More than a year after the Regent Plaza Hotel was sold to the Sindh Institute of Urology and Transplantation (SIUT), its parent company, Pakistan Hotel Developers, is bowing out from the Pakistan Stock Exchange.
Other than a few properties that were basically unused, the main asset of PHDL was the Regent Plaza Hotel, which was quite far removed from its heyday when it was a bustling continental hotel and convention centre. For many years now, the Regent Plaza had been operating but it was sort of just getting by, and PHDL was a dormant existence on the stock exchange.
But for a company that was considered dormant, the last one year for PHDL was anything but boring. The saga for the company started back to September 2023 when the share price was hovering around Rs 80 per share. As September started to tick by, the share price started to ramp up very quickly reaching Rs 257 by the month’s end. The sudden increase in price raised eyebrows at the stock exchange and the regulatory authority at the market asked the company if they knew the reason behind the price tripling in a matter of a month alone.
The reply was that there was no material development that had taken place which could justify the price increase. The reply did state that the hotel developers were being contacted on a regular basis in respect to sale of their hotel property but no such deal had been formalized till date. Once any such development did take place, the exchange would be notified. The reply was sent on the 21st of September on a Thursday.
On the 25th of September, it was finally announced that the Sindh Institute of Urology and Transplantation (SIUT) was showing an interest in the company and was carrying out due diligence to take over the hotel premises. It became evident that this knowledge was available to insiders and they had used this to rally the stock price. Shares had been accumulated and the news was finally announced in the market later. As the announcement was made, the stock price jumped from Rs 220 on 25th September to Rs 525 by October end.
In order to complete the due diligence, documents were shared with SIUT and a price consideration of Rs 14.5 billion was presented to the company by 9th of October 2023. The deal was as good as done as the company started the process of accepting this offer. The biggest advantage that the company was getting was the fact that according to its own records, the cost of the hotel was Rs 0.88 billion and its revalued amount considered in the books was Rs 10.03 billion. The sale would have meant that the company would end up making a huge profit once it sold the property over and above what it was worth according to its accounts.
The deal was finalized on 1st of July 2024 as SIUT transferred 90% of the sales proceeds to Pak Hotel and were going to hand over the property over to SIUT as well. The accounts of the company at June end 2024 showed where the company stood once the sale had been carried out. The hotel building was moved from property, plant and equipment to assets held for sale and the value of the asset increased by Rs 4.5 billion as it was being sold at the higher price. Due to the small size of the balance sheet, this made up 90% of the assets of the company which were valued at Rs 16 billion. In terms of the liabilities, the company had total liabilities of Rs 1.7 billion while its equity was worth Rs 14.4 billion owing to the revaluation reserve and the higher sale price the asset was being sold for.
The company was going to see an influx of Rs 14.5 billion once the asset was sold and decided to give out the biggest dividend in the history of the stock exchange. A cash dividend of Rs 725 per share was announced which would have been worth Rs 13.05 billion owing to the issued capital. This was the first hint towards the fact that the company was looking to liquidate its investment and look to wind up the operations of the company. If there were business opportunities that the company had for its future, it would have used these proceeds to acquire a new asset and develop a business around that. Giving out the proceeds as dividend meant that the company had no such opportunity it wanted to pursue. By July end, all the proceeds had been received by the company.
Before the dividend was announced, the stock price reached a high of Rs 500. Once the dividend was announced, the price caught a second wind and started to increase yet again reaching a high of Rs 727. In normal conditions, when a company announces a dividend, the shareholders get the dividend they are entitled to and the price of the share falls by the amount of dividend that was given out. In the case of this dividend, the problem was that a dividend of Rs 725 was announced while the share price closed at Rs 695. The share opened the next day at Rs 0.01 when technically it should have been Rs -30. As a negative price could not exist, the share price opened at the lowest possible price which was Rs 0.01.
The latest development that has taken place in the saga is that the company has called for the board meeting to be held on 2nd December 2024 where it has decided to wind up the company as it has ceased to exist primarily. In order to do this, they will appoint liquidators who will help in this process and the company would also look to delist itself from the exchange. Currently, the share price of the company is moving around Rs 40 and the latest accounts show that the company has assets worth Rs 1.7 billion bulk of which has been held in bank and advances given out which are Rs 1 billion and Rs 63 crore respectively. In terms of its liabilities, the company owes Rs 11 crore to creditors and has no long term liabilities. Most of the equity is made up of unappropriated profits which are worth Rs 1.4 billion.
As the company is liquidated, the first step would be for the liquidators to revalue the assets and liabilities that are owned and pending at the company. Once it has paid off all the liabilities, the excess amount will be paid out to the shareholders. If the recent accounts can be considered as an estimate, it can be seen that each shareholder will be able to get Rs 88 for their holding. The actual figure will have to be determined once the revaluation is carried out. The company was also able to enjoy profits of Rs 23 crores for 18 days that it operated in the last quarter. Most of the income was generated from other income which was due to the sale of the hotel which helped the company record a profit.
In terms of delisting of the company, the stock exchange mandates that the majority shareholder has to buy at 90% of the shareholding of the company in order to make the delisting possible. This is another process that has to be carried out where the major shareholder has to buy back the shares after determining a price at which they are willing to buy back the shares. Until June of 2023, 11.37% of the shares of the company were held by investors outside the company while the remaining 88.63% was held by the directors and relatives of directors at the company.
Over the course of the year, a few of the directors sold some of their holdings in the market in order to take advantage of the record high prices before the dividend was paid out. This has meant that outsiders now own 15.81% of the shareholding. As the buyback process will now start, the directors will have to buy an additional 4.44% of the shareholding making up around 800,000 shares in order to make the buyback successful. The company has already closed down its operations and now has to liquidate and delist the company in order to complete the winding up process.
