Introduction

The once-thriving Habib Group, a conglomerate based in Chattogram, Bangladesh, finds itself in a
dire financial situation, leaving 30 lenders in peril with a debt amounting to approximately Tk4,000
crore. The downfall of the Habib Group serves as a stark reminder of the potential consequences that
can arise from imprudent business decisions, even for well-established family businesses. The
group's ambitious foray into sectors such as aviation and power plants, coupled with the unfortunate
demise of a director responsible for the garment business, played significant roles in their financial
troubles.

The departure of the group's five directors and their evasion of arrest warrants have raised questions
about the due diligence processes of lending institutions. Some lenders extended loans to the group
without adequate collateral or with questionable ties to the group's owners. This situation has put the
lenders in a difficult position, as they now face the challenge of recovering their outstanding loans
through legal action.

The Habib Group's financial woes have caused alarm not only among lenders but also among various
institutions and individuals to whom the group owes substantial amounts. The repercussions have
been far-reaching, impacting employees who protested for unpaid salaries and causing losses for the
Civil Aviation Authority and other entities.

To mitigate the situation, the group is engaged in negotiations with lenders, exploring options for
restructuring their liabilities, and considering the sale of assets to inject equity into struggling
businesses. The road to recovery remains uncertain, but efforts are underway to salvage what
remains of the once-vibrant conglomerate.

A brief history of the downfall

Habib Group, a prominent Bangladeshi industrial conglomerate, founded in Chittagong in 1947 by

Habib Ullah Mia as Habib Trading. It was inherited by his three sons, Mahbub Ali, Yakub Ali and
Yasin Ali, in 1981 who expanded the business in other areas such as garments. Habib Group
employees over 20,000 people and has various interest in textiles, aviation, cement, steel, real estate,
insurance and banking. It is the parent company of Regent Airways, a Bangladeshi private airline
and Regent Power Limited, a power generating company. The company is also one of the oldest
cement manufacturers of Bangladesh.

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In 2009, Regent Power Limited launched a 24megawatt powerplant in Sitakunda Upazila. In 2010,
Habib Group launched Regent Airways. Mashruf Habib was the managing director of Regent
Airways and Imran Asif was the chief executive officer. Salman Habib was the deputy managing
director. Habib Group had a turnover of 20 million BDT a year. The Daily Star-DHL awarded Habib
Group the Enterprise of the Year award in 2014. The International Finance Corporation invested 20.2
million USD in Regent Energy and Power Limited in April to build a powerplant in Ghorashal. In
November, Regent Group announced 8 billion BDT expansion plan through the purchase of five
aircraft for international routes.

Regent Textile announced plans to build two new factories at an investment of 1.79 billion BDT in
November 2015. In June 2017, Regent Airways announced plans to expand destinations in the
Middle East and the purchase of three Boeing 737. Regent Airways was financially hit during the
Covid-19 pandemic in Bangladesh along with other airlines in 2020 after travel was restricted and
flights were forced to cancel. It cancelled the lease of two Boeing 737 to save costs.

In May, textile workers of Regent Textile Milles Limited protested in Chittagong demanding their
unpaid wages. The worker went on an hunger strike demanding eight months unpaid wages
following their layoff. In September 2022, Chattogram Financial Debt Court ordered to seized 280
decimal lands of Habib Steel, a concern of Habib Group, in a loan default case of TK. 909.8 million.
A travel ban was imposed on five directors of the group. In 2023, the government of Bangladesh
confiscated bank accountants of Regent Airways due to unpaid dues.

By April 2023, the headquarters of Habib Group appeared deserted and 31 subsidiaries of the group
had closed down or were on the verge of closing down. Chattogram Magistrate issued an arrest
warrant against five directors of the group including chairman Yakub Ali, directors, Mashruf Habib,
Salman Habib, Tanvir Habib and Yasin Ali in August 2022 in a dishonoured cheque case filed by
IDLC Finance Limited. The group defaulted on 40 billion BDT worth loan from 30 different
financial institutions. The directors were believed to have fled from Bangladesh. The group had
received numerous unsecured loans including a 3.6 billion loan from Dhaka Bank whose director
was related to a director of Habib Group.

Reasons of Habib Group’s fall down and incurring a huge debt

There are numerous reasons why a business may fail and fall into debt. Here are some common
factors that contributed to Habib Group’s business failure:

