Ispahani to split textile, tea businesses to meet cenbank's requirement

MM Ispahani Ltd is going to split its textile and tea garden business by forming two new entities to comply with the requirement of the Bangladesh Bank in availing loans from banks.

The business conglomerate has already applied to the High Court (HC) to demerge its business. Earlier, it got approval from its members and creditors as per HC order.

MM Ispahani proposed names for the new entities – Pahartali Textiles Ltd and Neptune Tea Estates Ltd.

Mirza Salman Ispahani, managing director of MM Ispahani Ltd, said they have many businesses under one company, which causes difficulty in obtaining loans from banks.

So, different limited companies are being set up to do business separately following central bank directives.

"Even if the companies are different, our management will remain the same. We are not going anywhere and will continue our business here," he told The Business Standard (TBS).

Currently, tea, tea gardens, textiles, foods, agro, ICT, hospitality, energy, packaging, real estate, and shipping businesses are operated under MM Ispahani Ltd. Among them, the businesses of foods, tea trade, agro, ICT, and packaging are operated as subsidiary companies.

MM Ispahani set up the Pahartali Textile and Hosiery Mills in 1954 with 18,000 spindles.

Besides, it started production from the Neptune Tea Garden located in Chattogram in 1960.

In 2020, four gardens of Ispahani on 7,885 acres of land produced 4.5 million kilograms of tea.

Also known as The Ispahani Group, MM Ispahani Ltd was founded in 1820. Owned by the Ispahani family, it is the oldest company in Bangladesh.

There are only around 60 countries which have business or industrial establishments which are over 200 years old. In Asia, there are such establishments in seven countries, including Bangladesh. In Bangladesh, it is only the Ispahani family on this list.

Why Bangladesh Bank opposes unit-based businesses

According to Bangladesh Bank officials, there is a practice in various sectors of operating multiple units under one company. In this case, entrepreneurs take bank loans under different units of the same company. Then problems arise when a unit defaults on a loan and the name is listed in the Credit Information Bureau (CIB).

Additionally, managing loan accounts of such companies in CIB is also complex. Such incidents are more commonly observed in the garment sector and large industrial groups.

For availing loans, the units that are under the control of a company are shown as separate entities. If a unit of the company defaults on a loan, the board of directors from that unit relinquishes it even though there is no entity as a "unit" in the Registrar of Joint Stocks Companies and Firms rules. Therefore, in case of default on a loan, it is necessary to relinquish the original company, not a unit.

A Bangladesh Bank official said a garment unit under the Standard Group recently became a defaulter on a loan, leading the entire group to become a defaulter despite other units of the group were not defaulters.

The central bank found that unit-based business provides an option to divert loans from one purpose to another, the official added.

Bangladesh Bank spokesperson Mezbaul Haque told TBS as they have been facing complexity in maintaining loan accounts in the CIB for the last several years, the central bank recently asked businesses to apply for loans under a registered company instead of a unit as "unit" is not a legal entity as per RJSC rules.

He added that many companies have agreed to seek loans for different units under a single company and other companies agreed to form separate companies instead of units.

"We have taken the decision to reduce anomalies and ensure transparency in issuing loans," he said further.