Bank-Insurance
How banks were forced to buy Tk3,000cr Beximco Sukuk bond
Beximco Sukuk bond was another new financial instrument that was introduced for the first time in the country to help Beximco Group owner Salaman F Rahman to raise Tk3,000 crore by forcing banks to invest in it.
Earlier in 2021, Beximco floated a Tk3,000 crore Sukuk bond — the first-ever asset-backed securities by a private sector entity in Bangladesh — to finance its two solar power plants and for expansion of its textile division.
Later, Beximco used Bangladesh Bank (BB) to issue a circular allowing banks to invest in Sukuk bonds from the capital market special fund which would be excluded from capital market exposure. Banks can invest 25% of their capital into stock, as per the banking act.
After this circular, top executives of most banks were called by the Bangladesh Securities and Exchange Commission (BSEC) and the Bangladesh Bank to buy Sukuk bonds, officials of at least 10 banks told the news media.
A senior executive of the central bank recalled that Salman F Rahman visited the then BB governor Fazle Kabir at his residence, pressuring him to implement a policy that would allow banks to invest in Sukuk bonds.
At the time, there was no separate policy for bond investment, he said. Salman Rahman was demanding that banks set aside a separate fund for bond investment. Due to his pressure, the Bangladesh Bank issued a circular that excluded bond investments from capital market exposure, he added.
City Bank unwillingly invested Tk300 crore in Sukuk bonds under pressure from various quarters, said the bank’s Managing Director Mashrur Arefin.
BRAC Bank Managing Director Selim RF Hussain said he was also pressured to invest in Sukuk bonds, like others. However, he refused, saying, “I’m not crazy enough to invest the bank’s money in this.”
He added that banks that gave in to the pressure are now regretting it. He said banks which invested in Sukuk should make provision immediately as it is a complete loss in terms of investment.
Explaining the loss, he said the entire amount raised through Sukuk is a liability of the Beximco Group, which lacks the capacity to repay.
He said any investor should look into the financial behaviour of the obligator. In the case of Sukuk, no investors will invest knowing of the financial behaviour of Beximco Group if they are not forced.
“I know that many managing directors and chairmen of banks were forced to invest and they did it out of fear. However, we did not do it as our board is strong and did not pay heed to their call to invest in Sukuk,” he added.
Of the total Sukuk amount, 70% of the subscriptions have come from the banking industry — both private and public — followed by the corporate investor and the mutual fund, respectively.
Besides, individual investors have subscribed below 2% while Beximco shareholders subscribed only 1% in debt security, according to the issue manager.
Of the amount, Tk750 crore was offered in IPO (Initial Public Offering) but it remained undersubscribed, which reflects the low confidence of general investors in the Beximco Group.
How investors were cheated with Sukuk
Although Sukuk was asset-backed, Beximco did not officially transfer the assets, which is seen as deceiving investors and violating BSEC regulations, according to sources at the Investment Corporation of Bangladesh (ICB), which serves as the bond trustee.
Only the solar panel equipment was transferred against the bond, making the investment risky for banks. However, they ultimately bought in under pressure.
Though the regulatory intention was to create confidence among investors to invest in bonds by introducing asset backed bonds, it did not work eventually as Beximco did not transfer the land bought for setting up solar panel projects to the issuer company to safeguard investors.
According to the international standard of issuing Sukuk bonds, the issuer will form a third company under a special purpose vehicle (SPV) to issue the bond. The fund raiser will transfer its assets in the name of that SPV company.
As a result, if the fundraiser fails by any chance to repay, investors will be protected with the assets. The international bond market developed with this mechanism by creating confidence among investors. It is because investors are not much interested to invest in conventional bonds as those are unsecured when Sukuk is secured.
However, in the case of Beximco Sukuk, the bond was left unsecured, putting investors at risk because there were no assets backing their investment. Despite being responsible for ensuring the asset transfer, the ICB did not fulfil this obligation, according to ICB sources.
Why investors shy away from bonds
Beximco was the first company in Bangladesh to issue debentures in the late 1990s, but it has remained a defaulter for the past 20 years. This is the main reason why the bond market in Bangladesh has not developed.
A market analyst, wishing anonymity, told the news media that investors’ first experience with bond investment was negative, which created a lasting bad impression.
Despite being a defaulter, Beximco was allowed to raise funds in the same way again, he added. He said a company that has already defaulted on payments cannot be allowed to issue bonds again.
When Beximco moved to issuing Sukuk bonds, the ICB filed a case on non-payment of previous bonds, said a senior executive of the ICB. However, the BSEC gave clearance to issue the bond when Shibli Rubayat Ul Islam was its chairman.
This is how Salman F Rahman destroyed the bond market in Bangladesh, added the analyst.
