Union Capital Ltd, a listed non-banking financial institution (NBFI) which failed to repay its depositors, saw its share price rise by 44% in the first half of August as Prime Bank Ltd, a lender from the private sector, was going to join its board of directors.

Prime Bank Deputy Chief Executive and Chief Financial Officer (CFO), Mohammad Habibur Rahman Chowdhury, declined to comment on his bank’s actions in this regard.

Union Capital’s general secretary, Md Abdul Hannan, also declined to comment.

However, Prime Bank head Azam J Chowdhury, also founding chairman of East Coast Group, whose brokerage arm is Union Capital’s second largest shareholder, confirmed the development.

“We the directors have asked Prime Bank to accumulate the NBFI shares so that it qualifies for a seat on the board sooner,” he told the Business Standard on Monday.

Securities law required any shareholder to hold at least 2% of shares to be a director of a listed company.

“The capital of Union, unlike a few scam-victim NBFIs, is a mere business failure. I think it won’t be hard to get it back on track with a cash injection of 200-300 crore of Tk,” said Azam J. Chowdhury.

The fund needed to repay depositors would not be an issue if confidence in the NBFI was restored, he said, adding that “if Prime Bank becomes a corporate trustee, it would help restore confidence.”

Prime Bank can also help provide liquidity to Union Capital.

“We are continuously discussing with the securities regulator and the Bangladesh Bank on how to help Union Capital weather the crisis and expect maximum support from regulators.”

Also, capital injection could be an option later, Chowdhury said, adding that it would strengthen further.

A senior Bangladesh Securities and Exchange Commission (BSEC) official confirmed that the regulator had received a letter in this regard and was ready to support the recovery efforts.

However, a number of analysts are skeptical of the surge in stock prices given Union Capital’s devastating financial health and the uncertainty surrounding its turnaround.

On August 1, shares of Union Capital, with a face value of Tk 10 each, were trading at Tk 7.3 on the Dhaka Stock Exchange (DSE). It climbed to Tk10.5 on August 17.

The fall of Union Capital

Taking over stock market operations from Hong Kong-based Peregrine Capital and obtaining an NBFI license from Bangladesh Bank, a group of local entrepreneurs established Union Capital in the late 1990s.

It entered the merchant banking business in the early 2000s and has remained more focused on capital market operations than leasing or lending business.

Its IPO in 2007 was a great success as the capital market was a profitable business in the then bull market which continued until the end of 2010.

But the stock market crash of 2010-2011 ruined everything, as the margin loans it disbursed among equity investors to buy more stocks for leveraged gains soured.

Later the brokerage and merchant banking operations were spun off and the main NBFI increased traditional lending in the mid-2010s.

But that didn’t help at all as the new term loans were mostly given to large corporations which then defaulted.

A former Union Capital executive who spoke on condition of anonymity told TBS that the collapse was the result of mismanagement amid a lack of oversight and intervention from board members. administration who represent some of the country’s well-known business houses, such as the clothing giant Palmal. East Coast Group, energy, tea and services conglomerate and insurance giant Green Delta.

In 2019, Union Capital suffered losses for the first time due to skyrocketing provisions against bad assets and it continues with even greater losses due to the non-collection of bad debts and the inability to reimburse depositors even after maturity.

Last year, the Bangladesh Bank and the Financial Reporting Council found that the company was hiding its financial holes to some extent in the 2020 financial reports and forced it to correct pink accounting which revealed even greater losses. important.

Meanwhile, British American Tobacco Bangladesh kept complaining to the central bank to seek recovery of its deposits of more than Tk 100 crore with Union Capital and the central bank ordered the NBFI to repay the sum as soon as possible, but that has not yet been done as Union Capital. has no money to use to repay.

Due to the failure, Bangladesh Bank in late 2021 banned Union Capital from collecting deposits of more than Tk 1 crore without prior approval from the central bank, while new lending was automatically stopped.

Amid the business shutdown, financial health is expected to continually deteriorate unless it recovers defaulted loans as operating costs continue.

The auditor in his 2021 report expressed concern about the company’s ability to survive in business in the coming days, while the net asset value per share fell to 8.54 Tk at the end of the last June when the company’s annual losses rose to nearly its share capital.

“It is only the restoration of confidence that can bring Union Capital back into business. And I stepped in for that,” Azam J Chowdhury said.

“Along with changes to the board, we will also be looking for a strong management team for business resumption,” he added.