Bengal Plastics to spend Tk 50cr on expansion

Bengal Plastics Ltd, a leading plastic goods maker, is set to expand its production capacity in a bid to enhance overseas sales, a top official of the company said yesterday.

It is investing Tk 50 crore to expand its existing factory in Savar within the next two years, said Md Jashim Uddin, vice-chairman of Bengal Group of Industries.

“We will produce mainly household plastic items in the expanded unit exclusively for export markets. Our expansion work has already started,” he said.

Following expansion, Bengal Plastics aims to grab an additional $20 million in new export orders a year, from around $42 million in exports at present, and will create 500 new jobs, said Jashim, also president of the Bangladesh Plastic Goods Manufacturers and Exporters Association.

The company will borrow the fund through a commercial paper (CP), a short- term debt instrument backed by Mutual Trust Bank.

The tenure for the CP will be 180 days and five financial institutions -- Bank Asia, Commercial Bank of Ceylon, Habib Bank, Jamuna Bank, Midland Bank -- will subscribe to it. The formal announcement for the CP was made yesterday.

“We are collecting funds through the commercial paper mainly, as we are getting a comparatively lower rate of interest,” said the Bengal Group official.

Many companies use CP to raise cash needed for current transactions, and many find it attractive as a low-cost alternative, said Anis A Khan, managing director of Mutual Trust Bank, the fund's lead arranger.

A company can get funds at an interest rate of 10-11 percent through a CP, while the normal lending rate is now hovering around 13 percent, he added.

Since a CP is not backed by collateral, only firms with excellent credit ratings from a recognised credit rating agency will be able to sell their CP at a reasonable price.

A CP is usually sold at a discount from the face value, and carries higher interest repayment rates than bonds. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution pays.

On maturity, the investor presents the notes and receives payment. Commercial banks, in their role as issuing, paying, and clearing agents, facilitate settling of a CP by carrying out the exchanges between issuer, investor, and dealer.

Jashim said the plastic industry has grown enough to handle rising demand from local and foreign markets.

The annual sales of plastic products are estimated to be around Tk 20,000 crore in the local market, which has been growing at 15 percent a year in the last few years, according to industry insiders.

Though the sector started small in the 1960s, it has now reached a self-sufficient stage, according to Jashim.

Around 5,000 small, medium and large plastic goods manufacturing units employ about 12 lakh people directly and indirectly.

Value addition in plastic products hovers between 51 and 70 percent, according to data from the industry lobbying group.

Bangladesh's earnings from plastic exports stood at $85.70 million in fiscal 2013-14, up 1.41 percent year-on-year, according to Export Promotion Bureau.

Earlier, Mutual Trust Bank had arranged the first CP issued by Pran Agro Ltd for an amount of Tk 45 crore, which was closed successfully on December 11, 2014.

Bengal Group that began operations back in 1969 now has six plastic factories in Tongi, Savar and Gazipur with a combined processing capacity of more than 3,000 tonnes of raw materials a month.

suman.saha@thedailystar.net