Curious case of GMG loan

Rescheduled once, Tk 57cr interest waived; Sonali Bank could not recover Tk 190cr from the airlines despite years of legal battle

Towards the northern end of the Hazrat Shahjalal International Airport lies the broken down, dusty fuselages of GMG Airlines’ aircraft, rusting and rotting.

But not only has the airlines been down for six years now, a few thousand shareholders and a major state-owned bank are also stuck with it.

One of the first private airlines in Bangladesh, GMG had been sliding down financially since starting operations in 1998, accumulating a loss of Tk 42 crore until 2006. From 2007, it started making a trivial annual profit of Tk 1 crore.

Then it got a messiah. Beximco Group suddenly bought half the equity stake in GMG in 2009, and things started looking up since.

Salman F Rahman is the vice chairman of Beximco Group and chairman of GMG Airlines.

The profit of GMG jumped to Tk 79 crore in 2010 without any discernible reason, and it showed a golden dream to the public by offering Tk 300 crore in private placement at a 400 percent premium with the promise that it would soon be traded on the stock markets. New planes would be bought and GMG would fly to new skies.

None of them happened though. The SEC discovered financial fraud in the company’s books and found its profits fictitious. It did not allow GMG to offer IPOs. Those who bought its shares in private placements never got back their money.

Sonali Bank, which lent GMG Tk 247 crore with guarantee from Salman’s Beximco Ltd, also never got back its money.

GMG’s affairs with Sonali Bank is intriguing, and a classic example of how to twist a bank’s arm with court orders.

Since the company took the loan in 1998, it did not bother to pay regular instalments and became a defaulter.

Then it found a way to regularise its loan in 2013 as the government offered  to reschedule loans of companies affected by the political turmoil of the time that saw widespread violence and blockade.

GMG applied for rescheduling under this privilege although the airlines had ceased operation about a year before the political situation turned volatile. For unknown reasons, Bangladesh Bank allowed the company this privilege.

Happy with a new lease of life, GMG again did not bother to pay instalments regularly.

But Salman had a few problems. One of his prime pieces of land in Dhanmondi, on which Beximco’s corporate office is built, was mortgaged for the loan. And Salman is the chairman of IFIC Bank, so if he became a loan defaulter, he would lose the chair.

So GMG filed a writ with the High Court in April 2016 to keep its account as non-defaulter or regular. It obtained an order in its favour.

But the bank wanted its money back and put Salman’s mortgaged land on auction. GMG again filed a writ to block the auction and was successful.

GMG also got a court order in 2017 allowing it to pay back the loan in 10 years at quarterly instalments. But the bank through another court order stopped it.

The airlines then took a different route and offered the bank loan repayment in eight years and sought waiver of all interest. This time it also made a down payment of Tk 33 crore.

The bank partially accepted the offer and waived Tk 57 crore in interest, and asked GMG to pay the rest Tk 190 crore in one and a half years.

GMG sat silent on the offer. Bank officials called the airlines over the phone and company officials verbally informed the bank that the offer was unacceptable.

The airlines then went to court again and got another stay order to keep its accounts regular.

Responding to an email by The Daily Star, GMG said Sonali Bank rescheduled the loan only for one and a half years with waiver of partial interest of Tk 57 crore. In view of the fact that GMG is closed, it is not possible for it to repay within such a short time.

The company claimed that it was not a wilful defaulter, and had defaulted due to business reasons beyond its control.

Obayed Ullah Al Masud, managing director of Sonali Bank, said the board decided not to provide any more services to the defaulter.

“We will recover the loan through legal process,” he said.

The bank appointed a lawyer to have vacated the stay order that kept GMG’s account regular. A hearing on the case is scheduled for tomorrow, he said.

Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said there was a trend of delaying disposals of financial cases through obtaining stay orders.

There should be a special bench at the High Court to deal with financial cases, he suggested.

GMG started flights on domestic routes first. Within six years, it spread its wings first to Kolkata and later to Bangkok, New Delhi, Kathmandu and Kuala Lumpur. The airlines also had flights to Dubai, Jeddah, Riyadh and Karachi for a short time in 2008.

The company had eight aircraft, including two Boeings.

On March 28, 2012, it suspended all operations “to prepare for re-fleeting”. It had expected to resume operations later that year.

Source: The Daily Star

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