Bangladesh Bank has suspended a provision of the Bank Company Act to facilitate a Tk 30 billion working capital loan to five defaulting companies of City Group, one of the country's leading industrial conglomerates.
According to a Bangladesh Bank notification, the five loan-defaulting companies of City Group are City Seed Crushing Industries Ltd, City Sugar Industries Ltd, City Edible Oil Ltd, City Dal Mills Ltd and Shampa Flour Mills Ltd.
The relevant provision of the Bank Company Act will not apply to the syndicated financing, led by City Bank, to provide working capital facilities worth Tk 30 billion to these companies.
Bangladesh Bank issued a notification today granting the exemption.
Section 27KaKa(3) of the Bank Company Act has been suspended for City Group until December next year. Under this provision, a loan-defaulting company is not eligible to obtain fresh loans.
Bangladesh Bank Deputy Governor Kabir Ahmed issued the notification suspending the provision until December next year. As a result, City Group, which markets products under the Teer brand, will face no further regulatory hurdles in obtaining fresh loans.
At a meeting held at Bangladesh Bank on 25 October, the central bank advised the lending banks not to classify City Group's loans as defaulted at this stage. It also suggested that the conglomerate be given facilities for long-term loan restructuring and rescheduling, if necessary, to help it overcome its difficulties and resume normal operations.
In addition, an initiative was taken to form a consortium of the lending banks to provide the conglomerate with the working capital needed to continue its business.
The group owes more than Tk 260 billion to 43 banks, and these loans have already become classified as defaulted. Bangladesh Bank Governor Mostakur Rahman, top executives of several lending banks and City Group Managing Director Md Hasan attended the tripartite meeting at the central bank.
The notification issued today also sets out several conditions.
It states that neither the government nor Bangladesh Bank will incur any liability arising from the proposed loan facility. In the future, City Bank or any other bank or financial institution participating in the consortium will not be entitled to seek any form of financial assistance from the government or Bangladesh Bank.
To ensure adequate collateral against the proposed loan facility, City Group will provide registered mortgages on properties that are not already encumbered by any of its other loans or liabilities.
The proceeds from selling goods purchased with the syndicated loan must be deposited into a designated bank account. Payments to the participating banks against the syndicated loan facility must then be made regularly from that account on a proportionate basis, with priority given to settling their dues.
The notification further states that the raw materials imported using the syndicated loan will be purchased by the lending banks of the borrowing companies, acting through a security agent, and processed under their custody.