Important Business News Extracts – December 26 2016
BASIC to get BDT 26.0 billion recap fund: Public money being put in ‘black hole’, say experts
The government is set to issue BDT 26 billion-worth of bonds to meet capital shortfall of the problem-ridden BASIC Bank as per requirement under the Basel-III provision, officials said. Finance Minister AMA Muhith approved Wednesday a proposal mooted by the banking division in this regard and asked the finance division to take steps for bond issuance, they added. Government, as the owner of the bank, will issue 26 bonds valued BDT 1.0 billion each. Against the bonds, namely ‘BASIC Bank Recapitalization Bond’, the bank will issue general shares worth BDT 26 billion. Eight of the bonds will have 10 years’ maturity, another eight have 15 years and the rest 10 will have 20 years of maturity period with their ownership being non-transferable. The bank was given bailout in the past, too. In total, it had received from the government BDT 23.90 billion to meet its capital shortage, including BDT 12 billion given in December last for recapitalization. Managing director of the bank Khondoker Md. Iqbal said an increased provisioning obligation against loans has raised the capital requirement of the bank. The requirement of provisioning will be reduced if loans can be recovered and rescheduled. He said the provisioning requirement as of December 2014 was BDT 42.97 billion, which came down to BDT 38.58 billion in December 2015. He was hopeful about nearly halving the figure to BDT 21 billion over next five years.
Mercantile Bank chairman, NRBC collude in huge loan, share scams
Mercantile Bank chairman Shahidul Ahsan and NRB Commercial Bank colluded in huge irregularities like loan scam and illegal shareholding in ‘fake names’, according to a Bangladesh Bank investigation. NRB Commercial Bank sanctioned BDT 3.0 billion to Ahsan violating the rules and regulations. NRBC Bank violated the single borrower exposure limit to sanction the loans in favour of Ahsan’s business organisations as it approved 56.0% credit limit amounting to BDT 3.0 billion against its capital of BDT 5.4 billion. According to the bank company act, the outstanding amount of loan to a single person, counterparty or a group will not exceed 35% of the capital of a bank at any point of time.
Government borrows less from banks as people rush for savings tools
Government borrowings from internal and external sources increased by nearly 26% to BDT 205.3 billion, as on November 22, for financing overall budget deficit, officials said. Net borrowing from the domestic sources like banking system and national savings schemes increased to BDT 174.8 billion until November 22 of the ongoing financial year (FY) from BDT 143.6 billion in the corresponding period of last fiscal. And net borrowing from overseas sources in loans and grants was BDT 30.46 billion, up from BDT 19.6 billion during the period under review, according to a finance ministry report. The government, however, borrowed less from the country’s banking system, as its bank borrowings dropped nearly 71%. Mainly higher sales of national savings certificates tipped the balance. Its net borrowing from non-bank sources, particularly from national savings certificates, jumped by over 76% during the period. Net bank borrowings by the government dropped to BDT 15.6 billion, as on November 22 of the FY 2017-16, from BDT 53.3 billion in the same period of the FY16.
Fund raising by cos through IPOs hits 6-yr low in 2016
Fund raising from the capital market hit six-year low in the outgoing calendar year as only eight companies raised BDT 6.6 billion through initial public offering during the period. Officials of the stock exchanges and Bangladesh Securities and Exchange Commission said stricter public issue rules that was amended in December 2015 was the main reason behind the fall in fund raising from the capital market through IPO.
Scope opens wide for banks’ capital investment in bourses
Banks’ exposure on the capital market has dropped sharply to 19% against stipulated 25% of respective capital, yielding a wide scope for fresh investment worth around BDT 42 billion. Officials said the space for making fresh capital investment by banks was created after the central bank allowed the commercial banks to convert their over- investments into equities of their subsidiaries as part of adjusting overexposure in April 2016. Asked, officials of different subsidiaries of banks said they are also exempted from paying back loans taken from parent companies and this scope facilitated their capital-related operations. Of 56 banks, including 30 listed ones, 12 had investments above 25% of their respective capital before the central bank’s latest policy support granted in April, according to officials of Bangladesh Bank (BB). Following a longstanding demand of stakeholders, the central bank paved the way for adjusting overexposure through the restructuring of exposure components and converting banks’ excess funds to equities of their subsidiaries that deal in securities. Of the 12 overexposed banks, over-investments of three banks came down in line with stipulated limit following the price correction witnessed by the capital market within April. And the remaining nine banks’ surplus came down in line with stipulated limit when their over-investments were converted to equities of their respective subsidiaries like brokerage firms and merchant banks, according to BB officials.
