This case study examines the rise and subsequent failure of M/S Himalaya Cement Ltd., an industrial project initiated in Bangladesh in the late 1980s. While the project was initially conceived with high expectations and financial backing, a combination of poor management, lack of technical expertise, and weak oversight ultimately led to its downfall. The analysis presented here is designed for senior students of business studies (MBA/M.Com) and banking executives, with a focus on identifying the reasons behind the enterprise’s failure.
Background of the Entrepreneur
Mr. Karim, a Bangladeshi citizen, pursued his graduation in London, where he also gained exposure to the hotel industry through family involvement. Returning to Bangladesh in 1985, he brought back a sizeable amount of capital with the ambition of establishing an industrial unit.
In 1988, Mr. Karim submitted a proposal for a cement manufacturing unit, seeking a loan of Tk. 25 crore. With political influence and assistance from sympathetic bank officials, the loan was sanctioned.
Company Formation
Mr. Karim established a public limited company with his close associates. However, the directors lacked any industrial experience and were entirely dependent on hired technical and managerial staff. This structural weakness became one of the root causes of the project’s long-term failure.
Project Implementation
The company opened Letters of Credit (L/Cs) for procuring machinery from China and India. Due to a lack of technological expertise:
The machinery selected was faulty and unsuitable.
Equipment delivered to the site was imbalanced and improper.
The construction of the factory building was delayed owing to inadequate structural design.
These challenges pushed the project’s commercial operation date two years beyond schedule.
Financial and Operational Issues
The delay caused liabilities to escalate sharply. Although the project loan was structured over 12 years with a 3-year grace period, the extended delay added significant financial pressure.
Once operations finally commenced, the company was able to generate profit. However, the sponsors deliberately avoided repayment of dues, leading the company to be classified as a loan defaulter.
Despite the bank’s decision to reschedule the loan on the sponsor’s request, the company once again defaulted. Consequently, the bank filed a case under the Insolvency Act 1999. The company later proposed issuing public shares to raise capital, but this came at a stage when confidence in its governance and financial credibility was already severely eroded.
Analytical Framework for Failure
1. Borrower-Specific Factors
Lack of Industry Knowledge:
The promoters had no prior experience in the cement industry. Decisions on machinery procurement and project design suffered due to ignorance and overreliance on external advisers.Inefficient Management:
The directors lacked managerial expertise, and the company became overly dependent on hired personnel, leading to weak decision-making and execution delays.Diversion of Funds:
There were strong indications that funds were diverted into other business ventures, weakening the financial base of the cement project.Deliberate Default:
Despite profitability in later years, the sponsors did not honour repayment commitments, showing a lack of financial discipline and governance.
2. Bank-Related Factors
Faulty Appraisal:
The bank failed to adequately scrutinise the borrower’s industry knowledge, management competence, and technical feasibility of the project.Delay in Disbursement:
Bureaucratic delays in releasing the loan disbursements further extended project timelines, compounding cost overruns.Weak Monitoring:
Bank officials neglected close monitoring during implementation. Faulty machinery procurement and poor factory construction went unchecked.Overreliance on Political Pressure:
The loan sanctioning process appeared to be politically influenced, reducing the bank’s professional independence and risk assessment capacity.
3. External/Environmental Factors
Government Policy Uncertainty:
Inconsistent industrial policies and regulatory bottlenecks in Bangladesh’s industrial sector during the late 1980s and 1990s created additional hurdles for new ventures.Technological Dependence:
Reliance on imported machinery from China and India without proper technical evaluation exposed the company to avoidable risks.
Key Lessons Learned
For Entrepreneurs:
Industry Knowledge is Critical – venturing into industrial projects requires a deep understanding of the sector.
Professional Management – businesses cannot rely solely on political influence; strong governance and competent teams are essential.
Financial Discipline – deliberate defaulting damages credibility, making future fundraising nearly impossible.
For Banks:
Rigorous Project Appraisal – feasibility studies must assess technical, managerial, and financial soundness before loan approval.
Continuous Monitoring – banks must closely supervise large industrial loans during implementation.
Avoiding Political Influence – loans should be sanctioned on merit, not connections.
For Policymakers:
Stable Industrial Policy – consistent and supportive policies attract investment and encourage accountability.
Stronger Insolvency Frameworks – to hold wilful defaulters accountable while protecting the banking system.
The failure of M/S Himalaya Cement Ltd. illustrates the combined effects of poor entrepreneurial vision, weak corporate governance, faulty banking practices, and policy-level inefficiencies. While the project had potential and even achieved profitability for a period, systemic weaknesses led to its collapse.
For business students, this case highlights the importance of strategic planning, technical due diligence, and ethical responsibility. For banking executives, it underscores the need for robust appraisal, monitoring, and enforcement mechanisms. Together, these lessons can help prevent similar industrial project failures in the future.