The government has issued guidelines allowing Bangladeshi entrepreneurs to make overseas equity investments up to 25% of a company’s net assets – for instant business welcome.
Seven fundamental conditions are linked to investing in foreign countries – an option that big companies in Bangladesh have been looking for for a long time.
The Financial Institutions Division of the Ministry of Finance has published a notice in the Official Gazette on the “2022 Guidelines on Capital Account Transactions (Overseas Equity Investment)” detailing how to spread their wings across borders.
“Interested foreign investors will need to obtain prior government approval through the central bank,” a provision of the guidelines reads.
They will be allowed to take equity investments abroad up to 20% of their average annual income from exports over the past five years or 25% of the net assets mentioned in the last audited financial report.
Since 2013, the government has authorized eight companies to invest abroad. The companies are DBL Group, Mobil Jamuna, ACI Healthcare, Square Pharma, Incepta Pharmaceuticals, BSRM Steel, Spectrum Engineering and Akij Group.
In addition, Ha-Meem Group, Nitol-Niloy Group, Summit Group, Meghna Group and Pran-RFL Group have expressed interest in making overseas equity investments.
Another condition set out in the guidelines states that an entrepreneur wishing to invest overseas must be an exporter with an adequate balance in their Exporter Retention Quota (ERQ) account.
The entrepreneur must be financially sound according to the audited accounts of their business for the last five years, in accordance with the guidelines of the Financial Reporting Act 2015.
“No defaulting lender should be allowed to invest overseas.”
The contractor’s credit rating must be at least 2.0 as mapped in the Risk-Based Capital Adequacy Guidelines prepared by the central bank.
The overseas investment proposal for business activity should normally be of a similar nature to the entrepreneur’s business engagement in the home country.
The equity investment proposal must be proven economically viable by a feasibility study.
In addition, the proposal is expected to have the potential to generate future foreign exchange earnings associated with other benefits to the country, including increased exports from Bangladesh and employment opportunities for Bangladeshi nationals.
The candidate company must have adequate and experienced human resources in international business management, financing and making investments.
A 15-member high-level committee, made up of representatives from various ministries, divisions and departments, headed by the central bank governor, will review proposals for overseas equity investment and make a decision in consultation with the government, indicates the investment guide.
Overseas equity investments will be given priority in countries where there are no restrictions on Bangladeshi nationals to work and repatriate their earnings to Bangladesh.
Countries with which Bangladesh has a double taxation agreement and where investments from Bangladesh and repatriation of capital, including capital gains, dividends and other qualifying income, including technical know-how fees, royalties, advisory fees, commissions or other fees are permitted will get priority for investment.
In addition, overseas equity investments will be given priority in countries with which Bangladesh has entered into bilateral equity, development, expansion and retention agreements.
However, equity investment by Bangladeshi entrepreneurs would not be permitted in countries where sanctions have been imposed by the United Nations, European Union, Office of Foreign Asset Control (OFAC) and countries that are not not compatible with the Financial Action Task Force (FATF). ) requirements.
Entrepreneurs would also not be allowed to take equity stakes in countries with which Bangladesh does not have diplomatic relations.
It is further mentioned that the money for the stock investment should be sent directly to the bank account of the overseas subsidiary. If an investment proposal does not materialize, the money must be brought back immediately.
The guidelines state that any misuse of the funds would be treated as an offense under the Money Laundering and Prevention Act. In such cases, the owner, directors and beneficial owners of the company are subject to punitive action under the law.
The President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), Jasim Uddin, welcomed the release of the guidelines providing a clear path for overseas capital investment.
“There are many Bangladeshi companies that have the ability to invest overseas which will brighten up the image of the country,” he told FE.
However, he expressed reservations about the obligation to obtain prior authorization from the government to invest.
The executive director of the Bangladesh Policy Research Institute, Dr Ahsan H Mansur, told FE on Wednesday that leading companies with good track records can be allowed to invest overseas and that the bank central must monitor them closely.
“Senior managers of overseas subsidiaries should move from here,” he says, referring to the styles followed by multinationals. Allowing Bangladeshi companies to invest abroad will broaden their name and profile, he adds.