1. Poor financial management: Inadequate financial planning, budgeting, and cash flow

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 management can quickly lead to financial difficulties and debt accumulation. Habib Group got
the loans very easily as they had a good reputation and repayment track record, the group
obtained loans for various projects from one lender after another as lenders raced to invest in the
rapidly-flourishing company until 2013-14. However, the group's different companies started to
default on loans since 2019. Moreover, one of the owners is the son-in-law of a Dhaka Bank
director and Habib Group Chairman Yakub Ali was a director and the chairman of the Risk
Management Committee of NCC Bank. The group's Managing Director Yasin Ali was the
director of Meghna Bank. Thus, a credit history check was not done very thoroughly. However,
the owners could not invest the funds appropriately. They invested in aviation business which
had a downfall due to the covid 19 pandemic as all the flights got cancelled and the rest of the
industries could not create a market demand.
2. Lack of market demand: If a business fails to offer products or services that meet customer
needs or faces intense competition, it may struggle to generate sufficient sales and revenue.
When Habib Group expanded their operations to fertilizers, power generation and aviation, they
failed to create a market demand and due to the pandemic, most of their raw materials were
stuck overseas and they could not start the production. Moreover, they could not compete with
the existing businesses that already own most of the market share. They could not generate a
USP which could give them a competitive advantage. As the demand was low, sales went down
and the debts went up.
3. Ineffective business model: A flawed or outdated business model can hinder profitability and
sustainability, making it challenging to cover expenses and repay debts. Habib Group was very
successful in their budding stage till the first decade. However, since 2014-15, they started
failing to payback their loans. At this moment they should have tried to improve their current
sectors rather than investing in new ones. As a result instead of reducing the loan debt, they kept
on increasing it.
4. Inadequate strategic planning: Failing to adapt to changing market conditions, ignoring
emerging trends, or lacking a long-term vision can result in a loss of competitive advantage and
business decline. It was well known that supply coal which is a non-renewable resource has
been low, they still wanted to invest in power generation. Moreover, taka was depreciating
against the US dollar which made oil very expensive and still they took out loans and invested
in this sector.

5. Mismanagement and poor leadership: Incompetent management, ineffective decision-

making, or a lack of leadership skills can hamper business performance and contribute to

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 financial problems. Even though the new owners had foreign degrees, they lacked the leadership
skills. If they were effective leaders, they could have guided the employees towards achieving
the goals of the company. Mohammad Elias, financial officer of Regent Spinning Mills, said
only three factories of Habib Group's energy and spinning sections are in operation now, others
have been rented out. The whole group once employed over 16,000 workers, the number now
dropped below one thousand, he added which shows the incompetence of the leaders.

6. Operational inefficiencies: Issues such as high operating costs, excessive waste, inefficient
processes, or ineffective supply chain management can erode profits and make it difficult to
manage debt. When the new generation of owners started to invest in new markets, they did not
do a thorough market research. If they did, they could have found less expensive options which
could have decreased the operating costs. Moreover, if they could have created a brand image
among customers, the demand for their products could have been high and it could have yielded
more profits and make the business model profitable.

7. External factors: Economic downturns, changes in government regulations, industry

disruptions, or unforeseen events like natural disasters or pandemics can significantly impact
businesses and lead to financial struggles. The covid 19 pandemic was one of the main reasons
for the new sectors to fail. The flights were cancelled due to which the Regent Airways faced
huge losses. Moreover, the textile companies also suffered as they could not export their
products due to the pandemic.

8. Lack of differentiation or competitive advantage: If a business fails to differentiate itself

from competitors or cannot offer unique value to customers, it may struggle to attract and retain
customers, leading to financial difficulties. Habib Group failed to grab their customer’s
attention by creating a USP or advertising their products using different media.
9. Legal and compliance issues: Violations of regulations, lawsuits, or failure to meet legal
obligations can result in significant costs, penalties, and reputational damage, affecting a company's
financial stability. Since they started defaulting loans from 2015, many lenders wanted back their
money and thus they had to face many lawsuits. To payback the lenders, Habib Group had to sell
many of their businesses and even lease out some to other companies.

It's important to note that every business is unique, and the reasons for failure can vary depending
on the industry, market conditions, and specific circumstances. Addressing these challenges
requires a comprehensive understanding of the business, effective problem-solving, and proactive

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management.

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Analysis of this fall down

The fall of the Habib Group and the resulting debt of Tk 4000 crore (40 billion Bangladeshi Taka)
is indeed a significant event with severe implications for the group's lenders and stakeholders.
Here are some general analysis of such situations and suggest potential actions to alleviate the
crisis.
1. Identify the root causes: It is essential to understand the underlying reasons for the Habib
Group's downfall. Possible factors could include mismanagement, inadequate risk assessment,
economic downturn, poor financial planning, or external market conditions. Conducting a
thorough analysis of the situation will help identify the specific issues that contributed to the
crisis.
2. Engage in debt restructuring negotiations: Once the causes have been identified, the Habib
Group should proactively engage in negotiations with its lenders. Debt restructuring may
involve extending the repayment period, lowering interest rates, or even writing off a portion of
the debt. Open and transparent communication is crucial to gain the trust of lenders and reach a
mutually beneficial agreement.
3. Develop a comprehensive recovery plan: The Habib Group needs to devise a robust r may
also explore opportunities for strategic partnerships or joint ventures to inject fresh capital and
expertise.

4. Strengthen corporate governance and risk management: To regain the confidence of lenders
and stakeholders, the Habib Group should strengthen its corporate governance practices. This
includes establishing transparent financial reporting mechanisms, implementing stringent risk
management frameworks, and appointing experienced professionals to key management
positions. Adhering to best practices and demonstrating accountability will help rebuild trust.

5. Explore asset sales or liquidation options: If the Habib Group's financial situation remains
dire, it may need to consider selling non-core assets or even liquidating certain business
divisions. These measures can provide immediate liquidity and reduce the debt burden.
However, this should be approached cautiously to avoid a fire-sale situation and ensure the
long-term viability of the remaining operations.

