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SoEs get bounty amid worries over default

Debt of Tk 65b converted into equity


Jasim Uddin Haroon | Published: February 09, 2019 10:20:09 | Updated: February 15, 2019 09:49:42


Photo collected from internet has been used for representational purpose only

The pace of converting debts of state firms into equity picked up after the government implemented its new pay scale in 2015, officials said.

So far, the government has converted over Tk 65 billion in loans of state-owned enterprise (SoEs) into equity, according to a government document that has stated equity positions of the debt-laden state entities.

Loans of some 35 SoEs out of 146 such government entities were converted into equity, a value found by subtracting liabilities from assets.

This debt-equity swap, however, helped raise the government assets with the SoEs to Tk 1.4 trillion at the end of December 2017, according to the document.

It was Tk 1.3 trillion at the end of December in 2012.

The government usually disposes of the liabilities of its agencies when they cannot repay. But the pace gained speed in recent years, especially after the implementation of national pay scale in 2015.

The authorities also issued a guideline sometime in April in 2018.

Officials at the Finance Division said such swaps are made when organisations face debt chronically and need cleaning up of their accounts.

The international accounting standard (IAS) 39 has the provision for such debt to equity swaps.

They said the government had paid the amount from its own fund, which in turn shrinks fiscal space.

They also said the government has planned to convert loans of more debt-burdened entities into equity as a means of cleaning up their balance sheets.

A large number of SoEs have been incurring losses for a long, partly due to the weak management and competition from the private sector.

The government's Debt Service Liability (DSL), a wing under the Finance Division, provides loans to government agencies at a single-digit interest rate with longer repayment period.

And it borrows from development partners such as the Asian Development Bank, the World Bank and the Islamic Development Bank (IDB) and provides money to different SoEs, autonomous bodies under an agreement with the DSL, tagging certain conditions.

The state-run Bangladesh Power Development Board is the biggest beneficiary as its over Tk 29 billion debt was converted into equity, followed by Biman Bangladesh Airlines (over Tk 17 billion loans), the national flag carrier.

Other major beneficiaries are the Bangladesh Textile Mills Corporation, Bangladesh Gas Fields Company and the Mongla port Authority.

Top executives of state firms said this has become indispensable in recent years after the increase in pays.

Sydur Rahman, who was until recently managing director at the Bangladesh Blade Factory, a company under the government-owned Bangladesh Steel Engineering Corporation, told the FE: "The pay hike forced us to apply for converting our loans into equity."

He said the demand for blades is on the rise and the old plant needs to undergo BMRE. "This will help reduce our liabilities significantly."

Economists oppose such an arrangement, saying this is misuse of public money.

Dr Ahsan H Mansur, executive director at the private think-tank Policy Research Institute of Bangladesh (PRI), told the FE such type of funding is not any solution.

It makes their balance sheets look good for a short period.

"They (SoEs) will again default on the repayment as they are mostly inefficient." Dr Mansur said.

Terming such conversions "financial engineering" Dr Mansur said the government is promoting the SoEs that will not produce any return.

The par value of shares varies from Tk 10 to Tk 1000 of the government entities and the government has a total of 9,363,665,405 shares.

The government had over Tk 1.0 trillion dues in terms of principal and interest as of June 30, 2017, according to a government publication.

jaismharoon@yahoo.com

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