 2015|
|Effective Date||June 22, 2015|
|Coverage||Private equity fund and venture capital fund operated by a fund manager through a registered trust|
|Registration||Fund manager and trustee must be registered with the BSEC|
|Investors||Eligible investors may be institutions, high-net-worth individuals and foreign fund managers|
|Capital Raising||Funds cannot be raised through public issue or initial public offering and can only be raised through private placement, not listed or traded on stock exchanges|
|Venture Capital Investment||Primarily in non-listed equity and equity-linked securities of start-ups or green field companies or emerging early-stage undertakings|
|Paid Up Capital||Tk. 50 million (local fund management company), Tk. 150 million (fully-owned subsidiary), Tk. 100 million (partially-owned subsidiary foreign firm)|
|Net Worth||Minimum 75% of total paid up capital, must be increased if goes below required level|
|Professional Experience||CEO/CIO and compliance officer must have relevant academic background and at least 7 years of relevant experience, no loan defaulters among applicant or directors|
|Registration and Annual Fees||Tk. 1 lakh and Tk. 50,000, respectively|
|Fund Management Fee||Up to 4% of NAV (impact fund), up to 3% of NAV (venture capital fund), up to 2% of NAV (private equity fund)|
|Profit Sharing||Fund manager may share up to 20% of the net annual profit of a fund|
|Alternative Investment Fund Formation||Minimum Tk. 100 million, subscription by sponsor not less than 10%, sponsor must subscribe at least 20% of total subscription before registration|
|Fund Manager Investment||Minimum 2% of the fund size, not more than 25% of units held with connected persons|
|Sponsor Investment||Continuous investment of not less than 2.5% of fund size|
|Dividends||Cash dividends declared to unit holders, locked in for 3 years from date of issuance|
Venture Capital Association in Bangladesh
Despite these challenges, the private equity industry in Bangladesh is showing steady growth. The government of Bangladesh has recognized the importance of private equity in the country’s economic development and has taken steps to improve the investment climate. The government has also set up a number of initiatives to support the private equity industry, such as the Bangladesh Private Equity and Venture Capital Association (BPEVCA).
In addition to the government’s efforts, there are also a number of private sector organizations working to support the private equity industry in Bangladesh. For example, the Bangladesh Venture Capital and Private Equity Association (BVCA) works to promote the private equity industry in Bangladesh by fostering relationships between private equity firms, companies, and investors.
Plans to establish a stock exchange for SME
Despite the challenges, the private equity industry in Bangladesh has the potential to play a significant role in the country’s economic development. The large and growing population, the rapidly expanding consumer market, and the government’s efforts to improve the investment climate all make Bangladesh an attractive destination for private equity investment. As the private equity industry in Bangladesh continues to grow and develop, it will become an increasingly important source of capital for companies looking to expand and grow.
In conclusion, the private equity industry in Bangladesh is still in its early stages of development but it has been showing steady growth in recent years. The country has a rapidly growing economy, with a GDP growth rate of around 7% in recent years. The main sectors that attract private equity investment in Bangladesh are consumer goods and services, healthcare, education, and infrastructure. The main challenges facing the private equity industry in Bangladesh are the lack of a well-developed legal and regulatory framework and the lack of a developed exit market.
Despite these challenges, the private equity industry in Bangladesh has the potential to play a significant role in the country’s economic development. The government of Bangladesh is taking steps to improve the investment climate and a number of private sector organizations are working to support the private equity industry in Bangladesh.
The government of Bangladesh has announced plans to establish a stock exchange for small and medium-sized enterprises (SMEs) that will provide a platform for SMEs to raise capital. This will likely increase opportunities for private equity firms to invest in SMEs and provide a viable exit option for private equity firms.