Despite not making payments on debentures for 20 years, Beximco was not officially reported as a defaulter because there is no provision for classifying a company for failure to pay, said a senior executive of the Bangladesh Bank.
“That’s why a company’s financial performance analysis is very important before allowing it to issue bonds,” he added.
After the negative experience with Beximco’s unsecured bonds, the central bank introduced asset-backed bonds to protect investors, but this effort also failed due to fraudulent actions by the issuing company, he added.
Bangladesh Bank Governor Ahsan H Mansur has announced that the central bank will increase the policy rate twice within the next month to combat rising inflation. During a press briefing on Monday, Mansur said, “We will follow a contractionary monetary policy until inflation is brought under control. The policy rate will be raised next week and again next month.”
The governor expressed optimism about inflation stabilizing by March or April, although he did not specify the expected inflation rate. “While we can’t predict the exact level of inflation, we will tighten policies to bring it down. Our exchange rate remains stable, and remittances are on the rise, which should help ease inflationary pressures,” Mansur added.
Recent Rate Hike Follows a Series of Increases
On 25 August, the central bank raised the policy rate by 50 basis points, bringing it to 9% as part of its efforts to tackle high inflation. This marked the third increase in the key interest rate this year. Mansur had previously indicated that the policy rate, or repo rate, could potentially rise to 10% in phases.
Plans to Merge Smaller Islamic Banks
The governor also discussed the possibility of consolidating smaller Islamic banks. “Merging smaller banks would be beneficial. While no formal decision has been made, we are considering the option,” he said. Mansur explained that past irregularities had caused some bank owners to lose their ownership, which could make the process of consolidation easier.
He assured that depositors’ funds would be safeguarded, even if the banks are merged. “We will take actions based on the situation, but depositors’ money will be returned,” Mansur promised.
Task Force Established for Banking Sector Reform
Mansur further outlined that a task force has been formed to address issues in the banking sector, focusing on identifying distressed assets and recovering them. Initially, the task force will work with three banks, followed by an additional six. The team consists of 14 Bangladesh Bank officials, divided into three groups, with six members specifically overseeing larger Islamic banks.
Development partners will provide funding for these efforts, with external and international auditing firms assisting in the process. “Our first step will be to assess how much money has been withdrawn, both in name and covertly. If funds have been transferred abroad, we will work on bringing them back under international law,” Mansur explained.
Liquidity Support for Weaker Banks
The governor noted that some depositors were shifting their funds from weaker banks to stronger ones, creating liquidity challenges for the former. To address this, the central bank will provide funds from more liquid banks to those in need, ensuring that Bangladesh Bank covers any shortfalls if weaker banks are unable to repay.
Potential Changes in Bank Loan Targets
Mansur also mentioned the possibility of reducing the budget target for bank loans by Tk50,000 crore. This move could potentially boost private sector investment. “If we can reduce inflation to around 4%-5%, we will have the opportunity to lower interest rates,” he stated.
Bangladesh Bank (BB) has received a loan proposal totaling $2.5 billion from the World Bank (WB) and the Asian Development Bank (ADB) in several packages, aimed at supporting structural reforms, policy implementation, and investment projects.
The proposal was presented today during a meeting between Bangladesh Bank Governor Ahsan H Mansur, senior officials, and delegations from both the WB and ADB at the BB headquarters. The information was confirmed by BB spokesperson and Executive Director Husne Ara Shikha.
“The World Bank has proposed a $1 billion loan, which includes a $750 million policy-based loan requiring the central bank to implement specific policies. Additionally, a $250 million investment loan is currently in process,” said the BB spokesperson.
Similarly, the ADB has proposed a $1.5 billion policy-based loan, which will be disbursed in three phases, including a $200 million investment loan. According to the central bank spokesperson, $500 million of the loan could be received by 2025.
Additionally, a visiting US delegation, led by Brent Nieman, Assistant Secretary of the US Treasury Department, met with the central bank governor today. During the meeting, the delegation was briefed on the country’s macroeconomic conditions, though no specific loan amount was discussed by the US treasury team.
Parvez Tamal, Chairman of NRBC Bank, once known as a close ally of former Prime Minister Sheikh Hasina, has reportedly shifted his stance following the resignation of the Awami government on August 5. Tamal, who had been accused of exploiting political power for financial misdeeds during the Awami regime, is now aligning himself with student activists in a bid to protect his position.
Previously, Tamal had threatened NRBC Bank employees with termination if they supported or joined the quota reform movement. He also warned of administrative harassment for any Facebook posts or comments related to the movement. However, after the fall of the Awami government, Tamal has been providing financial support to the very student protesters he once opposed, in an attempt to distance himself from his controversial past.
