Nagad builds hope on Tk510cr bond, incurs Tk625cr loss

Mobile financial services (MFS) provider Nagad has incurred a loss of Tk625 crore since its inception in 2018, mainly due to substantial promotional and administrative expenses, says a prospectus submitted to the Bangladesh Securities and Exchange Commission (BSEC). 

The company, which operates under an agreement with Bangladesh Post Office on the basis of sharing revenue by 51%,  has got BSEC's approval to issue a bond worth Tk510 crore, which will help it to repay loans and become profitable in a couple of years.

Nagad spends more than 60% of its revenue on "uddokta commission," reads the prospectus. 

Muhammad Zahidul Islam, head of public communication at Nagad, told The Business Standard, "Like every start-up, Nagad has also incurred losses because it concentrated more on expanding business than posting profits."

"Due to these efforts, Nagad's subscribers have reached 7.5 crore. We hope it will not take much time for Nagad to make profits," he added.

The company states in its prospectus that it hopes to become a profitable company by 2025.

As per projection, its revenue will grow to Tk1,144 crore in 2024, and Tk1,324 crore in 2025, with net profit being Tk28 crore in 2025.

According to the prospectus, at its inception, the MFS provider generated no revenue but incurred a loss of Tk2.94 crore.

In fiscal 2021-22, its revenue gradually increased to Tk517 crore while losses surged to Tk262 crore.

Examples of loss in initial years in MFS companies boost Nagad's hope for a rebound in coming years. 

Its peer competitor, bKash, which is being run under a subsidiary company of Brac Bank, incurred losses for four consecutive years since its inception in 2010.

The company began making profits in 2014 and continued to do so until 2018.

But when Nagad entered the industry, bKash invested heavily in developing its various services to stay competitive, resulting in losses for three years until 2021.

The company clawed back into profit-making in 2022 and continued the trend in the first quarter of this year.

So far, bKash has incurred losses totalling Tk102 crore.

Why Nagad is issuing bond 

Nagad took out loans to expand its business. Now it wants to repay the loans by issuing a bond worth Tk510 crore. The BSEC has recently allowed the company to go ahead with its plan. The tenure of the bond will be five years.

According to its financial statement for fiscal 2021-22, the MFS provider has a loan of Tk617.60 crore. It will pay off Tk400 crore from the bond amount. The rest will be used as working capital, as per its prospectus.

Rezaul Karim, executive director and spokesman for BSEC, told TBS, "Initially, the commission had issued conditional approval to Nagad as it had no CIB (Credit Information Bureau) clearance. After it secured the clearance, the commission has now given final consent to Nagad."

Nagad has been running with a temporary MFS licence through a service agreement with the Bangladesh Post Office.

The central bank last week issued for it the license to operate an NBFI named Nagad Finance PLC.

Muhammad Farid Khan, vice chairman of Summit Group, will be the chairman of the NBFI, where Tanvir A Mishuk, managing director of Nagad, will be a director.

Muhammad Zahidul Islam said, "Nagad Ltd will run its business as a subsidiary of Nagad Finance PLC. The process has already started for it to be a subsidiary of the NBFI."