Relevant laws regarding Private Equity in Bangladesh
The following is a table that includes some of the relevant laws, regulations and initiatives related to private equity in Bangladesh:
|Bangladesh Securities and Exchange Commission (BSEC)||The main regulatory body responsible for overseeing the securities market, including private equity transactions|
|Bangladesh Private Equity and Venture Capital Association (BPEVCA)||An initiative set up by the government to promote the private equity industry in Bangladesh by fostering relationships between private equity firms, companies, and investors|
|Stock exchange for small and medium-sized enterprises (SMEs)||A planned stock exchange that will provide a platform for SMEs to raise capital and provide a viable exit option for private equity firms|
As the private equity industry in Bangladesh continues to grow and develop, it is likely that more laws and regulations related to private equity will be put in place and more options for exits will be created.
Amendments made to the Alternative Investment Rules in 2020
- The definition of “eligible investor” and “investor” has been expanded to incorporate “founda’ons” and “approved gratuity funds”.
- Also in the descrip)on of a provident fund which was already eligible as an investor has been prefixed with “recognised”. A similar prefix has been added to “supperanua)on fund” with “approved” . A similar addi)on was made to “gratuity fund” with “approved” being added. The repercussion for such changes is going to require cer)fica)on or accredita)on of the said funds in order to be eligible to invest.
- The required opera)on track record for eligibility of “private equity fund” has been increased by a year to three years.
- The amendment here has enabled “venture capital funds” to invest in companies that have already been in opera)on for three years instead of the earlier limita)on of two years. This will broaden the investable op)ons of “venture capital funds”
- Amendments have been made to prepare financial statements as per Interna)onal Financial Repor)ng Standards as applicable in Bangladesh and the audited financials to be prepared as per Interna)onal Standards on Audi)ng
- Amendment has been made to ensure that the fund manager should obtain consent from the trustee before disbursement of fund to any non-listed securi)es of porGolio companies.
- The exercise of an independent valuer , conduc)ng a valua)on of the investments of the fund has been relaxed to a minimum of once every year instead of twice a year.
- Apart from cons)tu)ve documents, financial documents and other documents will have to be shared to eligible investors with the added flexibility of being shared in electronic form instead of printed hard copy.
- A check has been placed to ensure that the fund manager cannot share the profit from the fund twice as performance fee.
- Made amendment to enable the fund manager to hold up-to 30% of unit funds as opposed to 25% before.
- The lock in for investments in funds has been brought down to 2 years from 3 years .
- Investments of connected persons’ of the fund manager in alterna)ve investment fund will also have to be disclosed in the annual reports.
- Registra)on fee has been halved to 0.05% of the fund corpus
- Annual fee of the fund has been reduced by 20% to 0.04% of NAV of the fund.
- The minimum subscrip)on by each investor has been brought down to BDT 1,000,000 from BDT 5,000,000.
- Allowed flexibility of investment diversifica)on according to risk management policy of fund. Allows the fund to jointly investment in a porGolio company along with another fund.
- New provision allows the life of the fund to be shortened by a vote of 2/3 majority similar to the previous manned of extension of the life of the fund.
Although all unlisted companies in Bangladesh are assumed to be supported by private equity, Bangladesh Regulator introduced formal private equity venture capital in 2015 through the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015. Since then, the firm has advised on the formation of several venture capital funds. However, because this is a new concept, the application is limited.
Tahmidur Remura’s Experience in the Private Equity Industry:
The firm also has extensive experience in private equity injection in listed companies through “Private Investment in Public Equity (PIPE)” transactions.
Furthermore, the firm advises on simple registrations, incorporation, contractual matters, and uncomplicated ventures, as well as complex investment projects, finance, M&A, and corporate restructurings involving private equities.
Some of the firm’s recent significant projects in Bangladesh include:
- Manufacturing Sector: Marathon Petroleum Corporation, USA – Joint Venture Home Appliance Manufacturing Project
- Manufacturing Sector: Patrick Industries Inc., USA – Joint Venture Food Product Manufacturing Project
- Manufacturing Sector: Tire Manufacturing Project, Pilgrim’s Pride Corp.