The government has spent BDT 419.1 billion or 12.3% of the total budget allocation of the current fiscal during the first quarter, according to a budget analysis of the finance ministry. At the same period last year, 12.6% of the total budget allocation was spent. Finance Minister AMA Muhith will present a report on the country’s macroeconomic situation and budget implementation in next session of the parliament. In the current fiscal year, the budget deficit is estimated to be BDT 978.6 billion, which is 5.0% of the country’s gross domestic product. The deficit is to be met by borrowing from foreign and local resources.
Government’s foreign debt swells to USD 32.0 billion
Government’s external debts kept rising, totaling USD 32 billion as of June 30, while domestic borrowing poses to be a burden. Such growing public-sector liabilities are manifest in official statistics. The pace of rise in the private-sector debts, however, slowed down during period under review. But economists familiar with the developments told the FE that the external debt still remained in a comfort zone while they were critical of an inconsistent growth in the domestic debt. In their view the domestic debt has now emerged as real burden instead of the external debt. The government had a target of BDT 615 billion domestic borrowing to feed its annual spending need up to June 30. According to latest official statistics prepared by the central bank of Bangladesh the public-sector outstanding foreign debts stood just over USD32 billion, up by USD 2.5 billion in a year. On the other hand, the private-sector outstanding external debts increased by 12.5% to USD 8.8 billion at the end of June 30 last. However, the debts of public and private sectors combined rose by 9.5% to USD 40.8 billion at the end of past June.
BPC repeats request despite booking hefty profit on global oil slump
Bangladesh Petroleum Corporation (BPC) again pleaded for converting its BDT 274 billion oil debt to state subsidy, notwithstanding making hefty profit now on global market slump, officials said. The energy division last week forwarded a letter of BPC in this regard to the Ministry of Finance (MoF) for consideration ‘to help the loss-making body emerge into a profitable one’. The state-run oil importer had incurred losses since its inception but made a turnaround with some profit in its coffers during the fiscal years (FYs) 1982-83 to 1998-99 bar FY 1996-97. Thereafter, it reverted to incurring losses for having to sell oil at lower prices despite price hike on the international market. Until FY2013-14, the corporation’s total loss had accumulated to BDT 514 billion. The government on various occasions provided BDT 15 billion in cash and BDT 159.6 billion in the form of bond to bear the responsibility of BPC loan. The rest of the amount worth BDT 274 billion still remained on BPC’s back as a load of loan owed to government, the memo says. The memo also mentions that the BPC from its profit meantime has paid back BDT 30.858 billion to Sonali, Janata, Agrani, and Rupali banks, BDT 17 billion to Petrobangla, BDT 6.0 billion to revenue board, and BDT 2.4 billion as land price for Unit-2 of Eastern Refinery Ltd (ERL). Besides, it paid government BDT 10 billion as dividend. Now it is saving money for funding the setting up of ERL-2, Dhaka-Chittagong pipeline, single-point-mooring project, pipeline from Numaligarh Refinery of India to Parbatipur in Bangladesh and a new oil refinery at Payra seaport.
The government will soon publish the National Housing Policy (NHP) 2016 as the authorities concerned recently forwarded it to the ministry of public works and housing (MoPWH) for gazette notification. Officials said the process to publish the policy is almost complete with its legal vetting and expressed the hope that it would be published anytime next month (January next). The cabinet had approved the draft of the policy on April 25 this year, facilitating the authorities to complete other processes before the gazette notification. The government had decided to adopt the policy for ensuring affordable housing facility for every citizen, but after protecting the environment, officials said. They said the new policy would have a series of measures, including formation of an urban land bank with a data base on land as well as provisions for tax emption to attract more private investments in the sector.
