HC questions SEC's consent to Unique Hotel IPO

A 'consent' accorded by SEC to Unique Hotel and Resorts Ltd, owner of The Westin Dhaka, for issuing IPO has been challenged in the High Court alleging that the approval was given negligently and without following necessary rules, sources said.

Following the letter of consent, Unique Hotel already started trading of its shares in country's twin bourses since July 2, 2012.

Failure of discharging statutory duties in regulating pre-IPO placement and protecting investors' interests was also brought against the stock market regulator in a writ petition filed with the High Court (HC) recently.

In the writ petition, a top executive of Pubali Bank Ltd alleged that the bank suffered a loss of approximately Tk 42.5 million due to buying Unique Hotel's pre-IPO placement shares relying on the consent, which was accorded by SEC 'negligently' and in 'undue haste'.

Upon the state-owned commercial bank's writ petition, an HC bench has already asked the Securities and Exchange Commission (SEC) to show cause as to why the consent should not be declared illegal, lawyers concerned told the FE.

The HC also wanted to know as to why direction should not be given to the SEC to direct Unique Hotel and its issue manager ICB Capital Management Ltd to buy back the pre-IPO placement shares from Pubali Bank at the placement price of Tk 160 each with interest till date.

SEC, Unique Hotel and ICB Capital Management were asked to reply within six weeks, half of the time has already passed, according to the HC order.

Barrister Akhtar Imam assisted by Barrister Rashna Imam and Barrister Reshad Imam appeared for Pubali Bank while deputy attorney general Md Al Amin stood for the respondents.

Allegations of a gross-negligence, violation of rule 3 of the SEC Issue of Capital Rules 2001 and malafide motive were also brought against the SEC in giving the con sent to the owner of the five-star hotel.

SEC issued the 'letter of consent' to Unique Hotel to raise paid-up capital from Tk 2000 million to Tk 2300 million by issuing 30 million ordinary shares of Tk 10 each on May 23, 2010, after seven days of the application.

Relying on the consent, Pubali Bank acquired pre-IPO placement of 0.5 million shares at Tk 160 each (including premium of Tk 150), totaling Tk 80 million. Thus, Unique Hotel raised the entire amount of Tk 300 million, for which the consent was given.

After road show on September 1, 2010, an abnormally high indicative price of Tk 185 per share was fixed, the petitioner said.

Bidding by institutional investors for price discovery was set for taking place from February 6 to 8, 2011 under book-building method. In the meantime on January 20, 2011, SEC suspended the method but didn't give any guidance to the bidding, which was about to be held. Subsequently, Unique Hotel also postponed its bidding.

In view of uncertainty, the bank on March 1, 2011 requested SEC to direct Unique Hotel to either refund its investment or buy back the pre-IPO placement shares. The bank later requested Unique Hotel three times to refund its investment. But none of them responded.

However, Unique Hotel obtained approval from SEC for IPO of 2,6 million ordinary shares at Tk 75 each (including premium of Tk 65) determined by fixed-price method. The public issue was completed and closed on April 19, 2012.

As the final issue price of the shares is much lower than the price paid by Pubali Bank for the same shares at the stage of pre-IPO placement, the bank suffered the huge loss. Thereafter, the bank went to the HC on June 17.
Source: The Financial Express, 15 July 2012.