Padma Bank hires foreign adviser to raise funds

Padma Bank has signed a memorandum of understanding (MoU) with US investment firm DelMorgan & Co to get foreign investment, two months after the former requested a merger with a state-owned bank to avoid a "possible collapse".

DelMorgan has been hired to arrange Tk5,900 crore for the bank from interested investors within four to six months, the troubled private sector bank said in a press release.

Of the amount, Tk2,400 crore is expected in equity investment and the rest as debt.

Padma Bank Managing Director Md Ehsan Khasru and President of DelMorgan Neil Morganbesser signed the MoU on 2 September.

Executives of state-owned Sonali Bank and Investment Corporation of Bangladesh (ICB) executives, who are Padma Bank's shareholders, are positive about the MoU.

But they said they were yet to know what the MoU contained.

DelMorgan Chairman Rob Delgado, its Managing Director Samir Asaf, and Padma Bank Chairman Chowdhury Nafeez Sarafat also attended the signing ceremony.

Samir Asaf previously served as the group CEO at Rahimafrooz Bangladesh and vice-president of finance at IPDC Finance for over seven years.

When asked whether a merger with a state-owned bank would be necessary if the required investment could be received under the MoU, Khasru avoided a direct answer.

There is a strategic decision of the board that the bank would pursue merger and acquisition (M&A) transactions to bring synergy in business and capital growth both locally and internationally, Khasru, who is now in the US, said in a text message.

He said the bank was analysing multiple options in the proposed M&A move.

Describing the signing of the MoU as a new chapter in the history of Bangladesh's financial sector, the bank's Chairman Nafeez said the bank had created opportunities to enter the international financial arena through M&A transactions.

DelMorgan Chairman Rob Delgado hoped the foreign investment opportunities the bank had created could be moved forward.

Padma shareholders positive about MoU

Sonali Bank Managing Director and Padma Bank Director Md Ataur Rahman Prodhan told The Business Standard it would be better for Padma Bank to get equity investment from abroad as it is going through a capital crisis.

He said it would also be easier for the bank to turn around if it got low-interest foreign loans. 

ICB Managing Director and Padma Bank Director Md Abul Hossain told The Business Standard the Padma Bank board had discussed the initiative to secure US investment.

It was decided that such investment could be brought in, subject to the approval of the Bangladesh Bank, he said.

Good performance amid Covid-19

Padma Bank said it had earned significant success in recovering default loans even during the pandemic.

Although default loans in the banking sector increased between March and June this year, the bank recovered Tk58 crore during this period.

At the end of June, the bank's total debt was Tk6,708 crore, including default loans of Tk3,519 crore. This was 61.55% of the total loan disbursed.

The bank said almost the entire loan dates back to the period prior to its renaming.

It said the situation had been improving since the renaming.

Its default loan was 63.27% in March, which fell by 1.72% last month.

When Farmers Bank – which later became Padma Bank – was nearing collapse due to massive lending anomalies since its inception in 2013, four state-owned banks – Sonali, Janata, Agrani, and Rupali – and the ICB came up with a Tk715 crore bailout in 2018.

These five organisations hold 65% of the bank's shares. 

Now, three years into its return with the new name – Padma Bank – to salvage the lost image, it seeks either merger with or takeover by any state-owned bank without any delay, foreseeing its "possible collapse".

The bank's managing director submitted an M&A proposal to the finance ministry on 8 July.

After signing the MOU with DelMorgan, Ehsan Khasru said receiving investment under the MoU would strengthen the bank's financial foundation. 

The bank needs new capital to ensure future business growth, he also said.

He said financial health would obviously improve with new capital as the right business and investment strategy of the bank was in place.

Additionally, the M&A move – be it foreign or local – would definitely enhance the bank's brand value, the Padma Bank managing director further said.

He said DelMorgan was engaged to facilitate a large investment in Padma Bank.

The bank's expression of interest involves multiple factors, he said.

"For example, the bank is in running condition with 58 branches. Financial indicators like non-performing loan (NPL), operating loss, and advance deposit ratio have been showing improvement trends since the new management took over," he explained.

This is a good story, he said.

He also said the bank would have a strong initial public offering (IPO) potential in the next three years with a much stronger balance sheet.

The banker further said some other factors, such as the presence of state-owned bank and Investment Corporation of Bangladesh (ICB) officials on the board and the recruitment of new manpower, indicate the new management's strength, reflecting that the bank is in the right direction.

He said the entire new investment expected from abroad would be an M&A transaction and would come with a controlling interest of the investors in the bank.

The investors will get a full commercial bank at a comfortable value as its valuation is not as high as that of other stronger banks, he added.