An investigation by Orthosongbad revealed that during the anti-quota movement, Tamal worked on behalf of Sheikh Hasina, even monitoring NRBC Bank staff to ensure they did not participate in the protests. On July 17, under his directive, a warning was sent to all branch managers of the bank, cautioning them about the movement. Documents related to this have surfaced during the investigation.
A directive from NRBC Bank instructed all its officers and employees to refrain from joining any assembly related to the quota reform movement or sharing any comments, posts, or information about it on social media. The email from the bank’s HR department, titled ‘C,’ warned that any violation of this order would result in administrative action in accordance with HR policies. The directive also emphasized ensuring maximum security in and around the bank and required employees to be punctual in reporting to work.
Sources suggest that NRBC Bank Chairman Parvez Tamal, in an attempt to secure his position, has been trying to win over the coordinators of the anti-discrimination student movement. This speculation gained traction after a recent event where Tamal handed over a cheque for 5 million BDT from the bank’s Corporate Social Responsibility (CSR) fund to Hasanat Abdullah, one of the coordinators of the student protests. The donation, aimed at providing treatment and rehabilitation for injured protesters, has sparked widespread criticism on social media. Many are questioning Tamal’s sudden shift, given his previous ties to former Prime Minister Sheikh Hasina and his outspoken opposition to the student movement.
At the donation event, Parvez Tamal remarked that NRBC Bank would support the dreams of those building a “new Bangladesh.” In addition to providing medical assistance to the injured, he pledged future employment opportunities and scholarships for injured students. NRBC Bank also committed to offering jobs to able-bodied members of families affected by the protests. These promises mark a stark contrast to Tamal’s previous stance, where he had vocally supported Sheikh Hasina and opposed the student protests.
Attempts to reach Hasanat Abdullah, one of the coordinators of the anti-discrimination student movement, for a comment were unsuccessful. Despite multiple calls from Orthosongbad office to his mobile phone, there was no response. Similarly, efforts to contact another coordinator, Sarjis Alam, also failed to yield any comments.
However, former law student of Dhaka University and social media figure Syed Abdullah shared his thoughts on Facebook, stating that NRBC Bank Chairman Parvez Tamal is on a mission to secure his position by ingratiating himself with the students, thereby improving his image. Abdullah urged immediate investigations by the Anti-Corruption Commission (ACC) and journalists into the activities of Tamal and his associates.
Orthosongbad made several attempts to contact NRBC Bank Chairman Parvez Tamal for comments, but no response was received.
Sources claim that Parvez Tamal, in his efforts to support the Hasina government, has distributed various donations through the bank, both publicly and covertly. Among these are scholarships in the name of Bangabandhu, a special issue of “Planet” magazine focused on Sheikh Mujibur Rahman’s life and legacy, donations to the Bangabandhu Memorial Trust, contributions to the Bangabandhu Youth Fair, and charity books and iftar events around Bangabandhu’s birthday. Additionally, the bank had provided significant funds for Sheikh Hasina’s Ashrayan Project.
Parvez Tamal, who claims to be a Russian oligarch and served as the president of the Russia Bangabandhu Parishad, has been implicated in various financial irregularities, including loan fraud, commission schemes, recruitment corruption, stock manipulation, money laundering, and the embezzlement of funds. During the tenure of former Prime Minister Sheikh Hasina, Tamal reportedly leveraged his connections with senior leaders of the Awami League to engage in these activities.
The Anti-Corruption Commission (ACC) had previously launched an investigation into Parvez Tamal, chairman of NRBC Bank, following allegations of irregular salary increases for select officials. The investigation stemmed from a complaint by a sponsor shareholder of the bank. Tamal reportedly bypassed the banking regulations, awarding significant salary increments to 27 officials while ignoring over 3,800 employees. Additionally, Tamal and his personal secretary, Asif Iqbal, allegedly pocketed excessive fees from board meetings, violating the country’s banking laws. Furthermore, the investigation revealed that Tamal had set up an unauthorized entity, NRBC Management, without approval from Bangladesh Bank. However, the investigation was abruptly halted, allegedly due to Tamal’s political influence.
In a separate case filed on July 11, 2023, the ACC accused 14 individuals, including 11 NRBC Bank officials, of money laundering and providing unlawful loans. The lawsuit alleges that the accused embezzled approximately 78 crore BDT (including interest) by issuing loans without proper collateral. Additionally, 5.97 crore BDT worth of export proceeds were reportedly laundered without being repatriated to Bangladesh. Tamal was implicated in this fraudulent activity but reportedly used his political connections to suppress the investigation.
Further details of this ongoing investigation will be disclosed in subsequent reports by Orthosongbad.
