Financial strain: City Group explores sale of non-core assets

City Group, one of Bangladesh’s leading conglomerates, is considering the divestment of selected non-core business units to generate funds and streamline operations amid a mountainous financial burden.

The group is also exploring fresh equity injections through strategic local and foreign partners, private equity investors, and the potential public listing of some businesses to strengthen its capital base and reduce its reliance on debt.

The plans were outlined in a letter sent by City Group to the governor of Bangladesh Bank a few months ago. The Daily Star has seen a copy of the letter.

“If the group runs into serious trouble at this point, the impact will be felt across the banking sector and the broader economy.”

Syed Mahbubur Rahman Managing director and CEO of Mutual Trust Bank

Officials at City Group and bankers who financed the conglomerate, speaking on condition of anonymity, said the group is considering sale or divestment of its tea garden, LPG business, Hoshendi Economic Zone, and a television channel.

The Daily Star repeatedly tried to contact City Group Managing Director Md Hasan by phone and WhatsApp, but received no response.

In the letter to the central bank governor, Hasan sought regulatory support, saying the group had drawn up a structured three-year recovery plan aimed at restoring liquidity, strengthening cash flow, and reducing debt.

He expressed confidence that the recovery measures, coupled with continued cooperation from lenders, would improve the group’s financial position and debt-servicing capacity within the next three years.

Industry insiders and bankers said City Group expanded aggressively in recent years by taking on large volumes of bank loans, often without adequate assessment.

Much of the expansion was concentrated in cement, LPG, tea, media and economic zones, they said. Profits from stronger businesses were channelled into weaker ventures, a practice that has now placed the entire group under financial stress.

One of the biggest setbacks has been the Hoshendi Economic Zone in Gajaria, Munshiganj.

The group invested about Tk 12,000 crore in developing the 108-acre zone and established six industrial units based on approved gas allocations. However, gas supply has yet to be provided, leaving the factories idle despite the investment, according to bankers.

City Group is now looking to divest the project.

The conglomerate is also considering selling BRAC Banskhali Tea Garden in Chattogram, which it bought from BRAC for about Tk 120 crore in 2015, officials said.

Another asset under review is Ekhon TV, launched in 2022 under City Group subsidiary Spice Television Ltd. The group is exploring either fresh investment in or divestment of the television channel.

The managing director of a leading private commercial bank, requesting anonymity, said the group’s financial distress stemmed largely from its enormous debt burden and operational inefficiencies under its second-generation leadership.

“We, the bankers, are now pushing for the sale of those ventures to repay bank loans,” he said.

City Group founder Fazlur Rahman, who began his entrepreneurial journey in 1972 by establishing City Oil Mills in Gandaria, Dhaka, died in December 2023. Following his death, management of the conglomerate passed to his children.

According to Bangladesh Bank and lending banks, City Group’s outstanding loans now stand at around Tk 25,000 crore, spread across 48 banks and non-bank financial institutions.

Its lenders include multinational banks such as HSBC and Standard Chartered, leading private commercial banks, and several non-bank financial institutions. The group has also secured financing from international development agencies, including the International Finance Corporation (IFC) and the Asian Development Bank (ADB).

Among the largest domestic lenders are The City Bank, Eastern Bank, Prime Bank, BRAC Bank, Mutual Trust Bank (MTB), United Commercial Bank (UCB), Dutch-Bangla Bank, Pubali Bank and Bank Asia.

Contacted, Arief Hossain Khan, executive director and spokesperson for Bangladesh Bank, said the government is prioritising the revival of closed industrial units and has already announced a support package.

Against that backdrop, he said, the central bank has advised banks on how they may assist, within the existing policy framework, a fundamentally sound conglomerate that has run into difficulty.

“Many businesses have ceased operations for various reasons. In the interest of the economy, it is important to preserve a viable company that has become vulnerable due to management-related issues,” he said.

CITY’S EXPLANATION TO BB

In its letter to Bangladesh Bank, City Group attributed its financial and operational difficulties to the sharp depreciation of the taka, rising borrowing costs, prolonged gas shortages and tighter credit conditions.

The group said the taka had depreciated by nearly 42 percent against the US dollar over the past four years, significantly raising import costs and eroding the value of its sanctioned credit facilities. It estimated that its import financing capacity had declined by around $900 million as a result.

Domestic lending rates have risen by four to five percentage points, while US dollar borrowing costs have nearly tripled since 2022, putting pressure on cash flow and operating margins, the letter said.

The conglomerate also cited prolonged gas shortages, which have left several industrial units at Hoshendi Economic Zone idle or operating below capacity despite substantial investment.

It further pointed to liquidity shortages in the banking sector, difficulties in obtaining letters of credit confirmations from international banks, and restrictions on fresh lending, which it said had reduced the effective availability of its credit limits by another $400 million.

To ease the pressure, the group requested Bangladesh Bank to instruct banks and non-bank financial institutions not to classify its existing loans until September 30, 2026, while continuing to provide working capital support.

It also sought central bank backing for restructuring loan repayments and asked banks to extend term loans under an existing Bangladesh Bank scheme designed to offset foreign exchange losses incurred during the 2022 currency volatility.

BANKS FORM COMMITTEE

Following Bangladesh Bank’s instruction, representatives of more than a dozen banks met City Group on June 18 at a hotel in the capital to discuss ways to keep the conglomerate operational, including possible loan restructuring.

After the meeting, the lenders formed a review committee comprising representatives from leading banks to assess the group’s actual financial position and recommend possible support measures.

The committee includes officials from Mutual Trust Bank, City Bank, UCB, Prime Bank, Midland Bank and several other lenders.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said the bank representatives met at the group’s request to explore possible ways of providing support.

“We all want to help the group collectively. That is why we sat together to discuss what could be done and how we could support them within the existing process,” he told The Daily Star.

He said City Group had never defaulted in its 53-year history, maintained strong relationships with banks, and had not diverted funds elsewhere.

Mahbubur, who is also a former chairman of the Association of Bankers, Bangladesh, said the group appeared to have fallen into difficulty because of mismanagement.

“If the group runs into serious trouble at this point, the impact will be felt across the banking sector and the broader economy,” he said, adding, “Once the committee submits its report, we will assess how assistance can be provided in line with the central bank’s regulations.”