BB moves to extend tenure as Beximco’s Tk3,000cr Sukuk nears maturity

Infograph: TBS

Highlights:

• Beximco Green Sukuk under scrutiny due to repayment concerns
• Regulators consider extending bond tenure beyond 2026 maturity
• Teesta solar plant operational; Korotoa delayed and damaged
• Sinking Fund seen as key for investor repayment
• Major banks, 5,600 investors face high exposure
• Conversion to shares unpopular due to Beximco losses

Beximco's much-talked-about Tk3,000cr Green Sukuk, with just over a year to maturity, is under growing scrutiny as investors worry over principal recovery. In response, the Bangladesh Bank, along with key regulators, are now planning to extend its five-year tenure.

Launched in mid-2021, Sukuk is a Shariah-compliant financial instrument similar to bonds, where investors earn returns from asset-backed profits instead of interest.

A 10-member committee, led by Deputy Governor Md Kabir Ahmed, was formed recently to review and restructure the Sukuk's terms. The committee includes top officials from the central bank, Investment Corporation of Bangladesh (ICB, the trustee of the Sukuk), the Bangladesh Securities and Exchange Commission (BSEC), the Power Development Board (PDB), and several leading banks.

The urgency of the matter became clear during the committee's first meeting on 16 June, where members directed the ICB to provide a risk assessment and its formal opinion on extending the bond's tenure. The trustee's response will shape the committee's next steps, insiders say.

"Once we get ICB's input, we'll prepare our report for the governor. The final decision will then be taken in consultation with BSEC," a committee member told TBS on Tuesday, requesting anonymity due to the sensitivity of the matter.

For the 5,600 institutional and retail investors holding the Sukuk, which matures in December 2026, the clock is ticking. Concerns have mounted in recent months over whether Beximco will be able to generate enough cash to repay the principal, especially as Beximco Group is in trouble after the regime change in August last year.

Funds raised through Sukuk were primarily invested in renewable energy projects such as the Teesta Solar 200 MW project in Gaibandha and the Korotoa Solar 30 MW project in Panchagarh. Teesta is currently running while Korotoa is still under construction.

Sources from the 16 June meeting said Beximco cannot repay the bond principal at maturity, leading to consensus on extending the repayment period.

The contract between Beximco and PDB for supplying electricity to the national grid is for 20 years. The Teesta Solar Park could generate nearly Tk50 crore in monthly revenue, and once the Korotoa Solar Park is operational, it will generate around Tk8-10 crore monthly. Additionally, the money currently accumulated in the Tk250 crore Sinking Fund can be used for repayment.

However, since the bond is asset-backed, even if the tenure is not extended, there is an option to recover the principal by selling the mortgaged assets. But due to concerns over valuation and pricing complications, stakeholders currently see extending the tenure as the best solution.

Also, on 24 May, a meeting chaired by Bangladesh Bank Governor Ahsan H Mansur reviewed loan recovery from Beximco Group. It was decided that, due to incomplete documentation and Beximco's limited repayment capacity, restructuring the Green Sukuk's terms is necessary.

What happens if Beximco defaults on repayments

According to Sukuk's Information Memorandum (IM), if the originator (Beximco) willfully defaults on payments to Sukukholders or obligations to the Issuer for three consecutive instalments or twelve months under the Ijarah agreements, whichever occurs earlier, control over the Sukuk assets shall be fully transferred to the trustee committee. The committee will then take control of the Sukuk assets.

If necessary, the committee may initiate liquidation or any other reasonable course of action after seeking written clarification from the concerned parties. The trustee must immediately inform the BSEC about such liquidation or other actions and ultimately seek the commission's decision.

Trustee ICB forms another 21-member committee

As part of a central bank high-level committee, the bond trustee ICB has formed a 21-member working committee including representatives from 11 investor banks and individual Sukukholders.

The committee will report to Deputy Governor Kabir Ahmed on reviewing and amending the terms and conditions.

An official from ICB's SPV unit – which manages specific bond issuances – told TBS, "Many investors have proposed extending Sukuk's tenure and raising the interest rate, arguing that tenure extension would enable principal repayment from project income, and the current 9% rate lags behind rising market rates."

What BSEC says about term extension

BSEC spokesperson Abul Kalam told TBS that any changes to Sukuk's terms require approval from the Commission. "For making changes, the bond trustee will apply to the commission after consulting the originator. The commission will review and approve, if necessary," he said.

