The amount of the deferred payments would be about $180 million, including finished goods and the value of halted orders, according to the exporters
Around 100 Bangladeshi suppliers working with LPP, one of the fastest-growing clothing retailers in Central and Eastern Europe, are facing hardships because of deferred shipments of products and payments since the outbreak of the Ukraine war, according to industry sources.
The affected exporters are finding it difficult to run their business as the buyer is not taking their finished goods as per LC agreements, they informed TBS, adding that the exporters and their raw materials supplying companies are facing a liquidity crisis due to non-payment of their back-to-back LC loans.
Three of the exporters on condition of anonymity mentioned that their back-to-back LCs have already been converted to forced loans and that they have requested the BGMEA to take initiatives to settle this issue to help them stay afloat.
The amount of the deferred payments would be about $180 million, including finished goods and the value of halted orders, according to the exporters.
Officials of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) told TBS that as of Sunday evening, they got information from 18 factories that have $60 million in dues with LPP.
Representatives of the brand liaison office and buying offices said the buyer has been forced to shut down about 800 of its stores in Russia and Ukraine, which has caused the products ordered for the stores to get stuck in Bangladesh. But, they are committed to taking all the ordered goods gradually.
Apparel exporters told TBS that only government policy support – like it provided during the Covid-19 pandemic to protect exporters – could be a way out of the situation.
BGMEA President Faruque Hassan told TBS that he had already spoken to the Bangladesh Bank to address the issues concerning the LPP suppliers.
He also mentioned that the brand officials had a meeting with him some 10 days ago where they mentioned that the brand had plans to take all the ordered goods and clear payments to the suppliers by June next year.
According to LPP’s website, Bangladesh is the largest import destination for the retailer as it meets about 70% of its demand for apparel from here. It also sources ceramics, tableware, and jute goods from the country.
The retailer’s annual turnover was $2.84 billion in 2021.
Industry sources said Life Textile, one of the suppliers for LPP, has faced such problems as it has already made ready about $20 million worth of apparel for this retailer.
Besides, Rupa Group Managing Director Md Shahidul Islam told TBS that they had an annual business of $3 million with LPP since last season.
The company manufactured some sweaters and knitted T-shirts for this brand, which are worth $0.8 million and were scheduled for shipment in the April-July period, he said, adding that the buyer has now deferred the shipments till mid-2023.
“The buyer has said that it is now sitting with inventory due to the closure of a large number of stores. But what will happen with its Back-to-Back LC payments?” added Shahidul Islam.
Generally, banks convert the Back-to-Back LC payment amount to a forced loan after the expiry of the payment tenure, he mentioned, adding, “Till now we have been able to keep it normal, but we need government policy for this special case as the buyer is committed to clearing the payments.”
“The central bank should give a special directive to all banks to adjust payments for this retailer from EDF funds, otherwise most of the suppliers will go out of business, as we have such precedence during the pandemic”, said the Rupa Group managing director.
Echoing Shahidul Islam, BGMEA President Faruque Hassan said they will write to the central bank to take necessary steps to address this issue and provide policy support on a case-to-case basis to protect exporters from forced loans.
BGMEA officials told TBS that they have already asked their members to provide information on the LPP issues and that they would send a list of the affected exporters to the central bank after getting detailed information from them.
LPP country manager reigns
Industry sources said the LPP country manager in Bangladesh reigned from his responsibility over the current situation.
He started the Bangladesh office in December 2014, aiming to ensure transparency in its supply chain.
After the opening of the Bangladesh office, the retailer’s business saw a big growth and it started sourcing ceramics, jute, and leather items from Bangladesh.
LPP’s withdrawal from Russia
According to Reuters, the Polish clothing retailer announced on May 19 that it had decided to sell its Russian company RE Trading to a Chinese consortium.
LPP’s decision will end the group’s operations in Russia after 20 years in the market.
The company said in April that it had decided to sell its Russian-registered companies because of the “uncertain situation and inability to predict the course of the armed conflict”.
“The second Russian company, RE Development, will be shut down”, the company’s investor relations representative Magdalena Kopaczewska told Reuters.
LPP closed its Russian stores in March after Russia’s invasion of Ukraine.
The company said in mid-April that it was looking to strengthen its presence in the European Union.
Russian sales accounted for 19.2% of its group revenue for 2021-22.
