The finance ministry on Tuesday asked the four state-run banks with stakes in the much-talked-about Best Holdings, the parent company of Le Méridien Dhaka, to furnish their valuation report with a matter of urgency.
The four banks -- Sonali, Rupali, Janata, Agrani -- collectively bought 29.6 per cent stakes in Best Holdings between August 2019 and June this year at Tk 65 a share, with the state-run Investment Corporation of Bangladesh (ICB) acting as their issue manager.
Subsequently, the finance ministry sent a letter to the managing directors of the four banks, ICB and ICB Capital Management demanding to see their valuation report along with the minutes of the board meetings in which the matter of stake purchase was discussed.
A copy of the notice, signed by senior assistant secretary Sheikh Siddiqur Rahman, was sent to the Bangladesh Bank governor and the Bangladesh Securities and Exchange Commission chairman.
The issue came to the fore after Best Holdings sought to enter the bourse via the direct listing system for which is it not eligible.
To support its application, the company had furnished a letter from Finance Minister AHM Mustafa Kamal recommending the direct listing as well as seeking relaxation of certain rules to facilitate its entry to the stock market.
But last week, the finance ministry made an about-turn and issued a notice directing the regulatory bodies not to take any action on the basis of a letter purportedly signed by Kamal on Best Holdings’s bid to enter the bourse to raise Tk 283 crore via the direct listing system.
The unusual move comes after Best Holdings applied to the BSEC and the DSE on November 12 seeking special permission to offload 4.3 crore ordinary shares through a direct listing.
A direct listing is a process by which a company can be listed on a stock exchange without increasing its existing paid-up capital or by issuing new shares. Under the mechanism, a company can join a bourse just by offloading its existing shares to investors.
Earlier in 2016, the BSEC in a regulatory notice directed the twin bourses not to allow any private company to being listed directly. Only the government companies or state-owned enterprises are eligible for this method of listing.
Best Holdings, which has diversified interests ranging from agro-business to infrastructure development, hospitality to advertising, is 70.4 per cent owned by individuals and private entities.
The state banks’ stakes were used as the basis for seeking special treatment.
Best Holdings was due to get the green light at the 983rd meeting of the board of directors of the DSE on Thursday. But thanks to an extraordinary move by the BSEC, the plan appears to have been foiled.
The securities regulator worked on the Victory Day, a public holiday, and issued a show-cause notice on the DSE backdating it to December 15, officials working on the matter told Dhaka Tribune.
Subsequently, the issue of direct listing of Best Holdings was dropped from the agenda of the board meeting.
“You are requested to keep this application for direct listing pending till settlement of the total matter,” said the letter signed by BSEC Deputy Director Mohammed Nazrul Islam dated December 15 to the DSE managing director.
Dhaka Tribune has a copy of the letter, in which the securities regulator questioned the authenticity of the letter from the finance minister.
Besides, Best Holdings raised a total of Tk 662.2 crore through private placements between August 2019 and June this year, which goes against the rules for a direct listing.
The company’s plan to offload 4.35 crore shares out of its total of 87.1 crore shares at Tk 65 each does not meet the offloading requirement of 25 per cent of the paid-up capital of the company and price discovery process.
In its application to the stock market regulator on November 12, it was mentioned that RACE Portfolio and Issue Management Company and ICB Capital Management were the issue managers for the direct listing.
On Sunday, ICB Capital Management, a subsidiary of the state-run Investment Corporation of Bangladesh, came forward and said that it has no part to play in this fiasco.
“ICB Capital Management has no agreement with Le Méridien or Best Holdings to be its issue manager,” it said in a statement on Saturday that was signed off by Shukla Das, its chief executive officer.
Besides, Best Holdings’s current assets from August 2016 to 2019 were reported as negative, which is contrary to provisions of the regulations, the BSEC said in the letter.
The BSEC also asked whether the investment made by the four state banks in the equity shares of Best Holdings by way of placement shares can be considered as owned by the government.
Meanwhile, Best Holdings’s valuation of Tk 65 for each of its shares has raised eyebrows among analysts.
Best Holdings’s basis for preferential treatment is its expertise in infrastructure development, particularly building bridges.