A Beximco official, speaking anonymously, said the company's business is partially ongoing but struggling to cover operating costs. With Sukuk maturity near, repayment concerns exist, but since the bond is asset-backed, worries are limited.

Sinking Fund is now the big hope

As per the Information Memorandum (IM), the originator will deposit up to Tk1.25 crore monthly into the Sinking Fund trust account until the Purchase Agreements are executed and Exercise Prices paid. These funds will be disbursed to Sukukholders as the Final Redemption Payment.

The Sinking Fund is solely for paying the Exercise Price and redeeming the Beximco Green Sukuk. It may also be used to cover shortfalls in Half-Yearly Periodic Payments and to pay Mandatory Redemption Amounts.

An ICB official said, "The Sinking Fund is now the major hope for returning investors' principal. At present, the fund has a balance of around Tk250 crore."

A portion of the revenue from monthly electricity sales from the Teesta plant is being deposited into the Sinking Fund, thanks to the trustee board's decision.

According to ICB sources, although two solar power plants were planned with Sukuk funds, only one — Teesta — has been launched. About 40% of the work on the Korotoa Solar Park has been completed. Once the solar panels are installed and the plant starts supplying electricity to the national grid, it too will begin generating revenue.

However, during the 2024 mass uprising, parts of the Korotoa plant were set on fire, and it will now require an additional investment of around Tk10-12 crore.

Who invested in Sukuk?

According to trustee sources, around two dozen public and private banks, along with several of their subsidiaries, invested significantly in the Sukuk. 

If the repayment is not made on time, these banks may face significant provisioning burdens. Additionally, around 5,500 individual investors could face uncertainty.

An analysis of the investor list shows that nearly 5,600 investors bought Sukuk units. The top 31 investors alone purchased 25.83 crore units, worth about Tk2,583 crore (at Tk100 per unit).

Among them are 22 banks, several bank-affiliated brokerage houses, one insurance company, and an asset management firm. Some investments also came from special funds created by banks for capital market investments.

The largest investors include IFIC Bank (over Tk300 crore), IFIC Securities (over Tk200 crore), and Rupali Bank (Tk200 crore). Other major investors with Tk100-Tk150 crore each include City Bank, Agrani Bank, Janata Bank and its special fund, Southeast Bank, Dutch-Bangla Bank, Dhaka Bank, and Agrani Equity and Investment.

Additional large investors include Social Islami Bank, AB Bank, Union Bank, Shahjalal Islami Bank, Uttara Bank, NRB Commercial Bank, Community Bank, NRB Bank, Agrani Equity and Investment, and City Brokerage.

In 2021, Beximco raised Tk3,000 crore from the capital market through this Sukuk. With the bond maturing in about a year and four months, it must repay around Tk2,800 crore. Around Tk200 crore has already been repaid through share conversions.

After the change in government in August last year, Beximco shut down its major revenue-generating units — Yarn Unit 2, Textile, Denim, and Knitting Divisions at Beximco Industrial Park — due to financial and raw material shortages caused by unsustainable debt levels. Currently, only Yarn Unit 1 remains operational.

Conversion facility, but Sukukholders not interested

Sukukholders have the option to convert up to 100% of their Sukuk into ordinary shares of Beximco Ltd. Each year, they may convert up to 20% of the total Sukuk amount at their discretion.

The conversion can be exercised annually in increments of 5%, 10%, 15%, or 20%. Any unused portion of the annual conversion allowance can be carried forward to subsequent years and used alongside the current year's entitlement.

The conversion price is set at a 25% discount to the 20-day weighted average market price of Beximco shares on the DSE prior to the record date.

Despite this option, investor interest in converting to shares has remained low. 

One key reason is that Beximco Ltd's factory operations have been partially shut down, causing a sharp decline in both revenue and profitability.

In the first half of FY25, the company posted a loss of Tk356 crore.  In FY24, it incurred a loss of Tk35 crore and did not declare any dividends.

Addressing the half-year loss, the company stated that production had come to a near halt due to a lack of banking support. Since August 2024, banks have not opened any LCs. 

Additionally, stockpiled fabrics and yarns – left unused due to the closure of garment factories – had to be sold below cost. These issues led to a net loss after tax of Tk356.48 crore, with a per-share loss of Tk3.78.