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Agrani's dicey deal with Beximco

Inam Ahmed and Sajjadur Rahman
2010. The year of share market boom (and later bust too). Companies were witnessing astronomical gains in their share prices. A perfect time for smart people to make hay.
Beximco Group did not sit idle either. It approached the state-owned Agrani Bank and offered shares of its various concerns for loans.
In a bizarre way, Agrani gave the company Tk 244 crore in loans against the high priced shares without due diligence.
The central bank had, and still has, certain rules about loans against shares: a bank can take shares as collateral against a loan only under a calculation formula. But Agrani ignored the rule.
According to the formula, the bank will have to average the market price of shares for the last six months, and then take into account 50 percent of the average.
That is not all. The bank has also to look at the share's face value (the price at which the share was floated) and take half of it into consideration.
The bank will then settle for whichever amount of the two is less: half of the sixmonth average or half the face value of the share.
Even then some banks want additional assets as collateral since shares are seen as volatile assets.
But in Beximco's case, Agrani Bank did nothing of the kind. The bank even ignored the fact that the face value of Beximco shares was less than the six-month average price.
Agrani sanctioned the Tk 244-crore loan to the company in two phases — Tk 194 crore on August 17,2010 and
extended it by Tk 50 crore on February24,2011.
In so doing, the bank considered the then market price of Beximco shares and accepted the company's shares as collateral at Tk 233 per share.
During April-October of 2010, when the first loan was given, the average price of Beximco Ltd's share was Tk 150 a piece, according to Dhaka Stock Exchange data. The share was last traded at Tk 71.7 on Thursday and its face value wasTklOeach.
So by accepting the share at Tk 233, Agrani gave Beximco Tk 158 more than it could give against each
share as collateral.
As for the extension, the bank took Beximco Textiles' (known as Bextex) share as collateral at Tk 65 per share. Here too the bank gave Beximco undue benefits without considering the share's average market price.
Later, Bextex got merged with Beximco at an exchange ratio of five Bextex shares for one Beximco share, which means the textile's share price now stands at around Tk 14 only.
The result is clear. The collateral value of the shares was Tk 283.15 crore when the loan was approved. The
share value fell to Tk 84 crore on August 11 this year. As a result, the loan has become insecure by Tk 200 crore.
Although Beximco utilised the full loan by 2011 it has neither paid back the loans (except for only Tk 5 crore this year) nor provided additional securities sought by the bank to make up the gap between the loan it took and the price of shares the bank got as collateral.
Even more alarming is that the bank has failed to sell off the Beximco shares even amid a continuous slide in price. Sources inside the bank say they tried to recoup the loss by selling the
shares but failed to do so because of interference from a "top man" of the company.
The "top man" is politically very influential, the sources added without naming any.
“We attempted several times to sell off the shares we hold as collateral, but we could not do it because of influence,” said a senior bank official, preferring anonymity.
But Beximco's story does no tend here.
A central bank report on August 25 this year says the principal branch of Agrani Bank opened 16 local letters of credit (LC) worth Tk 228.9 crore to help Beximco Ltd buy yarn from Beximco Textile.
Here too, Agrani breached the central bank rules by not paying Tk 89.87 crore bills to other state-run banks against seven bills even after they had matured.
As Beximco did not pay back the loans, Agrani was forced to create a Tk 125.3-crore demand loan (forced loan) against the company.
However, the bank took a long time to create the demand loan, says the BB report.
During inspection, the central bank team assessed that Beximco would not be able to pay Tk 89.87 crore without Agrani Bank having created the forced loan.
Syed Abdul Hamid, managing director of Agrani
Bank, said the issue was within his knowledge, but he declined to elaborate.
When asked about the central bank's inspection and detection of irregularities, he said: “I can't comment without verification."
Contacted by The Daily Star, Beximco in a written statement said letters of credit were opened as per rules and such operations were not unusual for any bank or company engaged in similar business.
“We could not make payments on due dates, as our buyers delayed in making payments. So this is a temporary cash-flow mismatch which will correct itself as the economic scenario has improved and we are expecting payments from our buyers which will enable us to repay Agrani Bank,” it said.
The company added when the LCs were opened the bank took collateral to cover the liabilities fully, as per the business norms.
Regarding the loan against shares, it said: “The collateral value appears low now as the value of share prices has gone down due to the current marketsituation.
"It may be mentioned here that the company’s net worth as of June 30,2012 is Tk 4,534 crore and all the directors have given their personal guarantees to the bank. So the banks cannot be said to be at risk due to these loans.”