6. Seek government assistance or intervention: In some cases, businesses facing significant

financial distress may seek government support or intervention. The Habib Group could explore
options such as loan guarantees, tax incentives, or industry-specific assistance programs to aid
in its recovery efforts. Engaging relevant government agencies and demonstrating a

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 commitment to resolving the crisis may improve the chances of receiving assistance.

7. Rebuild trust and reputation: Rebuilding trust and reputation is crucial for the Habib Group to
regain its position in the market. This involves delivering on the commitments made during the
recovery process, meeting financial obligations, and fostering transparent and ethical business
practices. Restoring faith in the group's operations will take time but is essential for long-term
sustainability.

8. Recovery plan that addresses the issues identified in the analysis: This plan should include
strategies to cut costs, improve operational efficiency, enhance risk management practices, and
diversify revenue streams. The group may also explore opportunities for strategic partnerships
or joint ventures to inject fresh capital and expertise.

It is important to note that the specifics of the Habib Group's situation may require tailored
solutions. Engaging professional financial advisors and legal experts would be advisable to
navigate the complexities of debt restructuring and financial recovery.

What could be the initiatives taken by the managers as top level to lower level:

Planning
Top
Organizing
Mid
Leading
Middle Controlling

Lower Level

There can be numerous reasons for the failure of a business, and managers at different levels can
take various initiatives to address these issues. Here are some common reasons for business failure
and the corresponding initiatives managers can take: differentiate itself from competitors or cannot
offer unique value to customers, it may struggle to attract and retain customers, leading to financial
difficulties.

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 Poor Financial Management:
 Top-level managers should ensure effective financial planning, budgeting, and cash flow
management.
 Middle-level managers can monitor expenses, implement cost-cutting measures, and seek
opportunities for revenue generation.
 Lower-level managers can provide accurate financial data, control expenditures, and adhere to
budgetary constraints.
 Ineffective Leadership:
 Top-level managers need to establish a clear vision, set achievable goals, and communicate
effectively with the entire organization.
 Middle-level managers should lead by example, motivate their teams, and provide regular
feedback and guidance.
 Lower-level managers can demonstrate leadership qualities, maintain a positive work
environment, and foster collaboration among team members.
 Lack of Market Understanding:
 Top-level managers should conduct market research, analyze customer needs, and adapt the
business strategy accordingly.
 Middle-level managers can monitor market trends, gather customer feedback, and propose
product/service improvements.
 Lower-level managers can interact directly with customers, gather market intelligence, and
provide insights to higher-level managers.
 Inadequate Planning and Execution:
 Top-level managers should develop comprehensive business plans, set realistic objectives, and
establish performance metrics.
 Middle-level managers can translate the strategic goals into actionable plans, allocate
resources effectively, and monitor progress.
 Lower-level managers can ensure proper execution of tasks, follow established processes, and
provide feedback on operational challenges.

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Conclusion

In conclusion, the downfall of the Habib Group serves as a cautionary tale for businesses, highlighting
the consequences of imprudent decision-making and lax lending practices. Despite being a well-
established family conglomerate, the group's ambitious expansion plans, coupled with the loss of a key
director and investments in sectors such as aviation and power plants, led to severe financial troubles.
Lenders, too, bear responsibility for their lack of due diligence in granting large loans without adequate
collateral. The situation has resulted in numerous court cases and a dire financial state for the group,
with most of its subsidiaries shutting down operations. The incident raises questions about the lending
institutions' scrutiny processes and emphasizes the importance of thorough assessment and prudent
decision-making in the business world. The group's current efforts focus on restructuring liabilities,
selling assets, and negotiating with lenders to revive its operations.

Recommendations

To return to the full-fledged business operation the following holistic plans are much needed to
accomplish for Habib Groups rescue. By implementing the following managerial techniques and
leadership skills only then Habib Groups would rescue, we hope so:

To meet the future demand, The group needs to develop a clear and realistic strategic plan that outlines
its goals, objectives, and the actions required to train the young generation on aviation management, we
have learnt that the aviation project made this group facing hurdles. The airline's long-run strategy
would be to keep a balance and review the model as well as invest in technology to ensure sustainable
operation.

Infrastructure is the second most important pillar. All our airports are underdeveloped, while the
domestic traffic has grown beyond 200 per cent in recent years, which is quite unique in Southeast Asia.
to have an airline in line with some of the successful carriers in the region, concentrating on customer
service, while operating to core destinations and serving the people of Bangladesh will be more holistic
approach to get back their position again.

The group should conduct in bilateral codeshares and move into a revenue and cost model that can
sustain the operation through financial analysis to identify the root causes of the financial problems at
these early stages.

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The third generations’ leaders of Habib Group should be more focused, more confident, communicate
openly with employees and stakeholders and make tough decisions when necessary. They should also
foster a culture of accountability and innovation within the organization.

But major reforms are needed to iron out the imbalances in the regulatory, fuel prices and taxation
structures to ensure that Regent's costs are in line with its peers.

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