Foreign investment in sugar mills: Large loans, sovereign guarantee big barriers

Sugar price hits unreachable highs

| Updated: May 21, 2022 17:12:39

Foreign investment in sugar mills: Large loans, sovereign guarantee big barriers

Planned foreign investment in Bangladesh's state-owned sugar mills to run under joint management hits twin barriers, officials say, while the sweetener's price climbs unreachable highs.

Long-outstanding large loans from state banks and the requirement of sovereign guarantee are considered as the two big barriers the intending foreign investors face.

The state-owned sugar mills-seen in a sorry state over the years despite the daily necessary's high demand and soaring price-- owe some Tk 79.46 billion as loans and interest thereon to the public-sector banks.

The loans were given to the mills under guarantee provided by the government.

However, the tenure of the sovereign guarantees expired in 2018 with neither the government paying the money to the banks nor the tenure of the guarantees being renewed.

Sources say a consortium of three companies from Japan, Thailand, and the United Arab emirates, under the name Sugar International Co, wanted to invest US$645 million in six closed sugar mills in Bangladesh.

They are supposed to make investment by taking loans from Japan Bank for International Cooperation (JBIC) and EXIM Bank, Thailand. Of the total amount, the banks will provide 70 per cent as loan while the company will invest 30 per cent as equity.

However, the banks wanted that the government of Bangladesh provide sovereign guarantee against the credits.

The ministry of industries in a recent meeting discussed the ways of providing sovereign guarantee or bank guarantee to the Japanese and Thai banks to get loans for the sugar mills.

At one stage, a central bank representative informed the meeting that a Bangladeshi bank can lend to any company up to 25 per cent of their paid-up capital.

But already Sonali Bank Ltd paid loans over 100 per cent, while Janata, Rupali, and Agrani Bank provided over 20 per cent of their paid-up capital to the Bangladesh Sugar and Food Industries Corporation.

Moreover, the tenure of the bank guarantees against the loans expired in 2018 and now either that has to be renewed or the government need to pay the money to the banks to get fresh loans or bank guarantee from them.

A representative of Financial Institution Division says since the proposed investment is not taking place on government-to- government basis, there is no way to provide sovereign guarantee by the ministry of finance.

The meeting also discussed that the foreign lenders would accept bank guarantee from the state-owned banks instead of sovereign guarantee for the lending.

A senior official at the Ministry of Industries told the FE Friday the consortium had been asked to inform whether their banks can accept bank guarantee from Bangladeshi banks instead of sovereign guarantee for the proposed loan.

Also, Sonali, Janata, Rupali and Agrani will let the ministry know if they can provide bank guarantee for the loans after getting guarantee from the finance division for the proposed syndicated foreign loan.

The official says production in the six mills---Pabna Sugar Mill, Shyampur Sugar Mill, Panchagarh Sugar Mill, Setabganj Sugar Mill, Rangpur Sugar Mill and Kushtia Sugar Mill--remained suspended since December 2020.

Incidentally, the mills lie in rest on grounds of incurring cumulative losses and scant sugarcane supply at a time when sugar price hits record highs. The price of BSFIC sugar has been raised to Tk 100 per kg. But groceries, in cases, charge yet higher than the tag on the packet, consumers say.

The industries officer observes that the sugarcane varieties now produced in Bangladesh are not of good quality--the yield is low and they bear low sugar quantity.

"The foreign investors will bring new variety of sugarcane with high yield and having high sugar quantity in them," he says.

The Bangladesh Sugar and Food Industries Corporation will then be able to produce the new varieties collecting from them and crush them in the other sugar mills, said the officials say.

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