Padma Bank has started looking for potential foreign investors, in keeping with its earlier wish to merge with a state lender to prevent its financial health from deteriorating further.
As a part of the move, the lender signed a memorandum of understanding with California-based investment bank DelMorgan & Co on September 2, according to a press release issued by the bank.
Under the deal, the investment bank will search out potential investors to raise $700 million, equivalent to Tk 5,900 crore, in debt and equity capital for Padma Bank.
Ehsan Khasru, managing director of Padma Bank, and Neil Morganbesser, president and chief executive officer of the DelMorgan & Co, inked the agreement representing the two sides.
The signing ceremony was held at the DelMorgan’s head office in the US, said a Padma Bank official.
“We are looking forward to facilitate foreign investments to the opportunity presented by the bank,” said Rob Delgado, chairman of the DelMorgan & Co, in the press release.
Chowdhury Nafeez Sarafat, chairman of Padma Bank, said the bank took an opportunity to enter into an international financial arena under the merger and acquisition (M&A) transactions.
On August 8, the erstwhile Farmers Bank sent a letter to the finance ministry, informing of its intent to merge with any state lender in order to avoid a “potential catastrophe”.
The beleaguered lender requested the government to allow it to get merged with any one of Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank or Bangladesh Development Bank.
This left the management of the state lenders in a state of discomfort.
Top officials of the state banks told The Daily Star last week that merging with Padma Bank would not bring them any good, given the former’s poor financial health.
Contacted, Khasru said the DelMorgan & Co would mobilise $350 million in equity capital and $350 million in debt capital.
He claimed that the financial indicators of default loans, operating loss and loan-deposit ratio of Padma Bank had been showing trends of improvement since the new management took up responsibility.
“The entire investment process will be M&A transaction and hold controlling interest of the investors in the bank,” he said.
Asked whether Padma Bank has backtracked from its earlier intent to merge with a state bank, Khasru said, “The bank will pursue M&A transactions to bring synergy in business and capital growth both locally and globally.”
“The bank is analysing multiple options in the proposed M&A move,” he said, adding that the bank needs new capital to ascertain future business growth.
He said financial health would obviously improve with the new capital as “the right business and investment strategy of the bank is in place”.
“Additionally M&A (with) foreign or local will definitely enhance brand value of the bank,” said Khasru.
In last month’s letter, Padma Bank said it faced a lot of constraints after the start of its new journey, including a severe shortfall of liquidity.
The bank said the Covid-19 pandemic affected credit growth as well as realisation of non-performing loans, causing losses to rise. “As such, our capital is declining noticeably,” read the letter signed by Khasru.
The Covid-19-induced challenges led to operating losses of Tk 120 crore in the first half of 2021. As a result, shareholders’ equity declined to Tk 221 crore, down from Tk 332 crore at the end of last year.
Padma Bank said its capital shortfall would amount to Tk 2,100 crore as of June this year.
Established in 2013 as Farmers Bank, the lender had fallen prey to scamsters.
A Bangladesh Bank investigation found that more than Tk 3,500 crore was siphoned off between 2013 and 2017.
State-owned financial institutions the Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank bought 60 per cent stakes in the bank for Tk 715 crore. The bank then took on the moniker Padma Bank.
-With The Daily Star input