Market analysts question Best Holdings asset value

The value of the land and the building of Le Méridien Dhaka in Nikunja doubled in a single revaluation in 2019 and the total value of assets of Best Holdings, which owns the 5-star hotel, jumped 126 percent in rounds of reassessments.

Best Holdings flaunted these valuations while applying for direct listing to raise Tk 2.83 billion from the stock market by selling Tk 10 share at Tk 65 with Tk 55 premium.

Bangladesh Securities and Exchange Commission has scuttled the private firm’s bid to debut on Dhaka Stock Exchange through direct listing, raising legal questions and noting that the direct listing is a privilege available for only government companies.

Market analysts have questioned the rate at which Best Holdings raised its asset value. 

One of those people who help companies and clients make informed decisions about the market said Best Holdings should be evaluated again by an eligible firm and if any anomaly is found, the company that had re-evaluated the owner of Le Méridien Dhaka hotel earlier be penalised.  

Amin Ahmad, chairman of Best Holdings, did not take phone calls nor did he respond to text messages from bdnews24.com requesting comments for this report.

Le Méridien Dhaka

HOW THE VALUE JUMPED

Best Holdings’ total asset value was shown Tk 77.2 billion on Jun 30, 2020 after several rounds of revaluation, a Tk 43.04 billion or 126 percent rise from Tk 34.16 billion on Jun 30, 2016.

The prices of land owned by the company at several places were shown several times higher than the previous prices while the value of Le Méridien doubled through the revaluations.

“It can be a rise to 20 from 19 in a revaluation, but a rise to 99 from 19 is impossible. The land and building prices shown here (in Best Holdings’ financial records) appear wrong,” said Dewan Nurul Islam, managing director of Grant Thornton Bangladesh, an international accountancy firm.

Best Holdings, after a revaluation in 2017, showed that the price of its 23.86 acre land in Mymensingh’s Bhaluka jumped to Tk 2.51 billon from 77 million. It raised the price of its 1.49 acres land in Dhaka’s Bashundhara Residential Area to Tk 2.02 billion from Tk 146.5 million the same year.

In 2019, it revaluated its properties in the capital’s Nikunja, where the five-star Le Méridien is situated.

The cost of purchase and development of the 95-acre land there was raised to Tk 12.29 billion from Tk 5.35 billion, which means the land was priced at Tk 214 million per Katha (1 Katha = 1.65 decimals).  

The hotel building was valued at Tk 25.46 billion from Tk 13.32 billion and together, the total price of the land and the building of the hotel was put at Tk 37.57 billion.

“Nowhere in Bangladesh is the price of land so high. It needs to be checked whether the re-evaluator raised the prices in collusion with Best Holdings,” said Professor Mohammad Musa of United International University’s finance department.

The revaluation of Best Holdings by Mahfel Huq & Co also caused a nearly tenfold jump in the hotel owner’s paid-up capital to Tk 8.71 billion on Jun 30, 2020 from Tk 883.1 million a year ago.

A former director of Dhaka Stock Exchange, who has been working on stock brokerage and asset valuation for around three decades, asked similar questions.

A company shows a higher value of its assets than normal to increase paid-up capital and share prices, he said.

“But the way Best Holdings raised the value of its assets through revaluation is nothing short of abnormal,” he said. The former DSE director, who requested anonymity, also said an eligible firm should be appointed to revaluate Best Holdings’ assets.   

“And the suspicion increases when the revaluation is done by a firm like Mahfel Huq & Co,” he added.

The Bangladesh Bank has recently dropped Artisan Chartered Accountants, the auditor of Best Holdings, and Mahfel Huq & Co along with 34 other firms from the list of firms eligible to audit banks and financial institutions.

Abdus Satter Sarkar, a partner of Mahfel Huq & Co, declined commenting on their revaluation of Best Holdings. The firm has not yet responded to queries sent via email.

Best Holdings’ Chairman Amin Ahmad wanted to contest in elections with the BNP’s ticket

THE DIRECT LISTING FIASCO

Launched as a sister concern of Metro Group in 2006, Best Holdings’ business interests range from construction, real estate, agriculture-based industry, hospitality and advertisement.

According to its financial records, some private limited companies hold 52.1 percent of Best Holdings while the rest, 47.99 percent, is owned by placement shareholders.

And 29.58 percent of the placement shares have been bought by four state-owned banks – Sonali, Janata, Agrani and Rupali.

Under the existing legal framework, the direct listing privilege is afforded only to state-owned companies.

But Best Holdings applied to the DSE on Nov 12 for “special permission” for direct listing to take advantage of recommendations by Finance Minister AHM Mustafa Kamal and the fact that it has investments from the state-owned banks.

The office of the finance minister suspended a letter recommending changes to the requirements for infrastructure development companies’ direct listing plans after the media reported the content of the letter and SEC’s subsequent move.

Several people related to the market described Best Holdings’ bid for direct listing as an “unprecedented big fraud”. They say an “influential quarter” tried to embezzle a huge amount of money through the direct listing.

Best Holdings raised its asset value to legitimate the Tk 1.8 billion it took from four state-owned banks by selling its shares at high prices, said a person who is in brokerage business for a long time.

