Root Group: Story of a defaulter, an LC that never was, and dubious pay-order

One of the top loan defaulting companies has once again come to the limelight when it submitted Letter of Credit (LC) documents to the agriculture ministry for importing fertiliser, which was later found to be not approved by the bank concerned.

It is mysterious how the bank, Janata in this case, issued the LC documents without approving the credit to the company. But further inquiry revealed that Janata Bank was unable to sanction the credit because the group that the company belongs to is a big loan defaulter.

But things did not end there.

When the ministry wanted to forfeit the security deposit submitted by the company in the form of a pay-order as prerequisite to participate in the tender, the bank that issued the pay-order could not pay the government, raising suspicion that the company had got the pay-order without depositing money to the bank.

This curious case involves Gram Bangla NPK, a sister concern of Root Group, which ranks 49th on the list of the country's top defaulters.

Unable to bag the fertiliser contract because of its invalid LC, the group now wants to reschedule its Tk1,055 crore default loans and get another Tk900 crore out of the Janata Bank for the LC to get the fertiliser deal. 

Meanwhile, Gram Bangla moved to the court and got stayed the agriculture ministry's move to cancel the deal and forfeit the deposit money. The pay order for the deposit was issued by Padma Bank. 

Responding to query, Padma Bank's Managing Director Md Ehsan Khasru said, "The bank is not involved with the case of fertilizer import. Padma bank has the capacity to deposit the pay-order money, but did not do it due to the stay order. 

Regarding the LC documents given without approving credit, Janata Bank's Managing director Md Abdus Salam Azad said, "We did not give the LC to the client because of it has default loans."
Gram Bangla's journey is also something curious to look into.

In 2014, it received Tk159 crore from the Janata Bank with support from the Bangladesh Bank's low-cost Equity and Entrepreneurship Fund Unit (EEF), to develop an agro-based project. The company then turned into a defaulter.

The project was meant to be implemented within 18 months, but the company failed to actualise it even in four years. Later, the project implementation time was extended by about three and a half years until December, 2019.

Despite being a defaulter, Gram Bangla participated in a tender offered by the Ministry of Agriculture in June for importing fertiliser. The company got the work order to import 75,000 tonnes of fertiliser valued around Tk900 crore.

Later, the defaulter came to the Janata Bank seeking fresh loan facility of Tk900 crore for opening LC (Letter of Credit). When the ministry asked the importer to set up LC within a stipulated time for importing fertiliser, the client provided the LC document through the Janata bank.

The ministry sent the LC document to Bangladesh Bank for verification and found that the LC was not sanctioned, which means that the document is invalid. The agriculture ministry then cancelled the work order and seized Tk30 crore, which was deposited by the group to a private bank as condition for participating in the tender process.

The scam-hit Padma Bank had issued the pay order against the deposit money. The ministry asked the bank to deposit the pay order to the government exchequer. But mysteriously, the bank could not deposit the money, raising suspicion on whether the money had really been deposited for the pay order.

Failing to deposit the pay order money to the government exchequer, the business group went to the High Court and took a stay order for three months on the cancellation of work order until October 30. The deadline was later extended for three more months.

Sheikh Badiul Alam, deputy head of fertiliser management and monitoring department of Ministry of Agriculture, said, "The order was cancelled because the client could not set up LC within stipulated time.

"There is no rule in the tender process that a defaulter is not eligible to participate. But this company's default status was taken into consideration when cancelling the work order."

Meanwhile, the group applied for rescheduling its default loans to get fresh loan facilities of around Tk900 crore from the Janata Bank.

The board of the bank approved loan rescheduling proposal subject to pay 5 percent down payment within two months. The central bank also gave nod to reschedule the loan with some conditions such as paying the required down payment.

Later, the rescheduling approval was not executed because of the client's failure to pay the required down payment.

On October 16, the business group requested the bank to reconsider its rescheduling proposal by relaxing the down payment condition. In addition, the client sought LC facilities of around Tk900 crore at zero margin with 180 days deferred payment. 

In a zero margin facility, the client can open an LC without paying a single penny to the bank, and in terms of deferred payment, the client can release the goods without taking consent from the bank.

The deferred LC is risky because the client needs no permission from the bank to release goods unlike the cash LC. If the client does not pay the bank on time, the bank will have to pay the exporter. In case of deferred LC, the bank takes security from the client to ensure payment.

But for companies like the Root group, which has a bad record, it is easy to take money out of the bank.

On October 17, Janata Bank's Managing Director Abdus Salam Azad wrote a letter to agriculture ministry asking about the validity of the work order of Root Group.

In the letter he wanted to know whether the work order is still valid, by when the LC can be set up, and at what rate the government subsidy will be provided against the imported fertiliser.

In response to the letter, the ministry said that the issue is currently sub judice. 

Azad told The Business Standard that the letter was sent to learn about the present status of the work order.

He added, "We will think of providing fresh financing only after rescheduling their loan. "A team from the bank conducted an investigation on the business situation of the group and found that their business is going well." 

When asked that if business is going well for the company then why they are not paying the money, he said that there are many factors behind not making payment.

Commenting on the matter, Aliur Rahman, head of operation of Gram Bangla, said, "The stay order on cancellation of the work order was extended for three months until January.

However, he declined to comment regarding the banking issues.

Mohammed Razzakul Hossen Tutul established the Root Group in 1998 and it started commercial operation in 1999. According to the company website the group has 4,500 employees.