Fall of a business empire: Habib Group leaves 30 lenders in peril with Tk4,000cr debt

In Bangladesh, smaller businesses face bigger hurdles in securing bank loans. But for the Habib Group, a conglomerate based in Chattogram, obtaining large loans with little or no collateral was not a big deal. 

Unfortunately, their lavish expansion plans led the 75-year-old family business to almost a dead end, forcing all directors to leave the country to evade arrest in court cases filed by lenders attempting to recover loans amounting to about Tk4,000 crore.

The downfall of the once vibrant conglomerate is an example of how imprudent business decisions can cost even well-established family businesses, and how banks have to pay the price for their lack of due diligence in granting loans.

The corporate headquarters of the Habib Group, located on Love Lane in the port city, is now nearly deserted, with most of its 31 subsidiaries shutting down operations.

The Business Standard talked extensively with bankers, company officials, lawyers and police to understand what went wrong with the business empire.

Insiders and banks attribute the group's downfall to their investments in aviation and power plants, coupled with the death of a director responsible for the garment business.

Today, the group's five directors -- Yakub Ali, Yasin Ali, Mashruf Habib, Salman Habib, Tanvir Habib -- are facing arrest warrants and are banned from leaving the country. However, it is suspected that they left the country in August last year, shortly after the money loan court in Chattogram issued the arrest warrant. 

This dire financial situation of the Habib Group has caused alarm among the lenders who extended loans to the Habib Group. Some of the banks have already taken legal action against the group to recover their outstanding loans.

Bankers have said the group, which started as a trading company in 1947 and grew into a business empire with interest ranging from ship-building to aviation, has been one of their most sought-after clients from around the beginning of 2000s. 

With a good reputation and repayment track record, the group obtained loans for various projects from one lender after another as lenders raced to invest in the rapidly-flourishing company until 2013-14. 

However, the group's different companies started  to default on loans since 2019. 

By the time banks and non-bank lenders were alerted, the loan amount ballooned, forcing them to resort to the court. 

On top of a number of cases filed toward the end of last year, more lawsuits are coming. With the filing of the latest case on 6 April, the group is facing at least seven loan cases, according to Rezaul Karim, bench assistant of Chattogram Money Loan Court. 

Of those, a case filed by Eastern Bank is scheduled for one-party hearing as passports of Habib Group owners' were not produced before the court on the 9 April hearing, he said. The restriction on leaving the country in the IDLC case has been in force, while Premier Leasing, Basic Bank and National Bank cases are awaiting regular hearing, the court official added.      

Anjan Kumar Bhattacharya, the Chief Financial Officer (CFO) of Regent Textiles, a concern of the group, stated that none of the group's chairman, managing director, and directors are in the country. However, he declined to comment on any issue of the group. 

Lenders' rush to court

The sudden departure of the Habib Group and its financial troubles have raised questions about the due diligence processes of the lending institutions.

For example, Dhaka Bank lent Tk360 crore to the group in 2015 without taking any collateral as one of the owners of the group is a son-in-law of a Dhaka Bank director.

Habib Group owes Tk42 crore to IDLC Finance and after failure in negotiations, the lender filed a case with a money loan court in Chattogram that issued an arrest warrant against the five directors of the group on 11 September last year and put an embargo on leaving the country. But all the accused left the country in August, according to Habib Group insiders.

Syed Javed Noor, deputy managing director of IDLC Finance, told The Business Standard that they filed two cases against Habib Group. One is for the recovery of loans, while the other is for cheque dishonouring.

He also said that they have attempted to resolve the issues through bilateral discussions, but to no avail. Although a money loan court in Chattogram issued an arrest warrant against the five directors of Habib Group on 11 September last year and imposed a travel embargo, Noor said that he was unaware of when these directors left the country.

AKM Shahnawaj, deputy managing director of Dhaka Bank, said he is not aware of the 'zero collateral' against his bank's Tk360 crore loans to the group.

AKM Shahnawaj, deputy managing director of Dhaka Bank, said he is not aware of the 'zero collateral' against his bank's Tk360 crore loans to the group.

Habib Group owes Tk300 crore to One Bank against the collateral of 11 decimals of land that is valued at only Tk25 crore. Now the loan has become defaulted and the bank is worried and finding no way to recover the money.

National Bank has filed a money loan case against the group as the recovery of nearly Tk150 crore in debt became uncertain.

Officials of the bank told TBS that Habib Steel, a concern of Habib Group, had been doing business with National Bank's Jubilee Road branch since 2003. Although it did good business in the first decade, the company has not regularly repaid its loans since 2014-15.

The bank filed a case against the company last September for not repaying the loan even after taking the rescheduling facility several times.

Against the Tk150 crore loans from National Bank, Habib Steel gave 278 decimals of land valued at Tk35 crore as collateral.

Apart from National Bank, three other banks and a non-bank financial institution filed six more cases against the high-ups of Habib Group.

The Chattogram Metropolitan Magistrate (Sixth) Court issued an arrest warrant against five owners including the chairman of Habib Group on 8 August last year in three cases of cheque fraud of Tk1.8 crore, filed by IDLC Finance Limited.

On 3 November that year, the arrest warrants were sent to the Kotwali Police Station in Chattogram. The reference numbers are 3328 and 3329, court officials said. 

However, Jahedul Kabir, officer-in-charge of Kotwali Police Station located within 500 yards of the court, on 13 March this year told TBS that they were yet to receive any arrest warrants for these accused.