Unstable raw material markets, high working cost deter growth in local paint industry
Unstable markets of various raw materials, volatile transportation cost, and higher operational expenses have taken a toll on the growth of local paint manufacturing industry in recent times. Keeping this in view, Bangladesh Paint Manufacturers Association (BPMA) has been discussing the issues with the government and the country’s apex trade-body for ensuring the sector’s growth. BPMA president Salim Ahmed said these in the 39th annual general meeting (AGM) of the association, held at Dhaka Club on Saturday. Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Abdul Matlub Ahmad and its First Vice President Md. Shafiul Islam also attended the programme, among others. Speaking on the occasion, Salim Ahmed said the sector’s growth has also been hindered due to a sluggish real estate market during the recent years. He also urged the government to reduce the existing 5.0% supplementary duty on import of raw materials of the sector for ensuring its growth. He also sought the government’s help for creating equal opportunities for all the companies to survive in the market. According to the available data, the total market size of paint manufacturing sector is around BDT 31.56 billion. The sector’s growth is estimated to be around 12% in 2016. According to BPMA, around 50 companies are active in the country, of which 30 are affiliated with the association.
The installation of the second submarine cable has already been complete, but Bangladesh needs to wait for at least two months to get connected to the cable, as its inland link from the landing station to the capital is not yet ready. Bangladesh Submarine Cable Company Ltd (BSCCL) was one of the founding members of the undersea cable — South East Asia-Middle East-Western Europe 5 (SEA-ME-WE 5). A 19-member consortium of 16 nations built the cable across Southeast Asia, the Middle East, Africa and Europe through sea. The construction of the 20,000-kilometre subsea cable system was officially completed on December 13. Some member companies like Transworld Associates Private Ltd of Pakistan started getting services from the cable at least three months back as the installation of their portion was completed earlier. As Bangladesh Telecommunications Company Ltd (BTCL), a state-owned company, failed to establish its connectivity link from the landing station in Kuakata to Barisal, it will take some time to get bandwidth from the submarine cable, said Monwar Hossain, managing director of BSCCL.
The government is set to spend BDT 8.1 billion to establish distilleries, cogeneration and biogas plants in two sugar mills with the view to turning the loss-making entities into profitable ones, said officials of state-run Bangladesh Sugar and Food Industries Corporation. The plants are: Thakurgaon Sugar Mills and North Bengal Sugar Mills in Natore. This is going to be one of the highest ever investments by the state in sugar mills since the country’s independence in 1971. At present, Bangladesh can meet about 5% of its annual demand for sugar through domestic production. It has to spend more than BDT 50.0 billion a year to import sugar to meet the annual domestic requirement of over BDT 2.0 million tons, according to estimates. BSFIC, which helps the government keep the sugar price stable, has the capacity to produce 0.2 million tons of sugar a year. But in the absence of adequate amounts of sugarcane, its 15 mills cannot fully utilize the production capacity. The sugar mills’ production continues only for 2-3 months in a year, with factories posting losses at the end of the fiscal year, according to officials.
Government-ADB to ink $167m loan deal for gas sector
The government will sign with the Asian Development Bank (ADB) USD 167.0 million loan agreement for financing a project to improve infrastructure and operational efficiency of the country’s gas sector. Last month, the ADB approved the loan amount to help promote sustainable economic growth and reduce poverty in Bangladesh by improving production efficiency at a key gas field, north of the capital Dhaka, and by expanding transmission infrastructure. Senior secretary of the Economic Relations Division Mohammad Mejbahuddin and ADB country director Kazuhiko Higuchi will sign the loan document on Wednesday on-behalf of their respective sides.
Siam City Cement (Bangladesh) Limited launched its prestigious premium quality brand “INSEE” Cement in Bangladesh. A Gala programme was held at Radisson Blu Water Garden Hotel to mark the launching ceremony recently. Commerce Minister Tofail Ahmed was present at the launching ceremony as the chief guest while Siam City Cement Public Company Limited CEO Siva Mahasandana, vice-president Montri Nitikul, Siam City Cement (Bangladesh) Limited CEO PN Iyer were present at the event.
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