36 banks back Tk26,600cr loan restructuring for City Group

In one of the largest banking support initiatives for an industrial conglomerate in Bangladesh, 36 banks, including two foreign lenders, have initiated a coordinated effort to restructure more than Tk26,600 crore in loans extended to City Group.

The move comes as the conglomerate faces mounting financial pressures arising from foreign exchange losses, reduced working capital, constrained banking support and delays in securing gas connections for major industrial projects. Bankers warn that any further deterioration in the group’s financial position could have significant implications for employment, industrial output and the wider banking sector.

As part of the initiative, participating banks have agreed to appoint an independent auditor to assess City Group’s financial and operational condition. They have also formed a review committee comprising senior bankers to evaluate the group’s restructuring proposal.

The decisions were discussed 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. A managing director of one of the participating banks confirmed the development.

According to the banker, City Group presented its current financial position and future business plans during the meeting. While no final decision has been taken on the restructuring package, lenders expressed a positive outlook towards supporting the conglomerate’s recovery.

“To ensure an objective assessment of City Group’s financial and operational condition, an independent auditor will be appointed. A review committee consisting of senior representatives from the lending banks has also been formed to evaluate the overall situation and provide recommendations,” the banker said.

He added that City Group had informed lenders of its plans to divest certain non-core assets and businesses to improve liquidity and strengthen its balance sheet.

Based on the committee’s findings, the banks will prepare a coordinated proposal and subsequently seek regulatory and policy support from Bangladesh Bank through discussions with Governor Ahsan H Mansur.

Bankers involved in the discussions described City Group as a genuinely distressed industrial group facing severe business challenges. Consequently, lenders appear inclined to support efforts aimed at reviving the company rather than allowing its financial condition to deteriorate further.

The meeting also decided to establish a committee of senior bankers to assess the group’s financing requirements, the lending capacity of individual banks and the feasibility of providing bridge financing for working capital.

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

Escrow account and waterfall mechanism

A central component of the recovery plan is the establishment of a centralised escrow account under the joint supervision of participating banks.

Under the internationally recognised “waterfall mechanism”, all revenues generated by City Group would first be deposited into the escrow account. A designated portion would then be released to meet working-capital and operational requirements, while the remaining funds would be allocated towards debt repayment.

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

Another key element of the proposal involves strengthening corporate governance. Representatives of the lending banks may be nominated to City Group’s board of directors to oversee financial management, business operations and investment decisions.

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

City Group has been operating for more than five decades and currently generates annual revenues of approximately Tk32,000 crore. The conglomerate directly employs around 25,000 people and plays a significant role in Bangladesh’s consumer goods supply chain.

Bankers noted that the successful rehabilitation of such a large corporate borrower would benefit not only the company but also the wider economy, while potentially establishing a new model for addressing major corporate distress cases in Bangladesh.

City Group Managing Director Mohammad Hasan attributed the company’s difficulties to sharp exchange-rate volatility, depreciation of the taka and persistent challenges within the banking sector since 2022.

According to Hasan, the group has incurred foreign exchange losses exceeding Tk2,500 crore over the past several years. At the same time, reduced credit support from banks has disrupted raw-material imports and constrained production activities.

He noted that although the company once had banking facilities worth around 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 an estimated loss of purchasing power equivalent to nearly US$900 million.

The group is also awaiting gas connections for six major industrial projects in Munshiganj, where investments totalling 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 and is working closely with lenders to strengthen its core businesses.

Speaking after the meeting, ABB Chairman and City Bank Managing Director Masrur Arefin said all participating banks had taken part in the discussions and described the meeting as highly productive.

“The committee will assess City Group’s financing requirements, the level of support needed, individual banks’ capacities and the potential for working-capital bridge financing. It will also conduct the necessary due diligence before any financing decision is made,” he said.

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

He further said ABB would request Bangladesh Bank to temporarily suspend the requirement to classify City Group’s loan accounts as defaulted until 30 June.

“We will seek a one-off regulatory dispensation in this specific case to facilitate a comprehensive restructuring solution,” he added.