- Copper Manufacturing Sector: Star Alliance, Japan Joint Venture Manufacturing Project
- Steel Manufacturing Project: PEB Steel, Vietnam
- Oil Sector: ENOC, Dubai
- Manufacturing Sector: LG, Korea – SKD Plant in collaboration
- Maxim, PRC – Garments Accessories Manufacturing Sector Manufacturing
- Hatero, UAE – Cancer production through a joint venture
- Manufacturing Sector: Trial Foods, UK – Health drink production Industry
- Sector of Service: Nokia, Finland – Service center
- Service Sector: Gates Foundation, USA – significant investment in mobile banking
- Sinopec, People’s Republic of China – petroleum service sector
- Logistics and freight forwarding are examples of service industries.
- Petrostar, People’s Republic of China – petroleum service sector
We also have included some of the details of our clients and their growth in the markets:
|Company||Headquarters||% of Revenue Growth||% Profit Margin|
|1||Thor Industries Inc.||Jackson Center, OH||58.6||5.16|
|2||Align Technology Inc.||San Jose, CA||36.44||15.75|
|3||Pilgrim’s Pride Corp.||Pittsburg, TX||35.77||6.67|
|4||Patrick Industries Inc.||Elkhart, IN||33.8||5.24|
|5||LCI Industries||Elkhart, IN||27.93||6.19|
|6||Sherwin-Williams Co.||Cleveland, OH||26.39||11.83|
|7||Sanderson Farms Inc.||Laurel, MS||18.68||8.37|
|8||Lear Corp.||Southfield, MI||10.29||6.42|
|9||Clorox Co.||Oakland, CA||3.68||11.74|
|10||Lancaster Colony Corp.||Westerville, OH||.9||9.59|
Tahmidur Rahman Remura advises large-scale construction and infrastructure project sponsors, lenders, contractors, and other industry participants. The firm provides non-contentious specialist services to domestic and international projects, covering every industry sector, location, procurement, and financing structure combination.
The firm offers efficient and proactive solutions based on a thorough understanding of the commercial forces and legal aspects that shape construction projects. It brings together experts to provide expert insights into the business implications of new industry initiatives, local legislation, globalization, and private/project finance.
The formal PPP framework was introduced in Bangladesh in 2010 through a policy guideline and was later achieved through legislative integration in 2015 with the passage of the PPP Act, 2015. The firm has extensive experience in project structuring and has been involved in the majority of the first generation PPP projects in Bangladesh, including transportation, water, economic zones, large scale plants, power, mining, and telecommunication. The firm has been involved in almost all major PP projects, including all three toll road projects that have been tendered. In addition, the firm was involved in a large number of constriction projects in the G2G and public procurement models.
Hire the best consultancy law firm in Bangladesh
Tahmidur Rahman Remura has earned its stellar reputation thanks to its proficiency in a wide range of financial transactions, including those involving power and energy, mergers and acquisitions, and large-scale projects. Led by Barrister Tahmidur, the law firm also consults on behalf of international financial institutions like the World Bank and gives advice to large local and international banks on local corporate governance issues. Remura Mahbub is another instrumental part of the team, and she is a big reason why the company gets does so much cross-border work in Southeast Asia and Europe.
In addition, this elite law firm in Bangladesh also deals with shipping law practices assisting in both wet and dry contentious and non-contentious matters, aviation law, capital markets law, bankruptcy and creditors’ rights, and family law. Additional practice areas include asset acquisition, dispute resolution, ICC, LCIA and UNCITRAL arbitration proceedings, finance and securitization law, and aviation law. It consists of an international division comprised of attorneys specializing in foreign and cross-border business and providing premium solutions for international clients.
For further information, visit the following links:
Company: Tahmidur Rahman Remura Law Firm
Contact Person: Tahmidur Rahman
Email Address: [email protected]
Phone Number: +8801847220062 & +8801779127165