Why these big companies borrow but don’t default

While some businesses have been rescheduling their loans year after year and are lobbying to take fresh loans and cut and waive interest rate, there are other companies that are continuing to grow with bank loans, but they are not defaulting in paying back their loans.

Some notable example of those good borrowers are: City Group, Meghna Group of Industries, Abul Khair Group, Square Group, East Coast Group, Akij Group, Summit Group, Noman Group, Nasir Group of Industries, PHP Family and Pran-RFL Group.

Many of these groups have now become billion dollar companies.

For example, Meghna Group of Industries (MGI) that set up its first factory Meghna Vegetable Oil Industries Ltd in 1989, now has over 45 units – from fast moving consumer goods and commodities to cement, shipping, power, insurance, aviation and many more.

MGI's sales turnover was whooping $3 billion (over Tk25,000 crore) in 2019. The group has been recognised as the country's largest investor in industrial development of Bangladesh for the last three consecutive years, something that is reflected in the group's appetite for money. Yet, MGI is not a loan defaulter.

East Coast Group started business with a trading company in 1977 and now it has over 30 units and its asset value is estimated to be about $4 billion.

City Group that started business 46 years ago has now 40 sister concerns with a strong market share in consumer goods segment.

Abul Khair Group, that has footprint in diversified areas, became the country's first billion dollar selling company a decade ago. The group now owns Bangladesh's largest steel mill.

Square Group began its journey in 1958 with a small pharmaceuticals unit. Now the group has operations in consumer products, toiletries, health products, textiles, agro vet products, information technology and few more.

According to Square Group's website, its annual turnover was $616 million (over Tk5,200 crore) last year.

Noman Group is a similar success story from the garment sector. The group started its business just in 1997 and now has 28 subsidiaries. Presently, the group is the country's by far the biggest exporter with a revenue of around $1.5 billion a year. The group crossed the magical $1 billion mark nearly seven years ago.

The story of Summit, PHP, Akij, Nasir and Pran are more or less the same. They have been growing steadily in line with the pace of the country's economic growth and rising purchasing power of consumers.

Owners of the conglomerates have been expanding their presence in diversified areas and that with hundreds of crore take loans from financial institutions.

Yet, they were not defaulted and remained the most sought after clients to lenders. What was the magic behind it?

"We don't divert loan for other uses," Mostofa Kamal, chairman of MGI, told The Business Standard explaining why he never became a defaulter.

According to Kamal, loss in business is a very common thing, which he had to face in mid 1990s and 2007-08. But he overcame the challenge taking more loans from the banks.

"If you divert loan money for buying expensive cars and houses, your intention is not honest here," said the chairman of MGI, the largest conglomerate in the country.

Nasir Uddin Biswas, chairman and managing director of Nasir Group of Industries, said he took Tk351 crore loan for setting up a float glass factory at Tk1,400 crore. It took five years to go into production. 

"But I paid back Tk100 crore before the launch. You have to have other sources of income, otherwise debt burden will shoot up," said Biswas.

He said he bargains with interest rate and loan repayment period, but many businesses are least bothered with it and they pay extra money to bankers for getting the loans.

PHP Family that has diversified its business to a wide range of areas - from steel, to textile, float glass and many more – maintains a principle that it will repay loans from the earnings of the company for which it takes loan.

Mohammed Iqbal Hossain, group managing director of PHP Family, said they don't divert loan money for other uses.

Some of the entrepreneurs said bankers cannot avoid the blame as habitual defaulters take the chance again and again with the help of some of them. 

"But that is not the case for private banks," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank, denying the allegation of connivance. "It may happen in state-owned banks."

In case of private banks, loan proposal gets approval by the board of directors, he noted.

He termed the entrepreneurs mentioned above as 'judicious' and they don't expand their business in unfamiliar territories.

Rahman, however, said a few of these companies had become defaulters at some point of their business, but their banks came up to rescue them by giving loans without any equity. So, some banks deserve credit, he concluded.