From riches to rags: A story of poor decisions

It was once a good company. A pioneer in export-quality yarn production. But then one after one unforeseen policy changes completely crippled the company. And now it has become a big burden on its creditor bank.

That is the story of Mother Textile. An example of a good company going astray in the face of policy headwind.

Its creditor bank, Rupali, is now stuck with Tk1,200 crore loans given to the yarn producer. Rupali is in fact stuck with the ailing company for 25 years with no recovery. And that time may stretch to 40 years if another rescheduling facility is given.

The company, which started the journey with the financing from the state-owned Rupali Bank 25 years back in 1993, is now the top borrower of the bank as its continuous failure to repay piled up the loan.

The company could run its business smoothly only first four years during its long journey.

The Mother Textile was a leading yarn producer in the local market. It was the best choice for workers as it used to provide good financial benefits to them in comparison to other factories.

Kazi Eunus Ahmed – who was working at the Ashraf Textile, a renowned public limited company and only profit-making textile mill during the time – left his job and joined Mother Textile in 1999. 

The good prospect of the Mother Textile encouraged him and many others to join the company. The factory employed a total of 3,200 workers at that time.

It was the first factory that started manufacturing export quality yarn and all export-oriented garment factory started to use its produced yarns.

Eunus is now the general manager of the company and has been with it for the last 20 years.

Eunus joined with great enthusiasm, but the good days of the factory did not last long as since 1998 the company started facing various policy-related barriers like the introduction of single borrower exposure limit, gas connection suspension for factories outside export processing zones and low gas pressure in existing connections. 

All those put the growing industry in a dismal situation.

Although the factory cannot pay off the loan, the Rupali Bank kept the loan account regular by providing rescheduling facility as life support.

If this large borrower is classified, it will worsen the bank's capital base further.

The borrower could not continue its instalment payment despite rescheduling for the third time because it did not earn adequate revenue from the business to pay back the loan.

The board of the bank approved the fourth time rescheduling, giving a lifeline for another 15 years and sent the proposal to the central bank for approval several months ago. If the central bank gives the go-ahead, the age of the loan will be 40 years.

Meanwhile, Sultan Ahmed, owner of the company, has been suffering from a serious disease for several years. Another director of the company and Ahmed's son Shoeb Ahmed Sultan is also sick and not capable of looking after the business.

Aliza Sultan, daughter-in-law of Ahmed, took the helm of the company as the managing director a year back and is trying to recover from losses.

"We cannot repay the loan with the revenue from the current business," said Aliza.

"We need a breathing space for our business to recover and that is why we wanted the restructure of the instalment payment in line with our payment capacity," she said.

"We did not want any further financing from the bank."

She said they are trying to save the industry by diversifying their business with the establishment of a factory on 70 to 80 bighas of land in Savar.

"We are trying to bring foreign fund to resume the business full-fledged," she added.

A team of the Rupali Bank visited the factory of Mother Textile and found two out of three units are running, said a senior executive of the lender.

Considering the business situation of the borrower, the lender decided to provide a support by restructuring the instalment size so that the company can continue the payment, he said.

Otherwise, the failure of such a big client will cause a big loss for the bank, he added.

How the company starts falling

It was a golden period for the Mother Textile from 1994 to 1998. It was the first company in the country that set up a plant for producing export quality yarn.

Local export-oriented garment factories use yarns produced at the factory. Moreover, the company exported yarns abroad.

Before setting up this company, local apparel factories had to import such yarns to produce export-oriented goods.

During 1994-98, it was the leader in producing exportable yarn in local market.

The bad days started when the company went into expansion in 1998. The company went for investment in setting up another unit for producing denim yarn and imported machinery.

But the then government decided not to give new gas connection to the factories outside the export processing zones until gas connections of all the factories established inside the zones are ensured.

All machinery installed in the new unit and raw materials were imported, but it could not start operation due to not having a gas connection. The suspension of gas connection outside the export processing zones for three years from 1998 to 2001 caused a massive loss for the company.

On the other hand, the old unit was suffering for the required gas pressure, causing disruption in production.

Moreover, the cotton that was imported for the new denim unit could not be used and those damaged completely, causing a loss of around 56 crore.

During this period, the company could not pay instalments that caused the loan amount to pile up with high interest.

In the first four years, the bank disbursed a loan of Tk110 crore and since then the company did not take any further fund in cash form.

All the non-funded facilities and the failure in loan payment made the company top borrower of the bank, said Kazi Eunus Ahmed, general manager of the company.

Finally, the company got permission for gas connection in 2001 but at its own cost. The company had to spend a big amount for taking the gas line.

In 2002, when the gas line was fully connected, the then government introduced a single borrower exposure limit for the first time.

When the company required a new fund for starting the new unit after taking gas connection, the single borrower limit barred it from taking further loan from the bank as the company already crossed the limit.

Later, the company started operation of the new unit taking the non-funded facility from the bank under special consideration of the Bangladesh Bank.

The company started to incur a loss due to a shortage of working capital and failed to pay instalment at due time and became defaulter in 2005.

The business remained suspended for the next 15 months until it became regular with the bank.

By this time, a process of selling Rupali Bank's majority stake to the then Saudi Prince started in 2006.

During this process, the bank moved to classify massively and the Mother Textile became a victim of the drive. Although, the company was regular then, it was classified at qualitative evaluation.

The company went to the court and got an interim order for one month to continue with the letter of credit facility.

The confirmation date of the order was January 8, 2007, but the client could not appear before the court amid countrywide violence. The court remained shut till 11 when the country saw the 1/11 political changeover.

As the company could not confirm the order, the bank stopped the LC facility which continued till 2009.

The company remained defaulter from 2006 to 2008.

In 2009, the company regularised the account by rescheduling loan. But it could not overcome the low gas pressure which caused low production at 30 to 40 percent.

As a result, it could not overcome losses and failed to continue the loan payment.

Since 2009, the company has been running with losses and kept the account regular by taking the rescheduling facility.