Sea Pearl Beach Resort & Spa has received regulatory approval of its plan to convert bonds into shares but execution will depend on if the bondholder agrees to make some concessions on conditions it placed.
The company of the travel and leisure sector came up with the plan after struggling to pay back state-run Investment Corporation of Bangladesh (ICB) regularly against bonds worth Tk 3.25 billion since April 2020.
Twenty per cent of the bonds were deemed as convertible when issued to the ICB in 2017.
Sea Pearl and the ICB reached a consensus that the shares will be issued at Tk 94 each, including a premium of Tk 84.
But at a board meeting last week, the ICB placed two conditions to be met by Sea Pearl if shares worth Tk 1.2 billion are issued against the dues that amounted to Tk 3.98 billion as of FY23.
Firstly, if the stock of Sea Pearl falls below Tk 94 per share on the bourses, the ICB said, the company will have to buy back shares by paying 20 per cent more than the conversion price. Secondly, the shares to be given to the bondholder will be tradable from the day they will be credited to its account.
But the Bangladesh Securities and Exchange Commission (BSEC) gave its permission for the bond conversion, imposing a three-year lock-in period, meaning shares should not be traded for at least three years from the issue date, according to sources in the ICB.
"In that case, ICB will not be benefited from the bond conversion," said Md Abul Hossain, managing director of the state-run investment bank. The ICB board will sit to discuss the matter and then decide if it will go ahead with the plan, he added.
If both sides finally strike an agreement on how things are now, Sea Pearl will issue 12.77 million shares at Tk 94 each.
Presently, Sea Pearl has 120.75 million shares. After conversion, the number of shares will be around 133.52 million.
Currently, its paid-up capital is Tk 1.2 billion, which will increase to around Tk 1.33 billion if the bond conversion happens.
Company secretary of Sea Pearl refused to make any comment over the phone while the managing director could not be reached.
Earlier, company secretary Md Azaharul Mamun said the bond conversion would bring down Sea Pearl's debt burden by Tk 1.20 billion, which would help cut finance expenses by Tk 120 million a year.
That, according to him, will strengthen Sea Pearl's financial position, supporting a boost to its overall performance in the long run.
The ICB wrote a letter in October last year, asking Sea Pearl to convert 20 per cent of the debt securities into equity against the backdrop of non-payment of interest.
If bonds are converted into shares, the investment bank will get dividends. The EPS (earnings per share) will eventually decrease.
Sea Pearl Beach Resort, which began operation in 2015, had been built with a bank loan. The owner then issued bonds worth Tk 3.25 billion at a 10 per cent interest rate to pay off the bank loan. The ICB fully subscribed the debt securities.
According to FY23 financial statement of Sea Pearl, it has assets worth Tk 7.94 billion, nearly half of which was financed with bond money.
Sea Pearl was supposed to begin repayments semi-annually from April 2020 but it failed as the pandemic hit hard hotel business. It then sought interest waiver, even went to the High Court to protect itself from being labelled as defaulter.
Meanwhile, Sea Pearl's revenue slid 2.73 per cent year-on-year to Tk 1.07 billion in the six months through December 2023 while profit fell 21 per cent to Tk 306 million during the period.
Following the Wednesday's disclosure of the bond conversion on the DSE website, the stock went down 0.6 per cent to Tk 99.30 per share from the day before.
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