'Best Holdings' IPO move stuck for not complying with rules

Best Holdings' bond situation

• Race portion was converted to equity in Jan 2020
• Agrani Bank portion converted to equity in  June 2022
• Mercantile Bank and ICB extended repayment time
• Southeast, Trust, and NCC banks in talks for extending repayment time
• Best Holdings is working on raising Tk350cr from stock market

Best Holdings Limited's application to raise Tk350 crore from the stock market with an initial public offering (IPO) got stuck for not complying with related rules.

Public issue rules do not allow increasing paid-up capital within two years before filing for an IPO. However, the company has not complied with the rules, due to which the Bangladesh Securities and Exchange Commission (BSEC) has not yet approved the IPO.

Engaged in the business of hotels and agro-based products and owned by the Le Meridian Hotel in Dhaka, Best Holdings also has agro-projects in Noakhali and Bhaluka, Mymensingh. It is in the process of raising fresh funds to build a resort in Bhaluka.

Claiming it was a state-owned institution with a reference to a government letter, the private sector firm had earlier tried to get listed on the Dhaka Stock Exchange (DSE) through direct listing. But the market regulator blocked the move.

And this time, the company has violated the rules directly by applying for an IPO. Now its officials are out to convince the BSEC to get a concession on complying with the rules.

According to BSEC rules, it cannot raise paid-up capital other than through the issuance of bonus shares within the two years preceding the date of its application for a public offering. However, the issuance of shares in exchange for valid consideration may be permitted within the said period, subject to prior commission approval.

However, on 30 June 2022, Best Holdings converted Agrani Bank's Tk125 crore investment in its bond into shares. And the company filed for its IPO in December of that year.

The company performed a road show with investors in October last year to apply for an IPO under the book-building method to take the premium on top of the face value.

ICB Capital Management and Shanta Equity Limited are working for the company to get money from the stock market.

A senior BSEC official said, on condition of anonymity, that the company had applied for an IPO without securing an exemption from the BSEC on increasing its paid-up capital. And this is where the application is stuck. Now they are trying to get the exemption.

Partex Cables Limited had the same problem last year. It has taken an exemption from the BSEC on increasing the paid-up capital before applying for an IPO.
 
CAG objection

The Comptroller of the Auditor General (CAG) has raised questions about the Investment Corporation of Bangladesh's (ICB) Tk150 crore investment in the bonds of Best Holdings, and asked the ICB to get the money back as soon as possible.

The ICB has made the investment despite its project evaluation committee's observation that Best Holdings' debt repayment capacity is not satisfactory.

The CAG submitted a report to the parliament in November last year with audit objections against ICB's investment in Best Holdings.

In addition, the CAG has issued an audit objection to the senior secretary of the Financial Institutions Division and the managing director of the ICB as serious financial irregularities. The CAG has directed the ICB through the Financial Institutions Division to get the investment back.
 
The bond in question

Best Holdings has raised Tk1,200 crore through the "BHL 25% Convertible Secured Bond" in 2019 for the construction of Le Meridien Hotel and repayment of other high interest loans. Universal Financial Solutions Limited, whose managing director fled abroad with the money of four open-end mutual funds, worked as the project's adviser.

A bond with a maturity of eight years has a coupon rate of 10% and an option to convert into 25% of the shares.

According to the Best Holdings red-herring prospectus, it had outstanding debt securities amounting to Tk795 crore as of 30 June, 2022. Out of this outstanding amount, the bond investors have the right to convert Tk162.50 crore into equity.

Apart from the ICB, eight institutions have invested in the bond. These include Race Portfolio and Issue Management, Southeast Bank, Mercantile Bank, United Commercial Bank, Trust Bank, NCC Bank, Agrani Bank, and Janata Bank.

Of this, Tk200 crore of Race Portfolio and Tk125 crore of Agrani Bank have been converted into shares. These two companies have nominated directors for the Best Holdings board.

Apart from this, Tk125 crore of Janata Bank and Tk100 crore of United Commercial Bank have been repaid.

Mercantile Bank, meanwhile, has extended the investment tenure to 2032 and cut the coupon rate from 10% to 7%.

At the same time, discussions are going on with Trust Bank, NCC Bank, and Southeast Bank regarding the extension of bond tenure and reduction of the coupon rate.

Earlier in FY20, four government-owned commercial banks invested in equity shares of the company with a premium of Tk55 per share, and those banks currently hold a 29.92% shareholding position in the company.

In 2022, Best Holdings' total revenue was Tk239 crore, of which 58.10% came from Le Meridien, 12.54% from Bhaluka Agro Project, 16.09% from Noakhali Agro Project, and 10.76% from rental and maintenance.