More than a year after the Regent Plaza Hotel was sold to the Sindh Urology and Transplant Institute, its parent company, the Pakistan Hotel Development Corporation, has withdrawn from the Pakistan Stock Exchange.
Other than a few properties that were essentially unused, PHDL’s main asset was the Regent Plaza Hotel, which was a long way from its heyday as a bustling continental hotel and conference centre. For many years now, Regent Plaza had been operating but was nearing completion, and PHDL had been a dormant presence on the exchange.
But for a company that was considered dormant, PHDL’s last year was anything but dull. The company’s saga began in September 2023 when the stock price was hovering around Rs 80 per share. As September began, the stock price started rising very rapidly and reached Rs 257 by the end of the month. The sudden rise in prices raised eyebrows on the stock exchange, and the market regulatory body asked the company if it knew why the price had tripled in just one month.
The response was that there had been no material development that justified the rise in prices. The response stated that hotel developers have been approached regularly regarding the sale of their hotel properties but no such deal has been formalized yet. As soon as any such development occurs, the stock exchange will be notified. The response was sent on September 21, Thursday.
On September 25, it was finally announced that the Sindh Institute of Urology and Transplantation (SIUT) had shown interest in the company and was conducting due diligence to take over the hotel premises. It became clear that this knowledge was available to insiders and they used it to rally the stock price. The shares were accumulated and the news was finally announced in the market later. With the announcement, the stock price jumped from Rs 220 on September 25 to Rs 525 by the end of October.
In order to complete the due diligence, documents were shared with SIUT and a price of Rs 14.5 billion was offered to the company by October 9, 2023. The deal was so good that the company started the process of accepting this offer. The biggest advantage the company got was the fact that according to its own records, the cost of the hotel was Rs 0.88 billion and the revalued amount in the books was Rs 10.03 billion. The sale would have meant that the company would end up making a huge profit once the property was sold for more than it was worth according to its calculations.
The deal was completed on July 1, 2024 where SIUT transferred 90% of the sales proceeds to Pak Hotel and was to hand over the property to SIUT as well. The company’s accounts at the end of June 2024 showed the company’s position after completing the sale process. The hotel building was transferred 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 sold at the higher price. Given the small size of the balance sheet, this accounted for 90% of the company’s assets worth Rs 16 billion. In terms of liabilities, the company had total liabilities of Rs 1.7 billion while equity stood at Rs 14.4 billion due to the revaluation reserve and the high selling price at which the asset was sold.
The company would have seen an inflow of Rs 14.5 billion once the asset was sold and decided to pay the largest dividend in the history of the stock exchange. A cash dividend of Rs 725 per share was declared which would have been Rs 13.05 billion on account of issued share capital. This was the first hint of the fact that the company was looking to divest and wind down the company’s operations. If there were business opportunities available to the company for its future, it would have used these proceeds to acquire new assets and develop a business around that. Distributing the proceeds as dividends means that the company did not have such an opportunity that it wanted to pursue. By the end of July, the company had received all proceeds.
Before the dividend announcement, the stock price reached a high of Rs 500. As soon as the dividend was announced, the price caught a second wind and started rising again, reaching a high of Rs 727. Under normal circumstances, when a company declares a dividend, shareholders receive the dividends they are entitled to and the stock price falls by the amount of dividends that were paid. In this case of dividend, the problem was that a dividend of Rs 725 was declared while the stock price closed at Rs 695. The stock opened the next day at Rs 0.01 when it should have been -Rs 30 technically. Since negative price cannot exist, the stock price opened at the lowest possible price of Rs 0.01.
The latest development in this saga is that the company has called a board meeting on December 2, 2024 where it has decided to wind up the company as it no longer exists in the first place. In order to do this, they will appoint liquidators who will assist in this process and the company will also look to delist itself from the stock exchange. Currently, the company’s share price is hovering around Rs 40 and the latest accounts show that the company has assets worth Rs 1.7 lakh crore of which most of it is kept in banks and advances amounting to Rs 1 lakh and Rs 63 lakh respectively. In terms of its liabilities, the company owes Rs 11 lakh crore to creditors and has no long-term liabilities. Most of the shares consist of unallocated dividends worth Rs 1.4 billion.
When a company is liquidated, the first step will be for the liquidators to re-evaluate the assets and liabilities owned and outstanding by the company. Once all obligations are paid, the excess amount will be paid to shareholders. If the latest calculations can be taken as an estimate, it can be seen that each shareholder will be able to get Rs 88 lakh for his holdings. The actual number must be determined once the reassessment has been carried out. The company also managed to enjoy profits of Rs 23 crore for the 18 days it was operational in the last quarter. Most of the income was generated from other revenues that were a result of the sale of the hotel which helped the company achieve profit.
Regarding the delisting of the company, the stock exchange requires the majority shareholders to purchase 90% of the company’s shares in order to make the delisting possible. This is another process that must be carried out where the major shareholder has to buy back the shares after setting the price at which they wish to buy back the shares. As of June 2023, 11.37% of the company’s shares were owned by investors outside the company while the remaining 88.63% were owned by members of the board of directors and relatives of directors of the company.
Throughout the year, a few board members sold some of their holdings in the market to take advantage of record high prices before paying dividends. This means that foreigners now own 15.81% of the shares. Since the buyback process will now begin, the directors will have to purchase an additional 4.44% of the shares, which constitutes approximately 800,000 shares, in order for the buyback to be successful. The company has already closed its operations and now has to liquidate the company and delist it from the stock exchange to complete the liquidation process.
