State-owned Investment Corporation of Bangladesh (ICB) has either cancelled or withheld loans amounting to Tk3,400 crore, sanctioned to 27 companies between September 2016 and March 2017, as it approved the loans to non-listed companies shifting away from its main investment focus.
ICB Managing Director Md Abul Hossain told The Business Standard, "ICB funds are basically meant for investment in the capital market. But in these cases, the loans were approved for different projects. That is why the loans have been cancelled."
Had the ICB invested its funds to those projects, it would have been left with little to invest in the capital market, he noted.
There were discussions with the companies before the approved loans had been cancelled. They were asked to collect funds from alternative sources, he added.
The loans were cancelled in 2019 before the incumbent MD took charge.
On 21 July this year, ICB Managing Director Md Abul Hossain sent a report to the Financial Institutions Division, apprising it of the cancelled loans.
The Anti-Corruption Commission (ACC) is now looking into if there were any anomalies in approval of such loans and their disbursements.
To shed light on one such cancellation of an approved loan, take Sultan Habiba Fabrics Mills, for example: Six years ago, the ICB approved a loan of Tk485 crore through debentures for Sultan Habiba Fabrics Mills, which is under construction at Saad Musa Industrial Park in Chattogram's Anwara.
The corporation was also the arranger of another Tk890 crore in loans from four state-owned banks for the company. The banks decided to lend Tk900 crore after the then managing director of the ICB, Iftikhar-uz-Zaman, along with the MDs of the four banks visited the firm.
Buoyed by the fact that Tk1,375 crore in loans were in the pipeline, Saad Musa Group started construction of the mill by investing Tk700 crore taken out from banks as working capital for its other companies. Their plan was that they would repay the old loans with a portion of the new loans, and import machinery for the factory with the rest of the loan money.
But after receiving allegations of irregularities in disbursements by the ICB board, the Prime Minister's Office prepared a special report and sent it to the Financial Institutions Division and the ICB.
In view of that, officials of the Financial Institutions Division, the Bangladesh Bank, the Bangladesh Securities and Exchange Commission, and the ICB at a meeting in August 2021 decided to cancel loans granted to non-listed companies.
A similar recommendation was made separately by the Financial Institutions Division.
Based on those recommendations, the ICB cancelled the loans it approved to Saad Musa Group during the tenure of the then chairman Dr Mojib Uddin Ahmed and managing director Iftikhar-uz-Zaman.
The special report of the PMO states that the ICB will be more cautious in future investments.
Meanwhile, Saad Musa Group has now defaulted on the previously-taken loan owing to the cancellation of its new loans. The group cannot now take a loan from other banks as well.
Contacted, the then managing director of the ICB Iftikhar-uz-Zaman declined to make any comments on such cancelled loans that had got approval from his board.
Loan cancellation puts companies in trouble
Like Sultan Habiba Fabrics Mills, several other companies have suffered financial losses owing to loan cancellations. Some of their projects made no progress at all. The ICB is in losses too as its already-disbursed Tk200 crore is now in default.
Muhammad Mohsin, managing director of Saad Musa Group, told TBS, "Work on our factory had stopped only after a little progress because of the fund crisis. We have now got a commitment of a low-cost loan, once we get that, our crisis will be over."
"We signed an agreement with the ICB to have our two companies listed with the capital market. But, when an ICB team visited our companies, we had a discussion with them on lending through debentures."
Accordingly, the ICB also approved loans. But it now got cancelled, putting in deep crisis for them, Muhammad Mohsin pointed out.
The ICB also approved a loan of Tk400 crore through debentures for Dhaka West Power Limited, then owned by late lawmaker Md Aslamul Haque. The corporation disbursed Tk22.23 crore in two instalments before the loan was cancelled on the directive of the finance ministry.
As of 30 June, this year, the overdue amount of ICB investment in the company stood at Tk7.43 crore.
