Investment Corp's cash crisis deepened by floor price restriction

The Investment Corporation of Bangladesh (ICB), one of the largest investors in the country's capital market and non-bank financial institutions, finds itself deeper in a financial crisis brought on by the floor price restrictions preventing it from selling its shares in the capital market.

The ICB's financial bleeding continued at the onset of the current fiscal year with a substantial loss of Tk236 crore in the first quarter.

The state-owned statutory entity had never experienced such a big loss before.

Its ailing finance is the result of significant drops in capital gains primarily due to a lack of buyers for the Tk15,000 crore shares it owns stuck in floor price – the lowest price at which a share can be sold.

The investment corporation was already facing turmoil as a substantial amount remained stuck with non-bank financial institutions with no immediate recovery of the fund in sight.

The ICB is now unable to return money to customers even with matured fixed deposits.

The corporation invests in the capital market with deposits from government bodies, banks, financial institutions, and individuals. It generates income from share investments, using the proceeds to pay clients in phases.

ICB officials do not see any possibility of the situation improving until the capital market sees a turnaround with injection of new funds or adjustment of floor price.

Abul Hossain, managing director of the ICB, told The Business Standard, "The floor price is holding up the sale of shares, leading to diminished capital gains and resulting in significant losses."

Addressing the challenges, Hossain added, "Insufficient capital gains make it challenging to meet customer obligations. As a temporary measure, we are extending contract periods and providing interest payments. It is our hope that the removal of the floor price will ease this issue."

The ICB MD said the corporation is selling shares as soon as it can find buyers. "Shares of many listed banks have been sold off in the past few weeks. About 5%-10% of the total shares of those banks were held by ICB. It was sold in the block market due to the need for money."

Big loss in Q1 FY24

The corporation's financial report indicates a significant drop in capital gains, which plummeted by 90% to Tk15.78 crore during the first quarter of FY24. During the same period, its profit last fiscal was Tk157 crore.

In FY23, the ICB witnessed a marked drop in profits, experiencing a 49% decrease to Tk77 crore, compared to Tk144 crore in FY22 and Tk115.33 crore in FY21.

Besides, the institution saw a substantial reduction in income from dividends as well as fees, commissions and service charges.

Abul Hossain highlighted the fact that over the past few years, the ICB had collected funds from different government organisations and invested around Tk3,000 crore in the stock market.

However, in the current circumstances, acquiring funds from any institution has proved challenging leading to repayment difficulties.

He said obtaining a new fund would have eased repayment issues, but the sources of funds are now demanding their money back.

Hossain is optimistic that the ICB will be able to pay back the investors by selling shares when floor prices are removed after the election.

BSCIC threatens legal action

The ICB owes Tk89 crore to BSCIC, the SOC that provides support to small, rural, and cottage industries. The BSCIC uses the ICB for depositing its provident fund and government loans in the form of fixed deposits, totaling 17 FDRs.

These deposits reached maturity in the months of July, August and September of the current year. The BSCIC formally informed ICB seeking the encashment of the dues.

However, it did not receive the funds by the first week of November and so,  BSCIC escalated its case by sending letters to the Ministry of Finance and the central bank in addition to urging the ICB to clear the funds urgently.

A warning was issued that legal action would be pursued if the payment was not made.

According to an official source of the ICB, it had asked for a time extension for repayment offering to pay interest during the extension period. However, the BSCIC did not agree to renew the contract, leading to a stalemate.

Even earlier, the ICB could not return the money of the state-owned Pashchimanchal (west) Gas Company Limited that distributes natural gas in the North-western part of the country.

It also had to turn to the Bangladesh Bank for intervention.

In the letter sent on 23 March this year, the ICB attributed the lack of buyers to the global economic instability and slowdown. The ICB had said the same last February in reply to another Bangladesh Bank letter asking it to return the deposit of Pashchimanchal Gas Company.

No progress in money stuck at NBFIs

The ICB has some Tk668 crore in deposits along with about Tk100 crore in interests stuck with 10 non-bank financial institutions (NBFIs) even on their maturity.

TBS covered this matter in a report on 28 November 2022.

When questioned about the progress in recovering the funds nearly a year later, ICB's Abul Hossain commented, "I am actively seeking the assistance of the central bank to facilitate the retrieval of the funds. We are conducting regular meetings with the concerned institutions."

No buyer for Padma Bank shares

The ICB in February this year, decided to withdraw investment from Padma Bank, the erstwhile Farmers Bank, after not getting any return on the investment in five years.

The investment corporation is now looking for strategic investors from home and abroad to sell its shares in the crisis-hit bank.

The ICB made an investment of Tk55 crore in the bank which has increased to Tk88 crore, according to ICB officials.

Abul Hossain told The Business Standard, "We're looking for strategic buyers who are interested in the shares."