Dhaka:Bangladesh Bank (BB) has granted approval for resident companies in the manufacturing and service sectors to issue preference shares to non-resident investors. This move aims to enhance foreign investment and streamline the repatriation of dividends and redemption proceeds.
According to Bangladesh Sangbad Sangstha, the central bank issued a circular detailing the guidelines for issuing, converting, and redeeming preference shares, along with the repatriation of dividends to foreign investors. The Foreign Exchange Investment Department (FEID) Circular No. 04, dated November 3, 2026, states that companies can issue preference shares to non-resident investors following the Companies Act, 1994, and relevant Bangladesh Securities and Exchange Commission (BSEC) regulations.
The circular specifies that preference shares must be issued against foreign currency brought into Bangladesh through official banking channels. Companies do not need prior approval from Bangladesh Bank if the dividend rate on preference shares does not exceed five percent of their face value. However, shares with dividend rates above five percent, including participating or adjustable rates, require prior approval, with applications submitted through nominated Authorized Dealer (AD) banks.
AD banks are mandated to report the issuance of preference shares to the FEID within 14 days, accompanied by supporting documents such as the Memorandum and Articles of Association, Form XV, an Encashment Certificate, and Schedule X, if applicable. The circular also mandates that preference shares be issued at par, removing the need for company valuation for issuance or redemption.
For preference shares with a conversion feature, the fair value of ordinary shares must be determined According to methodology outlined in the FEID Circular No. 01 from March 8, 2026. Upon conversion, the issuing company must notify the FEID through its AD bank and submit relevant documents.
The circular allows AD banks to remit dividends and redemption proceeds to non-resident investors without prior approval, provided compliance with the circular and foreign exchange regulations, and tax deductions are met. A post-facto report for each remittance must be submitted to the FEID within 30 days.
Dividends and redemption proceeds must be repatriated through the original AD bank, and proceeds must return to the country of the original investment. Dividends earned on preference shares can be reinvested in ordinary shares at fair value. AD banks must maintain records of dividends and redemption proceeds, supported by auditors' certificates for tax deductions.
The circular requires compliance with tax benefits under Double Taxation Avoidance Agreements, know-your-customer standards, anti-money laundering, counter-terrorism financing standards, and applicable tax laws. A No Objection Certificate is needed for a change in nominated AD bank, with records transferred to the new bank and reported to Bangladesh Bank.
Fully convertible and irredeemable preference shares are classified as equity capital. Issued under Section 20(3) of the Foreign Exchange Regulation Act, 1947, the circular is effective immediately.