Best Holdings’s financial status is not good enough to warrant a price of Tk 65 per share, says AB Mirza Azizul Islam, a former BSEC chairman
While Le Méridien Dhaka’s parent company Best Holdings’s bid to enter the bourse via direct listing has garnered quite the hullabaloo, its plan to offload the shares at Tk 65 each has raised eyebrows, too.
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.
RACE Portfolio and Issue Management Company and ICB Capital Management are the issue managers for Best Holdings’s direct listing. ARTISAN Chartered Accountants is its accountancy firm.
Best Holdings Chairman Amin Ahmad could not be reached for comment.
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