Wal-Mart ready to loan $50 million to Bangladesh factories

A Wal-Mart Stores Inc company distribution center in Bentonville

Wal-Mart Stores Inc (WMT.N) told investors on Thursday that it could provide up to $50 million in low-interest loans or other types of payments to Bangladesh factory owners for building improvements.

The money is part of the more than $100 million in loans and access to capital that a group of North American companies including Wal-Mart and Gap Inc (GPS.N) pledged in July. The Bangladesh central bank would need to approve any foreign currency loan. Details about lending rates also need to be finalized.

A massive push for improved factory conditions in Bangladesh comes after 1,129 workers were killed in the collapse of a garment plant in April and another 112 people perished in a factory fire there in November.

In July, North American companies including Wal-Mart created the Alliance for Bangladesh Worker Safety, which is separate from a European-led group including a larger number of retailers and union groups known as the Accord on Fire and Building Safety in Bangladesh. The North American plan was criticized by groups that think the European-led plan including binding arbitration is stronger.

Wal-Mart is speaking with the central bank of Bangladesh as it tries to figure out the best way to fund factory safety improvements, whether through loans, earlier payments for shipments or other methods, global Chief Compliance Officer Jay Jorgensen told analysts and investors on a call on Thursday.

The call, run by Wal-Mart’s investor relations staff, was not made publicly available. Wal-Mart confirmed details of the call that were presented to the company by Reuters. A transcript of the call is expected to be posted by Friday.

Wal-Mart has become more vocal about its activities in Bangladesh over the past several months, for example posting a list of banned factories online in May. Some investors have pressed the company for more details, and a few of those on Thursday’s call thanked it for its more transparent approach.

“It’s still somewhat unclear what is the right way to best take care of the workers in Bangladesh,” said Citi Managing Director Deborah Weinswig, who rates Wal-Mart a “buy.”

Wal-Mart is considering several options including paying factories for orders more promptly; paying for orders even before products are delivered, either through a loan or through payment; or having a bank issue a loan with the retailer standing behind it as kind of a credit guarantee in order to keep the interest rate lower, Jorgensen said.

The North American alliance said in July that some companies have offered more than $100 million in loans and access to capital, in order to help the owners of factories they do business with make necessary safety improvements. Gap is part of that group and said in October it would loan vendors up to $20 million for safety improvements. It was not immediately clear how much other companies are set to offer.

The Interfaith Center on Corporate Responsibility (ICCR), a group of faith-based and socially responsible investors, wants Wal-Mart and other retailers to join the European accord. That initiative could have the biggest impact, especially if more companies work together, said Reverend David Schilling, ICCR’s senior program director. He said he was not on Thursday’s call but spoke with Wal-Mart about Bangladesh last week.

“There’s a greater likelihood of success if there’s a multi-stakeholder collaborative process,” said Schilling, adding that having funds for loans is a good step in the overall efforts.

The Bangladesh factory that burned in November was making Wal-Mart’s Faded Glory clothing without the retailer’s consent. Since then, Wal-Mart’s efforts have included a no-tolerance policy for unauthorized sourcing.

Wal-Mart has also started thorough inspections of the roughly 280 Bangladesh factories it gets goods from. Engineers often find dozens of things to fix, both small and large, and factories are given a set time for remediation, Jorgensen said.

“We’re not talking about millions of dollars per factory. We’re talking about tens of thousands of dollars per factory for the reports that I’ve seen,” he said, stressing that he had seen only a small number of reports.

Source: Reuters


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