Banks tie up for biggest investment deal in cement sector after reopening economy
The banking sector sees the biggest investment deal since the virus struck in March as seven private commercial banks tied up in a syndicated loan of Tk700 crore for Bashundhara Industrial Complex, the cement manufacturing arm of Bashundhara Group.
The lead arranger Bank Asia signed the loan agreement with Bashundhara group at an event on 17 September.
The bank moved to make the mega investment anticipating faster recovery of the economy, said Md Arfan Ali, managing director of Bank Asia.
He said the cement industry has good prospects of growth as many government projects in the infrastructure sector are coming up.
Moreover, cement consumption in Bangladesh is still very low compared to international average. Currently, per head cement consumption is 187 kg when international average is above 500 kg, he said.
The investment was made for expansion of the existing project, said Ali.
The big investment move came at the time when implementation of the stimulus package started to pick up with businesses gradually beginning to recover from the pandemic's shocks and public activities returning to normalcy.
Under the Tk20,000 crore package for small and medium-sized enterprises (SMEs), the Bangladesh Bank approved loans amounting to Tk4,100 crore till August which was four times higher than Tk510 crore approved till July 15.
Stimulus loans of Tk30,000 crore for large industries also doubled in August.
After the announcement of the stimulus in April, only Tk10,000 crore were disbursed while the same amount was disbursed alone in August.
Bank Asia has already completed its disbursement target of Tk800 crore under the Tk30,000 crore package.
The implementation of stimulus packages has already been reflected in private sector credit growth.
The private sector credit growth, which remained sluggish until June, registering below 9% growth for four consecutive months, saw a jump in July.
In that month, the private sector saw 9.20% credit growth, reflecting a sign of the gradual resumption of business activities following the reopening of factories in May.
The credit growth had come down to a single digit in November 2019 amid pressure by the government to lower the lending rate to 9%.
In the latest monetary policy declared for the current fiscal year, the Bangladesh Bank showed optimism of rebounding credit growth backed by stimulus packages.
On the back of that, the central bank has set the credit growth target at 14.8% for the current fiscal year against last year's achievement of 8.6%.
Banks hastened their lending activities since July giving priority on the sectors which have possibility of faster recovery, said a senior executive of a private bank.
The cement industry is one of the priority sectors to banks as construction activities of the government's mega projects have already restarted, he said.
When contacted, Md Shahidullah vice-president of the Bangladesh Cement Manufacturers Association (BCMA) said production came down to 20% in April-May but has now improved to 45% as construction activities have resumed.
Shahidullah, who is also the managing director of Metrocem Cement, said that cement companies are seeing a serious scarcity of working capital now but they are not getting adequate financing from the stimulus package.
The cement consumption grew rapidly from only 95 kg in the year 2011 due to urbanization and implementation of mega projects, according to industry insiders.
Bashundhara Group, one of the biggest business groups in the country, holds the second highest cement market share of 8.48% by way of its two brands, Bashundhara Cement and Meghna Cement.
Of the two companies, Meghna has been listed on the Dhaka Stock Exchange since 1995.
Each share of Meghna Cement traded at above Tk70 in the last three months, according to DSE.
The banks that invested in the project are- Bank Asia, Dhaka Bank, First Security Islami Bank, Pubali Bank, Social Islami Bank and United Commercial Bank.
This funding is not included in the stimulus package, according to banks.
Located in Madanganj of Narayanganj, the factory's production capacity is expected to increase to 25,200 metric tonnes per day from an existing 14,200 metric tonnes, according to the project expansion plan.
Earlier, Bank Asia invested in this project in three phases through syndicated loans at different times for expansion.
The last investment was Tk285 crore in a new extension unit of the cement project at the beginning of the last year. With this investment, the unit was supposed to enhance its annual production capacity from 21 lakh tonnes to 30 lakh tonnes by this year. But that expansion unit could not come to commercial production yet, according to the bank source.
However, in spite of that, the banks went for further investment.
The demand-supply gap for cement widened to 1.47 crore tonnes in the year 2018 which was expected to hit 1.8 crore tonnes last year. By 2021 the gap is expected to be 2.17 crore tonnes, according to a survey by Bank Asia.
However, Covid-19 slowed down the demand of cement due to the shutting down of construction activities.
According to industry insiders, 90% of cement production came to a halt in April-May period during the general holidays announced after the detection of coronavirus in the country. At present, production has resumed up to 60-65% of normal times. However, the loss of the sector has exceeded Tk4,000 crore in this shutdown period.
Entrepreneurs in this sector have invested around Tk42,000 crore. Of this, bank loans are more than Tk30,000 crore. Moreover, more than several lakh construction workers, employees and officials are directly and indirectly involved in this industry.
The top 10 companies occupy 81% of the market share, with Shah Cement being the top player.
LafargeHolcim, Bashundhara, Seven Rings, Heidelberg, MI Cement, Premier Cement, Fresh Cement, Akij Cement and Confidence Cement are some of the leading brands.