CAG questions ICB's investment in Best Holdings' bonds

The Comptroller of the Auditor General (CAG) has raised questions about the Investment Corporation of Bangladesh's 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.

Best Holdings, which is engaged in the business of hotels and agro-based products and owned by the Le Meridian Hotel in Dhaka, has agro projects in Noakhali and Bhaluka, Mymensingh. It is in the process of raising Tk350 crore from the stock market to build a resort in Bhaluka. ICB Capital Management and Shanta Equity Limited are working for the company to get money from the stock market.

Responding to CAG's audit objection, a senior ICB official said it had invested in bonds issued under the Le Meridien Hotel project. The money will be realised without difficulty by selling the hotel's land as collateral.

Best Holdings' Chairman Amin Ahmad told The Business Standard, "We raised Tk1,200 crore in 2019 from nine banks and financial institutions by issuing bonds. Of this, Tk325 crore was converted into shares, and Tk225 crore was repaid. As a result, the ICB's funds will be returned in due course."

CAG's objection

According to the CAG's audit objection report submitted to parliament, during the audit of the financial activities of ICB for the fiscal years 2015-2016 and 2017-2018, it was discovered that the state-owned investment institution's investment in bonds is unprofitable considering the cost of fund, and the investment was made despite Best Holdings' unsatisfactory debt repayment capacity. In this case, the ICB has Tk154 crore unrecovered.

Apart from this, the project evaluation committee of the ICB also recommended not investing in the bonds of Best Holdings.

The CAG also said that ICB's name was not included in the insurance against Best Holdings' Le Meridian project property as per the terms of the loan approval letter.

The mortgaged property of Best Holdings has not been identified or segmented, CAG said in the report. As a result, there will be complications with debt recovery in the future.

Instead of collecting ICB money as directed by the CAG, the grace period for coupon payment of Best Holdings bonds has been extended by three years, till 13 August 2024. And the return on bond investment time has been extended until 2030.

The ICB official said that Best Holdings has issued advanced checks for coupon payments on a semi-annual basis. If two consecutive instalments are missed, then the extended grace period will be cancelled.

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.

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 on 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.

Amin Ahmad said there was a slowdown in business due to the Covid-19 pandemic. Therefore, the time to repay the bond under the loan deferral facility given by the government has been extended.

Direct listing in discussion

By issuing shares in the name of state-owned Agrani Bank, Best Holdings wanted to be listed on the stock market under the direct listing system, claiming to be a government-owned company. In this case, Best Holdings used a letter from the finance ministry regarding the direct listing of government-owned companies.

However, the company's initiative failed due to the intervention of the Bangladesh Securities and Exchange Commission.

Later, the company applied to the stock market regulator to raise Tk350 crore from the stock market through an initial public offering under the book-building method in accordance with existing laws.

With this money, the company wants to build an international standard resort in Bhaluka, Mymensingh.

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.