Besides, on 14 September 2022, Judge Mujahidur Rahman of Chattogram Money Loan Court ordered the seizure of 280 decimal lands of Habib Steel in a loan default case of Tk91 crore filed by Eastern Bank's Agrabad branch. The owners of Habib Steel, Abdul Kader, Yasin Ali, and Yaqub Ali, were accused in the case.

In addition, Basic Bank's Agrabad branch filed money loan cases against six institutions of Habib Group to recover Tk173 crore loans. IDLC Finance also filed cases against Regent Textiles and Regent Spinning Mills, both subsidiaries of Habib Group, to recover Tk46 crore. Bank Asia filed a case to recover Tk8 crore in loans from the group.

On 6 April, Premier Leasing and Finance Limited sued the group's three subsidiaries-- Anwara Paper Mills, Regent Fabrics and Habib Steels-- to recover Tk50 crore.

An official of One Bank's Agrabad branch said the bank filed 15 cheque dishonouring cases (under the negotiable instruments act) with Metropolitan Magistrate court on 4 April against Anwara Fashion, Regent Spinning and HG Aviation-- subsidiaries of Habib Group-- which defaulted Tk300 crore. 

Furthermore, Eastern Bank put two helicopters of Regent Air, another subsidiary of Habib Group, for auction to recover loans, but they remained unsold. The auction was held on 29 November 2022 at the bank's Agrabad branch under Section 12 of the Money Debt Court Act 2003.

Jahangir Alam, Bank Asia's Executive Vice President, and Chattogram Zonal Head stated that Habib Steel had been taking loan facilities from the bank's Agrabad branch since 2005. However, the company began delaying loan repayment after 2014-15, despite having a good transaction history in the beginning. 

As a result, the amount of loans held by the group gradually increased, and the company still owes Tk8 crore. Although a case has been filed to recover the loan, there is uncertainty in loan recovery as there is no property mortgage with the bank.

Nazim Uddin, head of Al Arafah Islami Bank's Agrabad branch, reported that Habib Steel has kept only 30 decimals of land in Nasirabad area as collateral against Tk50 crore debt.

Besides banks and non-bank financial institutions, Habib Group has also caused losses to the Civil Aviation Authority, which has Tk300 crore stuck in the group. 

The group also owes outstanding payments of Tk200 crore to the National Board of Revenue, Tk10 crore to Nahid Cotton Mills in Dhaka, and several crores more to officials of various institutions, including 20 pilots of Biman.

Last year, employees of various companies in the group staged several protests in front of the Jubilee Road head office, demanding payment of outstanding salaries. 

Regent Textiles CFO Anjan Kumar Bhattacharya told The Business Standard there is no longer any problem with the workers' arrears as factories have been shut down and workers were laid off. 

During a visit to the group's headquarters in the port city's Love Lane yesterday, it was found that most of the first three floors was empty. 

"There was a time when 40-45 executives worked on the third floor alone, now there are only three or four," said Anjan.  

Mohammad Elias, financial officer of Regent Spinning Mills, said only three factories of Habib Group's energy and spinning sections are in operation now, others have been rented out. The whole group once employed over 16,000 workers, the number now dropped below one thousand, he added. 

End of the 75-year journey? 

Habib Ullah Mia of Chattogram started an import-export business of consumer goods under the name Habib Trading in 1947. 

Later, his three sons, Yakub Ali, Mahbub Ali, and Yasin Ali, joined the business, expanding Habib Group into garments, textiles, shipbreaking, steel, cement, and paper industries with a reputation for seven decades. 

However, business expansion into the fertilizer, power generation, and aviation sectors in the last decade has led the group to losses, with most of its 31 companies already ceasing operations, while a few others have been rented out to other businessmen.

After speaking with officials of lender banks and businessmen in Chattogram, TBS has learned that the Habib Group's first and second generations had successful businesses, but the current generation lacks focus. 

When the new generation became involved in the business after completing their higher studies abroad, they invested in the aviation business, which came as a shock to the eight-decade-old group. Despite large investments, Regent Airways, Habib Group's aviation subsidiary, did not see any profit and faced losses year after year, leading to a shortage of working capital for profitable companies. 

The group's power plant project, which had an investment of Tk500 crore, also failed to yield the expected outcome.

Habib Group Chairman Yakub Ali was a director and the chairman of the Risk Management Committee of NCC Bank. The group's Managing Director Yasin Ali was the director of Meghna Bank. However, both were removed from the banks' boards after defaulting on loans.

A director explains the situation

In a WhatsApp message sent this evening (Sunday), Habib Group Director and Deputy Managing Director of Regent Airways Salman Habib described the hardships their businesses faced. 

He also said, "Our bad investment is about Tk1,200crore not Tk4,000cr."

Here is the full text:

During Covid 19 pandemic we got into a lot of financial difficulties especially in the aviation sector, as you know it was one of the hardest hit sectors in the world.Unfortunately, we could not recover from this setback. During the pandemic we also heavily lost the majority of our buyers in the garments sector as they had to cancel bulk of our orders.

After this, due to the CIB (Credit Information Bureau of the central bank) law in Bangladesh,where sister concerns are also not allowed to open letters of credit and operate businesses, we could not run most of our operations.

This law should be seriously looked into and amended. Because of this, some profitable businesses of ours were not allowed to run the business.

Our CIB issue happened for Regent Airways, but due to this, other businesses also were hampered.

Most of our businesses have state-of-the-art facilities and had been running very successfully until 2020. The value of these assets far exceeds our group liabilities.The amount of our bad investment is about Tk1200 crore, not Tk4000 crore. We are currently in negotiations with our lenders and looking at restructuring our liabilities in order to restart our operations which have temporarily been shut down. We are also in talks to dispose of some of our assets in order to inject equity to some of our stressed businesses.