Navana bailed out

The government has decided to bail out Navana Group, a leading business conglomerate in the country, from the deep financial crisis it is in.

The Financial Institutions Division (FID) under the Ministry of Finance has asked four state-owned commercial banks to lend Navana Tk1,200 crore in working capital from the Tk30,000 crore incentive package announced for coronavirus-affected industries to help it continue to run its business that has almost stopped owing to a massive amount of bad loans.

A recent meeting of representatives from the finance ministry, the Bangladesh Bank, Navana Group and the four state-owned banks has decided to provide Navana with Tk500 crore in loans on an emergency basis against corporate and personal guarantees.

The four banks are now preparing to table the loan proposals before their respective boards.

Navana Group does not have much asset left to post as collateral against loans to the tune of Tk1,200 crore. Almost the entire of its assets have been mortgaged to various banks and financial institutions.

The FID has asked the four banks to create a pari-passu charge of Tk1,200 crore on Navana's assets mortgaged to private banks before disbursing the remaining Tk700 crore.

Pari-passu charges are used in case of consortium/syndicated loans when all lenders have equal rights over the borrower's assets on which pari-passu charges are created.

ABM Ruhul Azad, additional secretary of the FID, presided over the virtual meeting on July 13 at which the decision was made for the loans arrangement, according to the record notes of the meeting.

The managing directors and chief financial officers of the four state-owned banks – Sonali, Janata, Agrani and Rupali, three executive directors of the Bangladesh Bank, Senior Manager of Navana Group Mostafa Zahid and two other directors, one joint-secretary and one deputy secretary of the FID also participated in the meeting.

When asked, ABM Ruhul Azad said the boards of directors of the banks will take the final decision regarding the lending of Tk1,200 crore in working capital to Navana Group.

Shams-Ul Islam, managing director of Agrani Bank said the meeting led by the FDI decided to provide Navana with Tk500 crore emergency loans within July 30. If the four banks provide this amount the single borrower exposure limit will not be violated.

In this regard, Agrani Bank will raise a loan proposal before the next board meeting, he added.

The next board meeting of Agrani Bank will be held on August 8 (Saturday).

Meanwhile, a high-ranking official of Rupali Bank told The Business Standard that his bank and the other two state-owned banks are waiting for Agrani Bank's decision as the bank is leading the process to acquire Navana's debts.

Rupali Bank held a board meeting on July 28 but no proposal regarding providing loans to Navana was placed before it, he mentioned.

He also said the bank might seek one month's time from the finance ministry for providing Navana with working capital.

The start of the crisis

Navana Group's financial condition started to deteriorate after its Chairman Shafiul Islam Kamal fell ill in 2018 and his sons took charge of the various companies under the group.

At that time, two institutions became defaulters. The financial crisis has turned acute amid the current Covid-19 situation. The present situation is so bad that it has become impossible for the business conglomerate to continue operating, paying wages to its workers and other employees, let alone repaying loans.

Seventeen companies of the Navana Group have borrowed Tk5,233 crore in loans from 31 banks and 19 non-banking financial institutions. Of the amount, Tk4,677 crore has been borrowed from various banks, while the remaining Tk554 crore has been taken out from non-banking financial institutions.

In May 10 this year, Navana Group applied to FID Senior Secretary Md Asadul Islam seeking Tk1,200 crore in financial assistance from the Tk30,000 crore government incentive package to bail it out from the present crisis.

In the letter, Saiful Islam, senior vice-chairman of the group, mentioned that they were not being able to pay salaries to their 8,000 employees due to the financial crisis.

At that time, Shafiul Islam Kamal, chairman of the group, told The Business Standard that they had sought financial support under the stimulus package as banks had not been willing to provide the already debt-ridden group with new loans.

When asked about the reasons behind the financial crisis of Navana, he said, "Even though I am the chairman of the group, I cannot look after the businesses anymore due to my old age. My sons are looking after everything. Therefore, I cannot say anything about this."

He could not even say how many of the 17 institutions under the group were currently in operation.

At the meeting held in the finance ministry on July 13, Navana Group's Director Ansar Ali Khan said the group had never defaulted on any loan or applied for any loan or interest waiver since its establishment in 1964.

Mentioning that more than 1,00,000 people directly or indirectly rely on the 8,000 employees of Navana Group, he urged the government to provide the group with working capital on an emergency basis to help it recover from the current financial predicament.

Work on to acquire Navana's loans

The four state-owned banks will acquire the principal amount of Tk554 crore loans of Navana Group which it has taken out from non-banking financial institutions. However, before that, the group has to repay the interests of these loans.

The Bangladesh Bank is trying to bring down the interest rates of these loans by holding discussions with the financial institutions. Besides, the central bank is calculating the amount of Navana Group's debts and mortgaged properties with various private banks.

Agrani Bank Managing Director Shams-Ul Islam said the state-owned banks would not acquire the interests of Navana's loans with financial institutions and that they would acquire only the principal amounts. The acquisition process will start after the central bank issues a directive in this regard, he added.

Sirajul Islam, spokesperson and executive director of the Bangladesh Bank, told The Business Standard, "They (Navana Group) have taken loans from various banks. We have to scrutinise their loan portfolio and deposits in those banks. On the other hand, we also have to analyse how much of those loans the state-owned banks will be able to put up with. We're analysing all these issues so the final decision has not been taken yet."

An official of the FID told The Business Standard the government has decided to bail out Navana Group to rescue the large business conglomerate in the greater interest of employment and investment in the country.

He added that the state-owned banks will sign memoranda of understanding with Navana Group once a final decision is reached regarding the acquisition of its loans.

Navana Group is one of the largest private sector groups in Bangladesh. In 1953, Jahurul Islam started a construction company, named Bengal Development Corporation (BDC) and expanded his business into real estate and automobile sector by setting up new companies i.e. Eastern Housing Limited and Navana Limited respectively.

After the death of Jahurul Islam in 1995, Shafiul Islam Kamal emerged into a separate business entity from Islam Group in 1996 and established a new group named Navana Group taking the Navana Limited and Aftab Automobiles Limited as its strategic business unit.