Business expansion delayed due to dollar crisis

Infographics: TBS

A half dozen publicly listed companies are unable to proceed with their business expansion funded through initial public offering (IPO) due to the ongoing dollar crisis and letter of credit (LC) problem.

Due to this, investors are being deprived of their timely benefits.

Investors usually decide to invest in new companies after analysing their prospectus. However, once the IPO funds are raised, companies often fail to meet their commitments, leading to investor dissatisfaction.

Entrepreneurs reported that the exchange rate between the US dollar and Bangladeshi taka was stable between Tk80 and Tk90 in 2021. However, since 2022, this rate has become volatile, currently standing at Tk117 per dollar.

In 2021, Lub-rref (Bangladesh) Ltd, a lubricant producer under the BNO brand, raised Tk150 crore from the capital market through IPO for its base oil refinery project which had a total cost of Tk1,283 crore. From there, the company is yet to utilise Tk56 crore designated for purchase of machinery. 

Of this, Tk900 crore was in loans of which Tk750 crore was in foreign loans, which were supposed to be used as LCs for the project. However, due to the global crisis and local liquidity shortage, those loans are being delayed.

Lub-rref investors, who invested after analysing the company's prospectus, have received only a 22% cash dividend since the listing, which has not been fully paid due to a working capital shortage. The company is now struggling to sustain operations and is considering using the remaining IPO funds as working capital to address liquidity issues.

Mofijur Rahaman, the chief financial officer (CFO) of Lub-rref, earlier highlighted the precipitous decline in working capital, particularly accentuated by the onset of the Russia-Ukraine conflict. This decline was aggravated when banks refrained from extending term loans to support liquidity requirements, he added.

In 2022, Navana Pharmaceuticals PLC raised Tk75 crore for expansion through the capital market. However, by March this year, the company had not yet used 23.45% of the IPO funds. 

Navana Pharma's CFO, Md Abu Hurayra, stated that the company faced difficulties importing equipment on time due to the dollar crisis and issues with opening LCs. He added that the company is currently facing challenges with importing raw materials and machinery because of the high dollar rate. 

This has slowed down their working capital and delayed payments to local suppliers, according to the CFO.

An official of Silva Pharmaceuticals Limited, seeking anonymity, said banks require assurance of dollars to open LCs, complicating their ability to secure raw materials.

Aman Cotton Fibrous collected Tk80 crore from the share market in August 2018 to buy new machinery and repay loans. However, the company has only repaid its loans and has not yet installed new machinery for expansion. 

Similarly, Dominage Steel Building Systems Limited, Taufika Foods, and Lovello Ice-cream PLC have not completed their IPO projects due to the ongoing crisis.