Part 1: Was bdnews24.com share price abnormal, imaginary?

The Anti-Corruption Commission has charged bdnews24.com Editor-in-Chief Toufique Imrose Khalidi with selling shares at an “abnormal and imaginary” price, which can pique the curiosity of people who have an interest in related issues.

The case says Khalidi sold 40,000 shares of his own and his company to asset manager LR Global Bangladesh at Tk 500 million. 

Each share with Tk 100 face value was priced Tk 12,500, including Tk 12,400 as premium, which the ACC describes as the “highest ever price in Bangladesh” and “abnormal and imaginary”.   

bdnews24.com is not listed on the stock market and operates as a private limited company with permission from the Office of the Registrar of Joint Stock Companies and Firms.

The share price of a company listed on the stock market changes every day. If a company’s share price increases abnormally, it naturally arouses suspicion.   

So how much premium is “abnormal or imaginary” when the shares of a non-listed company with goodwill and brand value gained from long-term business change hands?

bdnews24.com has analysed data from recent transactions between some companies.  

Japan Tobacco, one of the biggest tobacco companies in the world, bought shares of the tobacco business of Bangladesh’s Akij Group at Tk 124.3 billion by the end of 2018.

The Akij Group concern -- United Dhaka Tobacco Company Limited -- is not listed on the stock market. Its paid-up capital was Tk 20 million on Aug 6, 2018.

If the face value of a Dhaka Tobacco share was Tk 100, Japan Tobacco bought it at Tk 621,810.   

Is the price abnormal or imaginary?

The net assets of Dhaka Tobacco were valued at Tk 12.9 billion, with Tk 64,000 net asset value per share and Tk 4.7 billion in operating profit.

Japan Tobacco paid high premiums for Dhaka Tobacco shares apparently because it was deemed to be a profitable venture to the global company.

When STS Holdings, which owns Dhaka’s Appollo Hospital, sold about 55 percent of its shares to US-based Evercare Health Fund and the UK’s CDC Group in early 2020, the Bangladeshi company received about Tk 10 billion.

Before the transaction, Apollo Hospital’s paid-up capital was Tk 1.5 billion.

So, an Apollo Hospital share with a Tk 100 face value was sold at Tk 1,212.

Was it a reasonable price?

Prof M Sadiqul Islam, a teacher of finance at Dhaka University, said the value of a public or private limited company can be determined in three ways: assets, market value and earnings.

“There is no ceiling for share prices in these systems, but it must be reasonable. And the share price of private limited companies depends on negotiation.”

The key benefit for a public company is that prices are already established by supply and demand by the market participants -- buyers and sellers, which should be based on a combination of all three approaches adjusted by industry and sectors.

United Dhaka Tobacco (a unit of Akij Group)	Bangladesh News 24 Hours Limited (bdnews24.com)
Profitable when shares were sold	Valued at Tk 3.71 billion or $46 million by BRAC EPL in 2017 when it operated at a loss; 33% shares of the company changed hands in 2019 when it reached break-even.
Paid-up capital: Tk 20 million	Paid-up capital: Tk 10 million
Valued at $1.5 billion (Tk 125 billion) during the sale	Valued at $18 million (Tk 1.5 billion)
Each share with Tk 100 face value was priced at Tk 621,810	Each share with Tk 100 face value was priced at Tk 12,500

However, given the rise of the services sector globally, the income-based approach is widely used regardless of whether the company is public or private.

The asset-based approach may be appropriate for a company that is not valued as a going concern and may be liquidated in the near-term.

The gold standard for fundamental analysis is based upon the present value of the future cash flow of any company — public or private across all industries.

In this case, valuations are determined by the future cash flow, which is based upon a realistic business plan and capital expenditure assumptions, of a going concern.

In summary, the ultimate valuation is determined by the future earnings potential, discounted to the present value of cash flow, of a company regardless of being public or private.

When Bangladesh’s The Daily Star’s paid-up capital was Tk 10 million until some years ago, now raised to a higher amount, would the paper be sold for or valued at Tk 10 million?

The Financial Express, which began with Tk 1 million paid-up capital in 1993 and increased the figure to Tk 10 million many years later, would not surely sell for that amount or be valued at that amount.

A company’s brand value cannot be determined by its movable and immovable assets.

The top five brands on a Forbes 2020 list belonged to technology companies. Their net assets were lower than many other companies, but they were ahead in brand value.

The net assets of Apple, which topped the list, were $105 billion, but Forbes put its brand value at $241.2 billion.

Toyota was ranked No. 11 on the list with $52 trillion in net assets, but a brand value of $41.5 billion.

Uber, which operates an app-based ridesharing network in around 775 cities around the world, has no taxi of its own. Can it be bought at a cheap rate?

All for journalism!

ACC prosecutes bdnews24.com Editor-in-Chief Toufique Imrose Khalidi on charges of ‘illegal wealth’