Amin, chairman of Best Holdings, had been nominated by the BNP for the Noakhali-2 parliamentary seat in the forestalled general election of 2007. Amin’s Udoy Tower in Gulshan was the office of Channel 1, a TV station owned by BNP Acting Chairman Tarique Rahman’s close associate Giasuddin Al Mamun. The station was later closed.

Several businessmen said Amin was close to Tarique and Mamun during the BNP-Jamaat-e-Islami government. But in a changed scenario during the emergency, Amin started a case against Tarique on Tk 10 million extortion charges. Later, the Best Holdings chairman said he was “forced” to file the case.

Controversial businessman Giasuddin Al Mamun

RACE Portfolio and Issue Management of Chowdhury Nafeez Sarafat has worked as one of the issue managers of Best Holdings

RACE Portfolio and Issue Management of Chowdhury Nafeez Sarafat, a familiar name in the capital and money markets, has worked as one of the issue managers of Amin’s firm in its direct listing fiasco. Government firm ICB Capital Management, the other company named as the issue manager of Best Holdings, says it knows nothing about the direct listing attempts of Best Holdings.

The mutual funds managed by Nafeez’s RACE Asset Management have invested around Tk 2.5 billion in Best Holdings, according to market insiders.

Nafeez, also chairman of Padma Bank, has invested in media outlets recently, becoming the president of the board of editors of an online news publisher. He is also the chairman of the board of trustees of Canadian University of Bangladesh.

Government asks state-owned banks to justify Tk 65 per share investment in Best Holdings

Bangladesh Bank dumps Best Holdings auditors, 35 others from list of eligible firms

Best Holdings episode gets murkier as ICB says it’s not part of the game 

Bangladesh regulator blocks Best Holdings’ controversial bid to launch direct listing on DSE  

WHAT’S THE PRICE OF A 5-STAR HOTEL?

Le Méridien has a total of 304 rooms, including 200 deluxe ones, 22 executive rooms, two LM rooms and a presidential suite. Including the rooms and an event space of 5,000 square metres, the hotel has a combined area of 20,000 square metres to rent. Best Holdings has put the hotel's value at Tk 37.57 billion, which means the value of the hotel is Tk 1.9 million per square metre.

To put things in context, a five-star hotel in London costs around Tk 500,000 per square metre, according to Statista, a leading provider of market and consumer data.

In Bangladesh, the cost is much lower, according to a top architect who was involved in the construction of a number of high-rises and 5-star hotels.

Fresh from the experience of the construction of a 5-star hotel recently, he said the land of that hotel cost Tk 110,000 per square metre. “It can increase by around Tk 20,000 in some other cases, but there is no reason for a several fold rise,” he said.

It costs Tk 12 million per square metre to construct an around 38 square metre room, or a little over Tk 315,000 per square metre, of an international 5-star hotel, according to him.

It takes around Tk 50 million to construct a 5-star hotel with world-class facilities, according to US-based Fixr, which provides cost guides, comparisons, and term cheatsheets for remodelling, installation and repair projects.

In Bangladesh, Best Holdings valued Le Méridien at Tk 125 million per room.

Le Méridien Dhaka

M Sadiqul Islam, another professor at Dhaka University’s finance department, said Best Holdings was going to pull off a “huge heist” by overvaluing the hotel.

“It’s good that the bid has been blocked. Otherwise, the investors would have bought the shares after seeing high profits and asset value only to face huge losses,” he said.

He demanded “exemplary punishment” of all of those behind the Best Holdings episode and revision of the rules that allowed it to plot the direct listing in order to stop a recurrence of such jugglery.

QUESTION OVER SHARE PRICE TOO

Market analysts think Best Holdings set a very high price for its shares to raise nearly Tk 3 billion from the capital market.

On Jun 30, 2020, Best Holdings’ net asset value was shown at more than Tk 62.46 billion. After the paid-up capital was raised, its shares number at 871 million, which means it showed its NAV per share at Tk 71.72.

The company said in its documents that it set the price in a method fixed by the Bangladesh Bank, in which the maximum share price of a company can be 150 percent of its NAV per share.

Prof Musa said a company’s share price is never fixed on its NAV per share, but on its estimated future revenue. “You should compare Best Holdings’ ability to earn with that of the other similar companies if you want to understand whether its share price was rightly fixed.”

The profit generated by Mir Akhter was Tk 6.32 per share before its recent listing. The investors got the shares of the company at Tk 54.

The price of eGeneration share with Tk 1.82 profit per share was Tk 10.

Before listing, Index Agro’s profit per share was Tk 7.7. The investors got its shares at Tk 50.

Energypac Power Generation shares cost Tk 31 after it made Tk 3.2 profit per share.

Lub-rref share price was Tk 27. It posted Tk 2.8 profit per share before listing.

Best Holdings’ profit per share before it applied for the listing was Tk 1.7 and it wanted to sell the shares at Tk 65 per issue.

Unique Hotel & Resorts Limited, an industry competitor of Best Holdings, showed Tk 0.95 profit per share in 2020. Unique shares changed hands on Thursday at Tk 39.5, which means its Price Earnings or PE ratio was 42.

If Best Holdings could have its way to get listed at Tk 65 per share, its PE ratio would be 71.

[Written in English by Osham-ul-Sufian Talukder]