36 banks move to restructure Tk26,600 crore loans to support City Group

In an unprecedented move, 36 banks, including two foreign lenders, have initiated a coordinated effort to restructure more than Tk26,600 crore in loans extended to City Group, one of Bangladesh's largest industrial conglomerates.

The initiative comes as the group faces mounting financial pressures caused by foreign exchange losses, shrinking working capital, reduced bank support and delays in gas connections for major industrial projects, raising concerns about employment, industrial output and banking sector exposure.

As part of the process, the lenders have agreed to appoint an independent auditor to assess City Group's financial and operational condition and formed a committee of senior bankers to evaluate the restructuring proposal.

The decisions were taken at a meeting held at Hotel Sonargaon in Dhaka on Thursday, attended by managing directors and chief executive officers of more than a dozen banks.

According to a participating banker, City Group presented its financial position and future business plans at the meeting. Although no final decision has been taken on the restructuring package, lenders expressed support for helping the conglomerate recover.

"An independent auditor will be appointed to ensure an objective assessment of City Group's financial and operational condition. A review committee comprising senior representatives from the lending banks has also been formed to evaluate the situation and provide recommendations," the banker said.

City Group also informed lenders about plans to sell selected non-core assets and businesses to improve liquidity and strengthen its balance sheet.

Based on the committee's findings, banks will prepare a coordinated proposal and seek regulatory support from Bangladesh Bank through discussions with Governor Mostaqur Rahman.

Bankers described City Group as a genuinely distressed industrial group facing severe business challenges and said lenders preferred rehabilitation efforts over allowing its financial condition to deteriorate further.

The meeting also decided to establish a committee to assess the group's financing requirements, banks' lending capacities and the possibility of providing bridge financing for working capital.

Under the proposed framework, the loans would not be immediately classified as non-performing. Instead, repayment schedules will be extended, allowing the group additional time to stabilise operations.

Escrow account, governance reforms proposed

A key feature of the recovery plan is the creation of a centralised escrow account under the joint supervision of participating banks.

Under a "waterfall mechanism", all revenues generated by City Group would first be deposited into the account. A portion would then be released for working capital and operational expenses, while the remainder would be used to repay debt.

Bankers believe the arrangement would improve transparency, strengthen cash-flow management and enhance lenders' confidence in the restructuring process.

The proposal also includes measures to strengthen corporate governance. Representatives of lending banks may be nominated to the company's board to oversee financial management, operations and investment decisions.

Sources familiar with the discussions said the initiative was spearheaded by Masrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB) and managing director and CEO of City Bank. Bangladesh Bank Governor Mostaqur Rahman has also reportedly expressed support for a coordinated solution aimed at keeping the industrial group operational.

City Group, which has operated for more than five decades, generates annual revenues of around Tk32,000 crore and employs approximately 25,000 people directly.

Bankers said a successful turnaround of such a large corporate borrower would benefit both the company and the wider economy while creating a model for resolving major corporate distress cases in Bangladesh.

City Group Managing Director Mohammad Hasan attributed the group's difficulties to exchange-rate volatility, depreciation of the taka and persistent challenges in the banking sector since 2022.

According to him, City Group has incurred foreign exchange losses exceeding Tk2,500 crore in recent years. Reduced credit support from banks has also disrupted raw material imports and constrained production.

He said that although the group once had banking facilities worth about Tk25,000 crore, the sharp rise in the US dollar exchange rate had significantly reduced the real import capacity of those credit lines, resulting in a loss of purchasing power equivalent to nearly US$900 million.

The company is also awaiting gas connections for six major industrial projects in Munshiganj, where investments of approximately Tk14,000 crore have already been completed.

As part of its recovery strategy, City Group has begun exploring the sale of non-core assets while working with lenders to strengthen its core businesses.

Speaking after the meeting, Masrur Arefin described the discussions as productive and said all participating banks had joined the initiative.

"The committee will assess City Group's financing requirements, the level of support needed, individual banks' capacities and potential bridge financing. It will also conduct the necessary due diligence before any financing decision is made," he said.

The committee is expected to submit its report within 10 days, after which the matter will be discussed with Bangladesh Bank.

Arefin also said ABB would request Bangladesh Bank to temporarily suspend the requirement to classify City Group's loans as defaulted until 30 June.