Why Shipping Corporation fails to utilise Tk220cr public funds

To expand its fleet, state-owned ocean-going vessel management authority Bangladesh Shipping Corporation (BSC) raised over Tk313.70 crore through a repeat public offering (RPO) from the capital market back in 2011.

To date, 70% of the public fund remains unutilised as its initial plan was scrapped, according to its latest reports.

The corporation has raised the funds floating 62.74 lakh ordinary shares of Tk100 at an offer price of Tk500 each, including Tk400 as premium.

Now, the Shipping Corporation plans to utilise these funds in its upcoming vessel purchase project within one or two years with a purpose of expanding its fleet on rising demand internationally.

In October, the corporation decided to invest around Tk700 to Tk800 crore to procure two vessels at its own cost.

The procurement, being financed entirely by the corporation, marks the first time in its history as its financial base has been bolstered by healthy profits in recent years.

The surge in earnings and profits was driven by an increase in freight rates for ships operating on international routes, following the Covid-19 pandemic and the Russia-Ukraine war, as well as a rise in the value of the dollar.

Before the pandemic, in fiscal year 2019-2020, the corporation's net profit was Tk41 crore.

Since then, its profit has grown significantly in subsequent fiscal years. In FY24, its profit reached a record high.

Established in 1972, just months after the country's independence, the corporation last fiscal year logged a profit of Tk250 crore for the first time in its 52-year history.

Commodore Mahmudul Malek, managing director of the Shipping Corporation, told TBS, "With the approval of shareholders at the upcoming annual general meeting (AGM), along with a two-year time extension until June 2026, we plan to use the funds for procuring vessels."

What was the initial plan for the raised funds?

According to its initial plan outlined in the prospectus, the corporation intended to use the raised funds to procure a second-hand (around 10 years old) 100,000–125,000 DWT (deadweight tonnage) mother tanker, and a second-hand (not more than 10 years old) 30,000–35,000 DWT product carrier, at a total cost of Tk314.20 crore.

The mother tanker was planned to be procured through a joint venture, where the corporation would bear 30% of the cost (equivalent to Tk105 crore), while the remaining 70% was to be funded by a strategic partner.

However, this plan was later scrapped when the corporation decided to purchase six vessels through a government-funded loan.

After signing a government-to-government (G2G) loan agreement with China, the corporation procured six vessels at a cost of over Tk1,500 crore. These vessels are now operating on various international routes.

When the initial vessel procurement plan, as mandated in the prospectus, was abandoned, the corporation revised its fund utilization strategy. The revised allocations included: constructing a building, partial funding for the six-vessel project, covering expenses for raising funds, and keeping approximately Tk200 crore unallocated.

As of June 2024, the total unutilized funds stood at Tk220.26 crore, according to the latest reports.

At its 43rd Annual General Meeting (AGM), held in 2022, shareholders approved the use of these unutilised funds for vessel procurement. 

The corporation now plans to seek shareholder approval for a two-year extension to utilize the funds for ship acquisition.

Tk475cr repaid for loan against procuring vessels

The corporation has recently handed over a cheque of approximately Tk475.25 crore to the chief adviser as the first instalment for repaying the loan taken from the government for procuring six vessels. 

According to the corporation, a loan agreement for the procurement of six new ships project was signed in October 2016, between the Economic Relations Division and China Exim Bank.

The project was implemented on a G2G basis to procure six vessels for the corporation. 

The principal loan amount was Tk1,457.67 crore. To facilitate loan repayment, a subsidiary loan agreement was signed between the Finance Division and the corporation on 27 October. 

Under the agreement, the corporation will repay approximately Tk2,425 crore to the government over the next 13 years.