Past and future of M&As in Bangladesh

According to a recent study, Bangladesh registered at least $2.5 billion in funding from overseas investors for mergers and acquisitions (M&As) of firms since 2005. The volume is modest in comparison with regional counterparts. Between 2005 and 2023, around 22 deals took place, out of which the fast-moving consumer goods (FMCG) sector witnessing three deals amounting to $1.5 billion.

Other cross-border M&A deals in Bangladesh have occurred across the chemicals, retail, logistics, tobacco, cement, power, textile, telecom, technology and financial sectors. EDGE Research and Consulting Ltd and LightCastle Partners jointly prepared the report dated February 2, 2024. The report said M&A investments constituted 0.02 percent of Bangladeshs GDP in 2022, reflecting a developing market with room for growth.

There were some M&A deals in the countrys history in 2020-21 despite the worldwide covid-19 pandemic.Several M&A transactions had taken place including Unilever Overseas acquisition of GlaxoSmithKline Bangladesh, Beximco Pharmaceuticals purchase of majority shares in Sanofi Bangladesh, Evercares acquisition of Apollo Hospitals Dhaka, Radiants acquisition of Julpahr Pharmaceuticals, China Huadian Acquisition of Mymensing 50MW Solar IPP and so on.
There is trend of splits in family business conglomerate in Bangladesh. Some of the families are in legal battle. Despite such situation, intragroup M&As are being used for group restructuring and commercial strategy to maximise profit and reduce operational costs. For example, Beximco Textiles, Beximco Denims and Beximco Knitting, which have merged with Padma Textile Mills Limited, to create Bextex as part of the groups restructuringin 2006. The M&A enhanced new growth strategy of the Bangladeshs largest industrial conglomerate.

In another instance, United Power Generation and Distribution Company Limited has decided to acquire two power plants of the United Group: The United Anwara Power Ltd and United Jamalpur Power Ltd.

Another study titled "Beyond Transactions: Reflecting on 10 Years of M&A in Bangladesh and What Lies Ahead", the telecom and financial service sectors secured $312 million and $55 million in investment respectively.

The report added that the most significant M&A transaction involved BRAC Bank, which acquired a 51 percent stake in Equity Partners Ltd and Equity Partners Securities Ltd for $300 million.M&A activities peaked in 2018, with the acquisition of Akij Groups United Dhaka Tobacco by Japan Tobacco for $1.47 billion.

Usually the transaction of any M&A is not disclosed in public and one of such previous acquisition of Aromatic Cosmetics by Marico Bangladesh Ltd for an undisclosed amount in 2005. There are many publicly disclosed transactions in Bangladesh. Japan Tobacco International (JTI) signed an agreement with Bangladeshs Akij Group to acquire its Tobacco business for USD 1.476 Bn, making it one of the largest cross-border M&A transactions involving a Bangladeshicompany. Radiant Pharmaceuticals acquired Julphar Bangladesh in 2021 for BDT 140 Crore or USD 17 Mn. Accenture, the American technology services firm, acquired a51% stake in GPIT in 2013, Grameenphones IT subsidiary, for USD 10 Mn.Beximco Pharmaceuticals acquired a majority stake of 85.2% inBangladesh-based Nuvista Pharma, specializing in hormones and steroiddrugs, for up to £18.2 Mn or USD 23.2 Mn.

In December 2019, Heidelberg Cement acquired 100 per cent shares of Emirates Cement Bangladesh Limited and Emirates Power Company Limited from UltraTech Cement Middle East Investment Limited for around 1.83 billion Bangladeshi taka. In 2016, Siam City Cement of Thailand acquired Cemex Cement Bangladesh Ltd.Transcom acquired local Philips and Pepsi business from its previous foreign owners.

The Bangladesh Bank recently developed a roadmap for bank mergers. As part of the roadmap, 10 weak banks will be merged with relatively strong ones.It is widely discuss subject currently in the society.

There were a few M&A of Oriental Bank (Al-Baraka Bank Ltd). It was originally a joint venture Bank between local and middle-east investors. ICB Banking Group that acquired Oriental Bank and renamed it ICB Islamic Bank Bangladesh has decided to sell its entire shareholding for $55 million to a group of Bangladeshi buyers.The Switzerland-based, Malaysian-owned ICB Banking Group holds 50.1 percent or 3,506,743 ordinary shares in the bank.ICB signed a sale and purchase agreement with Summit Industrial and Mercantile Corporation, Cosmopolitan Traders, Alliance Holdings, Summit Alliance Port Ltd and Shore Cap Holdings Ltd.

Of the buyers, Summit Industrial and Mercantile Corporation, Cosmopolitan Traders and Summit Alliance Port are owned by Summit Group. In February 2008, ICB Group had entered into a share sale and purchase agreement with the BB and The Oriental Bank Ltd to acquire a 50.1 percent equity interest in The Oriental for a total cash of Tk 350 crore (approximately $51.2 million). The acquisition completed in March 2008.Of the remaining 49.9 percent shares, general shareholders own 25 percent. Different government organisations and financial institutions, including the BB, Bangladesh Export Processing Zones Authority and Power Development Board, own the rest. The bank is not yet in good shape and need further re-structuring.

In 2009, Bangladesh Shilpa Bank merged with Bangladesh Shilpa Rin Sangstha to become Bangladesh Development Bank Ltd (BDBL). Both were state-run financial institutions. However, even after rebranding, this bank is now struggling with huge bad loans.

With the recent initiative of central bank, In March 2024, following the Bangladesh Banks plans to merge weak banks with strong banks, EXIM Bank and Padma Bank signed a letter of intent to merge, initiating the first merger process.Padma Bank was in the red zone, while Exim Bank was in the yellow zone. Some more banks announced their M&A already.

WB said rapidly implementing bank mergers may undermine confidence in the banking sector. A consolidation process will require careful assessment and prudent implementation of procedures to avoid weakening good banks acquiring bad banksForced bank mergers may be counterproductive without a thorough assessment of asset quality, said the World Bank in its latest report on Bangladesh."Rapidly implementing bank mergers before addressing these issues may further undermine confidence in the sector, deterring intermediation capacity," according to a report titled "Bangladesh Development Update, Special Focus: Strengthening Domestic Resource Mobilization", released by the World Bank on 2 April 2024.

The Bangladesh Bank proposes that the bad assets of weak banks will be sold through asset management companies (AMC). The formation of AMC is not yet visible. Donor agencies pursuing Bangladesh for formation of AMC for about last 2 decades. Bangladesh Bank rejected the proposal saying that Arthor Rin Adalat Law is sufficient to address the bad debt problem in Bangladesh. Finally,the central bank agreed to formation of AMC. Bangladesh don have any experience of formation of management of non-performing assets.

WB also categorically said that Merging a weak bank with a strong one could potentially lead to a deterioration in the latters condition, as bad banks often come with numerous liabilities. the burden of bad assets or bad loans from weak banks might ultimately fall on taxpayers.Simply reducing the number of banks cannot be an effective goal; consolidation should be the primary objective.

The experiences of M&A of Oriental Bank and Shilpa Bank is not encouraging and the capability to handle is critical transformation is questionable. The policy of the central bank to force banks, if not voluntarily merged, may cause harm to relatively good banks. Moreover, the formation of AMC and taking of NPL and proper management need knowledge and experience. How will Bangladesh meet the gap and rescue the ailing financial sector?

The writer is a Non-Government Adviser, Bangladesh Competition Commission