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Country’s leading five-star hotel Le Meridian, represented by Best Holdings Limited, finds itself mired in the midst of controversial financial maneuverings as it gets ready to embark on capital-raising journey from the stock markets today.
The company's bid to secure funds from the capital market for an estimated Tk 350 crore unfolds against a backdrop of ongoing investigations into accusations of financial mismanagement.
At the heart of this capital expansion lies Best Holdings Limited's intent to channel Tk 350 crore from the capital market towards new ventures – notably to a project in Bhaluka.
Renowned for operating Hotel Le Meridien, the company with its projected public money aims to invest into diversifying portfolio, venturing into a world-class chain hotel, and exploring various other businesses.
The capital raising process kicks off with the determination of the company's share price through a bidding mechanism. Competent investors within the capital market will propose share prices, contributing to the determination of the definitive cut-off price for the company's shares.
However, skepticism looms large within financial circles, with analysts raising pertinent questions about the prudence of permitting a contentious entity like Best Holdings Limited to access funds via an Initial Public Offering (IPO). Bangladesh Securities and Exchange Commission (BSEC) greenlit Best Holdings Limited's IPO on October 10, but concerns persist over the company's financial integrity amidst accusations of misleading practices.
Citing section 2CC of the Securities and Exchange Ordinance 1969, industry experts emphasise the legal ramifications of providing false information within IPO applications. The law stipulates severe penalties, including the potential cancellation of the IPO, compensation of 25 percent of the application money or shares, and additional sanctions as prescribed by law.
Given the array of irregularities and alleged misinformation surrounding Best Holdings, the experts are of the opinion that the IPO stands vulnerable to cancellation under these provisions.
When asked, AB Mirza Azizul Islam, a former Finance Advisor to Caretaker Government and erstwhile Chairman of the stock market regulator BSEC, highlights the possibility of revoking approval.
He emphasises the imperative need for a thorough investigation, suggesting a suspension of approval pending inquiries. Azizul Islam underscores the potential risk to investors when companies under scrutiny secure approvals to enter the market.
The narrative surrounding Best Holdings Limited's IPO teeters on a delicate balance between its aspirations for capital expansion and the cloud of skepticism engendered by allegations of financial impropriety. As the bidding process unfolds, the specter of investigations and potential regulatory actions casts a shadow over the company's fundraising efforts, raising significant concerns within the investment community.
The complexities surrounding Best Holdings Limited continue to deepen as revelations emerge about its financial maneuvers and disclosures, sparking concerns about compliance and transparency in the company's operations.
One significant point of contention revolves around the violation of the provision stated in 3/2/(p) of the Public Issue Rules. This rule prohibits a company from increasing its paid-up capital, except through bonus shares, within two years prior to applying for a stock market raise. Despite this stipulation, Best Holdings augmented its paid-up capital significantly within this timeframe. However, an exemption was granted to Best Holdings by the BSEC on July 27, absolving the company from adhering to this provision.
Furthermore, the issue price of shares in Best Holdings presents another enigma. Shares were initially issued at face value of Tk 10, then subsequently at a premium of Tk 55, totaling Tk 65 each. However, the current market price plummeted to just Tk 10 post-issuance at Tk 65, suggesting a drastic decline in the company's perceived value, raising concerns about its financial health and trajectory.
The intricate breakdown of Best Holdings' paid-up capital delineates a convoluted pattern of capital infusion. From issuing shares at Tk 10 to a substantial premium of Tk 65, then alternating back to Tk 10, and subsequently oscillating between these values, the company's capital structure appears volatile and subject to fluctuation.
The issuance of bonus shares amounting to Tk 200 crore in August 2019 resulted in a substantial increase in the company's paid-up capital. Notably, Best Holdings, established in 2015, witnessed a remarkable 226 percent augmentation in its capital through the issuance of these bonus shares, substantially altering its financial landscape.
Amidst these financial intricacies, concerns are also raised regarding the discrepancy in the land and building information provided in the Red Herring Prospectus. The discrepancy between the land area of Le Meridien (Best Holdings) and the purported size of its building raises questions about the feasibility and accuracy of the construction information presented.
The company's assertion of constructing a building across the entire land space, contrary to usual practices requiring surrounding space in Dhaka city, raises doubts about the veracity of the provided details. Moreover, discrepancies in the square footage per floor of the hotel, the actual land area, and the reported construction costs per square foot further compound the skepticism surrounding the company's disclosures.
When asked about these discrepancies, Abul Kalam Azad, the Company Secretary of Best Holdings, defended the disclosures by stating that the total expenditure, including construction and decoration, has been accurately portrayed. However, queries persist regarding the reasonableness and accuracy of the disclosed expenses and their alignment with government standards, especially concerning construction costs per square foot vis-à-vis the figures provided by the Public Works Department (PWD).
The unfolding saga surrounding Best Holdings Limited delves deeper into concerning financial maneuvers, including purported revaluations, land development expenses, and the company's alleged bypassing of regulations to augment its perceived asset value.
An alarming revelation emerges regarding the company's approach to building valuation. Despite the depreciating value of the building due to standard depreciation methods, Best Holdings has purportedly inflated the building's value manifold through revaluations. This strategy, conducted in three stages, allegedly aimed to entice investors by inflating the property's worth. Reports suggest that the building's price, initially valued at Tk 1,304 crore 47 lakh 55 thousand 825, escalated to Tk 1,516 crore 50 lakh 94 thousand 90 via revaluation, setting the market price per square foot at an exorbitant Tk 40,010.
Moreover, Best Holdings has presented assets categorized as "land development," ostensibly attributed to immense soil filling, seemingly beyond conventional proportions. This inflated land development cost, often utilized to bolster paid-up capital and directors' share capital in other companies, appears questionable, particularly when juxtaposed against the actual land area.
The Red Herring Prospectus reveals that the hotel building spans an area of 95.49 decimal, with no expenditure recorded for its purchase. However, startlingly, an expenditure of Tk 534.78 crore has been attributed to soil filling development on the land, an area less than 3 bigha or 1 acre.
Complicating matters further, reports indicate that despite Best Holdings violating the Securities Act by raising capital prior to entering the stock market, the Bangladesh Securities and Exchange Commission (BSEC) granted the company special exemptions. Analysts express apprehension, highlighting the potential risks posed by allowing companies with a history of irregularities and controversies to access capital markets, potentially jeopardizing the investments of ordinary individuals.
Professor Abu Ahmed, a capital market expert, underscores the precarious situation within the country's capital market. Expressing concern for the plight of general investors and the enduring difficulties they face, Ahmed emphasizes the inadvisability of granting leeway to controversial companies seeking capital market funding. Approving such entities, according to Ahmed, exposes investors to heightened risks and could exacerbate the challenges faced by ordinary investors.
Simultaneously, the Anti-Corruption Commission (ACC) has initiated investigations into allegations of embezzling Tk 1,500 crore by Best Holdings Ltd.
Further intensifying the scrutiny, the ACC has recently filed a case against Amin Ahmed, a key figure within the organisation, alleging illegal wealth acquisition and tax evasion.
Amid all these grave allegations and ongoing investigations, BSEC’s greenlight to Best Holdings for raising Tk 350 crore from the capital market has raised serious concerns about the safeguarding of investor interests.