Coincidentally, one of the leading players in the infrastructure development sector, Mir Akhter Hossain, is also gearing up for its initial public offering to raise Tk 125 crore.
The cut-off price of shares in Mir Akhter has been set at Tk 60 each after bidding by eligible institutional investors. For general investors and non-resident Bangladeshis, the price would be Tk 54, which is a 10 per cent discount on the cut-off price.
Mir Akhter’s profit in its 2018-19 financial year was Tk 63.2 crore and Best Holdings’s Tk 83.8 crore.
Best Holdings also owns Le Méridien Dhaka, whose peer hotels such as The Westin Dhaka, Intercontinental Dhaka, The Peninsula Chittagong and Sea Pearl Beach Resort are trading on the bourse.
“None of the hotels listed on the stock exchanges is doing well,” said Abu Ahmed, a stock market analyst and an honorary professor at the Dhaka University's economics department.
The pandemic has hacked away hotels’ business.
Had Best Holdings applied for IPO amid the pandemic, its application would have never gotten the nod, he said.
And by a stroke of luck, if it got the green signal, it would not have gotten that price via the book-building method of the IPO, according to Ahmed.
Book-building is the process by which an underwriter attempts to determine the price at which an IPO will be offered.
An underwriter, normally an investment bank, builds a book by inviting institutional investors (such as fund managers and others) to submit bids for the number of shares and the price(s) they would be willing to pay for them.
The investor demand for shares is used to arrive at an issue price that will satisfy both the company offering the IPO and the market.
The process is highly recommended by all the major stock exchanges as the most efficient way to price securities.
Le Méridien Dhaka’s closest competitor is The Westin Dhaka. Both are chain hotels of Mariott International, an American hospitality company that manages and franchises a broad portfolio of hotels and related lodging facilities.
Shares of Unique Hotel & Resorts, the parent company of The Westin Dhaka, closed at Tk 39.5, shedding 26.7 per cent of their value since January last year, when they were trading at around Tk 53.
Unique Hotel & Resorts logged in a profit of Tk 28 crore for the 2019-20 financial year, down 54.5 per cent year-on-year.
Shares of Bangladesh Services, the parent of Intercontinental Dhaka, is trading at Tk 5.2. The company has reported a loss of Tk 46.3 crore for the 2019-20 financial year, in contrast to Tk 36.4 crore in the losses a year earlier.
The Peninsula Chittagong is another listed upscale hotel whose stock is trading between Tk 20 and Tk 30 in the past two years.
The company reported a profit of Tk 0.7 crore in the 2019-20 financial year, down from Tk 10.4 crore a year earlier.
Sea Pearl Beach Resort, however, seems to be an anomaly.
The upscale property in Cox’s Bazar has reported a loss of Tk 1.1 crore in its 2019-20 financial year and yet its stock is trading at the highest amongst the listed hotels: Tk 79.1.
Curiously, its stock price began crawling up during the pandemic.
“Best Holdings’s financial status is not good enough to warrant a price of Tk 65 per share,” said AB Mirza Azizul Islam, a former adviser to a caretaker government.
It sold the placement shares at Tk 65 per issue to state-owned banks after failing to repay loans, he said.
State-run banks Sonali, Janata, Agrani and Rupali collectively own 29.6 per cent of Best Holdings.
“The banks' investment in the hotel was not a good decision at all,” said Islam, who was also a former chairman of the Bangladesh Securities Exchange Commission (BSEC).
Best Holdings also sold placement shares at face value to other investors, who would not pay the Tk 65 price tag per issue considering the company’s financial statements, he added.
Its net asset value -- which is its total assets less its liabilities -- per share stood at Tk 66.68 at the end of June, down from Tk 3,270.58 a year earlier.
Ahmed echoed the same as Islam.
“The banks' investment at such a high price raises questions,” he said, adding that Best Holdings chose direct listing with a floor price of Tk 65 a share to provide a better exit for its placement holders.
Had the company succeeded in hitting the bourses via the direct listing and sell shares at Tk 65, it would have inflicted losses on the general investors later, he added.
ARTISAN Chartered Accountants is its accountancy firm.
Best Holdings Chairman Amin Ahmad could not be reached for comment.