Lub-Ref seeks political support from BSEC as capital crisis hits

Lub-Ref seeks political support from BSEC as capital crisis hits

Lub-Ref (Bangladesh), a listed energy and power company on the capital market, is facing a shortage of enterprise capital. The company is unable to borrow from a bank to make up the shortfall. Already, all fixed assets of the company have been mortgaged and loans have been taken out with various banks. Lub-Ref has sought policy assistance from the Bangladesh Securities and Exchange Commission (BSEC), the capital market regulator, to overcome this problem.

Recently, the company’s chief executive sent a letter to the commission outlining the overall situation and asking for political support.

According to the letter, the equity share of the company is currently Tk 145 crore 24 lakh through entrepreneurs and IPO. The company has long and short term debt of Tk 52 crore 97 lakh and Tk 74 crore 21 lakh respectively. The company needs a working capital of at least Rs.140 crore to repay this debt, while the company now has a working capital of Rs.70 crore both funded and unfunded. Which is not enough to achieve the sales target of 2022 and the sales target of 2023. In particular, this is not possible due to the multiple increase in the cost of raw materials.

During the corona pandemic, market demand from the automotive sector of the company came to a standstill. At that time, the activities of the industrial sector were also in very poor condition. As a result, most of the company’s working capital was lost. At the same time, the bank concerned did not provide additional business capital to the company from the government incentive program. The company has given interest rate concessions only for loans below Rs 10 crore. As a result, the company’s request could not be satisfied. Meanwhile, as businesses struggle to recover from the pandemic, the entire oil sector has been hit by war in Ukraine and Russia. As a result, the price of raw materials increased two to three times compared to the pre-war situation. At the same time, the price of goods has also increased significantly. As a result, the company’s working capital was reduced by a third.

The letter also said the company must now immediately increase its working capital cap to keep production running. Unfortunately, the bank associated with the company said they would not give the money without further collateral. The company is unable to provide guarantees. Because they have already mortgaged all the company’s fixed assets to the bank. Further, 37 crore IPO was transferred from Social Islami Bank Limited to Agrani Bank Limited on June 23, 2022. After that, the bank said that it got strict with the company’s new proposal.

Despite all the difficulties, the company has paid a 10% cash dividend to common stockholders for the fiscal year ending in 2021, noting that the company plans to pay a similar dividend this year and next year as well, if the company executes projects well. Meanwhile, the company has Tk 20 crore and Tk 37 crore of initial public offering (IPO) money with Social Islami Bank and Agrani Bank respectively for the development of the new project site after paying part of the debts of the bank from the proceeds of the IPO. The money of the said IPO is kept in a special account for the LC margin, which is a very nominal amount compared to the import of machinery for the BMRE project. Said bank failed to provide two promised syndicated loans and rescinded the company’s loan offer for two years.

Meanwhile, according to company sources, due to the current instability in the world, the impact of the economic downturn is expected to affect the company. In addition, a syndicated loan proposal to Agrani Bank is underway. Even then, the completion of the company’s BMRE project will be delayed. During this period, not only the company, but also the employees and their families must be protected and the interests of many shareholders must be safeguarded. Therefore, the company sought political assistance from BSEC to deal with this situation.

Asked about this, Lub-Ref (Bangladesh) Chief Financial Officer (CFO) Mohammad Mofizur Rahman told RisingBD: “There is no cooperation from the bank in the current situation. LC has been closed for about six months. However, even now some LCs are opened with a margin of 100-150%. Previously, this was done with a margin of 5 to 10%. Even the bank understands the opportunity and again they have to give a margin of 200%. Now, even after the percentage increase, we have to reach the goal. Otherwise, we will fall behind or default again. Due to which our trading capital decreases.

He also said: “The bank is no longer willing to participate in the project we were supposed to do. So we decided to do it on a smaller scale. And meanwhile, there is some IPO money taken for the project, which can be used as business capital for a short time, I asked for political support.

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