MGI barred from taking $80 million IFC loan

The Bangladesh Bank has rejected a proposal by Meghna Group of Industries (MGI) to take an $80 million loan from the International Finance Corporation (IFC) for the purchase of four ships, citing repayment risks associated with foreign currency borrowing.

Private commercial lender Modhumoti Bank had applied to the central bank for a no-objection certificate (NOC) on MGI's behalf to receive the loan proceeds. The application was turned down without explanation, said Mostafa Kamal, chairman and managing director of MGI.

"To obtain an IFC loan, many conditions must be met. After fulfilling all of them, we received (the lender’s) approval for an $80 million loan to purchase four ships," Kamal told The Daily Star. "But our application for the NOC was not accepted. No reason was given for the rejection."

He said MGI has foreign exchange earnings sufficient to service the debt, but the approval was not granted regardless.

A senior official of the central bank, speaking on condition of anonymity, said that if a private company operates under the Bangladesh Investment Development Authority (Bida), then Bida provides initial approval for foreign loans.

However, if a company operates under the Bangladesh Economic Zones Authority (Beza), it must obtain an NOC from the central bank in order to take foreign loans, he added.

The company associated with MGI falls under Beza’s jurisdiction. Therefore, it requires approval from the central bank.

Considering the repayment risks of foreign loans, the application was rejected, he said.

Arief Hossain Khan, executive director and spokesperson of BB, said the central bank's caution around external borrowing stems from the systemic risk such loans can pose.

"If a company takes a foreign loan and later fails to repay it, the repayment burden can ultimately fall on the central bank and the state," he said.

He said the BB welcomes equity participation and foreign direct investment, but views foreign loans as riskier because they must be repaid in foreign currency.

“If production is mainly for the domestic market and does not generate export earnings, there is no foreign exchange inflow to repay the debt. That is why the central bank closely reviews such proposals and does not always approve them,” he added.

MGI is one of Bangladesh's largest conglomerates and a major commodity importer and processor. The group has been operating ships on international sea routes since 2010 and currently runs a fleet of 145 vessels, including 110 of its own.

The rejection of its loan by BB stands in contrast to a recently approved case involving Popular Pharmaceuticals, which was allowed to take a $30 million IFC loan in local currency to repay its working capital loans with local banks.

The Bida scrutiny committee on foreign loans and suppliers’ credit approved the loan in its 188th meeting on April 29. The BB governor is the chairman of the committee.

Bida officials said the committee approved the loan to help consolidate high-interest loans taken from local banks. The interest on the loan, which will be disbursed in taka, will be calculated and collected in taka as well, with the condition that it cannot be treated as a precedent for similar cases.

Regarding this, the BB spokesperson said that if loans are taken in local currency and repaid domestically, foreign exchange risk is avoided.

The central bank does not object in such cases, he added.