How ICB’s stocks investment goes down the drain

The Investment Corporation of Bangladesh (ICB) has struggled to achieve profitability although it has invested approximately Tk14,000 crore in the capital market as of March this year, marking a substantial 460% increase since 2010.

In 2010, according to ICB’s financial report, the company recorded an operating income of Tk563 crore and a net profit of Tk436 crore with capital market investments totalling Tk2,480 crore. 

However, by the end of March this year, ICB reported an operating loss of Tk35.30 crore and a net loss of Tk267 crore, despite its capital market investments growing to Tk13,800 crore. 

Md Moniruzzaman, managing director of Prime Bank Securities, at a roundtable discussion titled “Capital Market for the Future,” organised by The Business Standard on Saturday said after 2010, ICB primarily focused on propping up the market index, which was not in line with the proper mandate of state-owned investment firms.

“Whenever ICB got funds, it invested to pull the stock market index. This is never a sustainable way to invest. Rather, investing in this way without fundamental analysis is harmful to the market as well as to the organisation and the investor also,” he said.

Abu Ahmed, chairman of the ICB, told TBS he has yet to see the company’s investment portfolio after his taking over the charge recently.

He said, “But I heard that ICB has large investments in shares of non-performing, weak companies. Accordingly, I asked the officers concerned why they invested in these shares.

“They told me that at various times they had to buy shares of these weak and non-performing companies under pressure from the stock market regulator.”

He said that what ICB has done in the last 10 years is to invest in the stock market by taking high-interest loans from various banks. “It is in no way justifiable and it cannot be the work of ICB to pull the index.”

The ICB chairman also said, “Our main goal now is to arrange that the institution can work independently.”

Why profitability narrowed

ICB officials stated that investments have been made in the stock market using high-interest loans from banks. However, despite their efforts, they were unable to invest in quality companies due to various lobbying pressures, leading them to purchase shares at inflated prices. As a result, they were unable to achieve capital gains from the stock market, and they now face the challenge of calculating losses while servicing high-interest loans.

At the end of March 2024, ICB’s total liabilities, including loans and deposits, stood at around Tk15,000 crore. The figure was only Tk2,500 crore in 2010. The company has to calculate the loss while paying interest against such a huge number of deposits and loans.

Besides, ICB is currently suffering from fund crisis. The last government promised to get loan assistance of Tk5,000 crore, but the present government refused it.

Apart from this, the company’s senior officials said that new funds are not available from any bank due to the exposure limit of the single borrower.

Abu Ahmed said that ICB is now facing a funding crisis and needs low-cost funds.

Investment in junk stocks

Market insiders said a group of market manipulators had used the ICB as a dumping zone, where they sold the high-priced junk stocks to the corporation.

According to the ICB annual report for FY2023, ICB bought about 2 crore shares of the controversial company Appollo Ispat at a rate of Tk18.30. But when the company got the IPO approval, there was a lot of controversy about it. However, ICB bought the shares of the company at the highest price. Currently, Appollo Ispat shares are being traded at just Tk4. And ICB is in big loss by investing in the company.

Similarly, ICB invested heavily in shares of companies like RSRM, Western Marine, Golden Harvest, National Feed, Family Tex, Generation Next, Mithun Knitting, Tallu Spinning, Pacific Denims, RN Spinning, Active Fine Chemical, First Finance and Keya Cosmetics. It incurred losses amounting to crores of taka by investing in these shares.

It also invested in non-listed banks and companies without any fundamental analysis.

According to the annual report, it invested Tk85 crore to purchase shares in the controversial Padma Bank, which is now on the verge of collapse and in the process of merging with another bank.

Earlier, in July, ICB decided not to invest in junk stocks that are traded under the Z category. It has also taken various reform steps, including forming an investment policy. 

The ICB chairman said that the investment committee is now working on the new policy and that they will observe its outcomes.

Keeping FDRs in weak financial institutions

ICB currently holds Tk900 crore in fixed deposit receipts (FDRs) across various weak banks and non-bank financial institutions, with the audited report for fiscal year 2022-23 detailing the distribution as follows: Tk154 crore in Padma Bank, Tk25 crore in Peoples Leasing, Tk47 crore in Premier Leasing, Tk56.94 crore in FAS Finance, Tk74 crore in Fareast Finance, Tk50 crore in Aviva Finance, Tk160 crore in First Finance, Tk191 crore in International Leasing, Tk134.75 crore in Phoenix Finance, and Tk7.23 crore in Prime Finance, reflecting ICB’s investment strategy within a challenging financial landscape.

Abu Ahmed said FDR in these companies cannot be brought back now. Moreover, these companies do not have the ability to return the money.

Meanwhile, ICB has over Tk400 crore tied up in bonds issued by Sea Pearl Beach Resort. ICB officials have stated that a legal case is currently ongoing to recover these funds.