Bangladesh Bank has allowed companies in the manufacturing and services sectors to issue preference shares to non-resident investors, aiming to encourage foreign investment and simplify the repatriation of dividends and investment proceeds.

The central bank issued a circular on Tuesday and sent it to all authorised dealer (AD) banks across the country dealing in foreign exchange transactions.

According to the circular, investment funds against the issuance of such shares must be brought into Bangladesh in foreign currency through legitimate banking channels.

Preference shares are a type of equity that offer holders certain advantages over ordinary shareholders. They generally receive dividends at a predetermined rate before ordinary shareholders. They also enjoy priority in recovering their investment if a company is liquidated. However, preference shareholders typically do not have voting rights.

The circular states that companies will not need prior approval from Bangladesh Bank if the dividend rate on preference shares does not exceed 5% of their face value.

However, prior approval from the central bank will be required if the dividend rate exceeds 5%. This requirement also applies to participating or adjustable dividend rates.

In such cases, companies must submit applications through their nominated AD banks, providing appropriate justifications for the proposed dividend arrangements.

The circular further requires the concerned AD bank to submit a report, along with the necessary documents, to the Foreign Exchange Investment Department within 14 days of the issuance of preference shares.

Similarly, a post-facto report must be submitted within 30 days of repatriating redemption proceeds abroad.

The circular also stipulates that dividends and redemption proceeds must be remitted to the relevant country through the same AD bank or banking channel used to bring the original investment into Bangladesh.