After the death of Aslamul Haque, his wife Maqsuda Haque is serving as the managing director of the company. She told the ICB that the Dhaka West Power Limited project would be acquired by a foreign company and an MoU has been signed in this regard. They will repay the ICB loan once the company is sold, she added.
In 2017, the ICB released Tk20.20 crore after sanctioning a debenture loan of Tk91.90 crore to a company named Bengal Gas Limited. The company then refrained from disbursing the rest of the loan amount, as a result of which the project could not be implemented.
The loan is now classified as "standard" despite being rescheduled twice.
The ICB board led by Mojib Uddin Ahmed and Iftikhar-uz-Zaman initially approved a loan of Tk300 crore to the Le Meridien Hotel project of Best Holdings Ltd. The succeeding board amended it and sanctioned Tk150 crore and distributed the whole amount. The grace period of this loan has been extended to five years until February 2024 from two years in view of the Covid pandemic.
In 2019, the ICB collected Tk4.04 crore as interest from the company. Currently, the bond account is classified as "standard", ICB said.
When asked about the recovery of the partially disbursed loans that are in default, ICB MD Abul Hossain told TBS, "Efforts are on to recover the defaulted loans. Cases have been filed against some of the borrowers, while preparations are underway for filing cases against some others."
In 2017, the ICB invested Tk5 crore in the placement shares of Onetex Limited, which was interested in raising capital from the capital market. Later, the ICB bought another 15 crore shares from its own portfolio in a pre-IPO private placement in 2018.
However, the company has not been able to make an initial public offering (IPO) by complying with securities laws, causing the ICB investment to get stuck.
In 2017, the ICB disbursed Tk6 crore in two instalments after it had decided to invest Tk25 crore in the Ehsan Paper Products project. The corporation did not disburse new funds to the project in view of a suspension imposed by the Ministry of Finance.
The company is still operational, but it has so far repaid Tk0.99 crore against disbursed amount while the overdue arrears stand at Tk2.78 crore.
Currently, the debenture is classified as substandard.
According to its functions mentioned on its website, however, the ICB has no scope to make such investments.
The functions of the ICB include direct purchase and sale of shares and debentures/ bonds including placement and equity participation, participating in the placement of unit funds and mutual funds, providing lease finance singly and through syndication, managing investment accounts, managing unit funds, managing portfolios, and taking part in buying and selling of securities.
Besides, the corporation provides advances against mutual fund certificates managed by it and its subsidiaries, provides bank guarantees, acts as a trustee and a custodian, participates in the financing of joint venture companies, provides investment counselling to investors, participates in government divestment programme, introduces new business suited to market demand, deals with other matters related to the capital market, makes venture capital financing, and takes part in merger, acquisition, and asset reconstruction activities.
Its other functions include managing equity and entrepreneurship fund (EEF), entrepreneurship support fund (ESF), and other special schemes declared by the government, supervising the activities of the subsidiary companies as the holding company, and taking part in offloading shares of state-owned enterprises.
Profit in two, loss in two listed companies
According to the ICB report, it invested Tk156 crore in placement shares of four companies in 2016 before their listing on the capital market.
Out of this, Tk25 crore was invested in the Tk100 crore SMEL IBBL Shariah managed by Fund Strategic Equity Management, Tk20 in Vanguard Rupali Bank Balanced Fund managed by Vanguard AML, Tk81 crore in JMI Hospital Requisite Manufacturing Limited, and Tk30 crore was invested in Silva Pharmaceuticals.
The current price of the 2.70 crore shares of JMI Hospital Requisite Manufacturing Limited acquired through placement is Tk221.67 crore as of 30 June 2022, and the price of the 3.15 crore shares of Silva Pharmaceuticals is Tk69.17 crore.
Even though the ICB has made huge profits from the investments in these two companies, it has suffered losses in the other two cases.
The current value of the 2.5 lakh units of the SEML IBBL Shariah Fund acquired through placement is Tk19.66 crore, while the current value of the 2 crore units of Vanguard AML Rupali Bank Balanced Fund is Tk19.66 crore.