Its preference to issue bonds instead of borrowing from banks is believed to be motivated by the recently reduced stamp duty on registration of corporate bond trust deeds
Unique Hotel and Resorts Ltd – the parent company of the Westin Dhaka – will raise Tk500 crore through bonds to finance its ongoing construction projects.
The hotel management company prefers issuing coupon-bearing bonds instead of taking out bank loans.
It will issue the bonds for seven years. Investors will get their principal amount back, with interest, in five annual instalments in the form of coupon redemption.
A coupon-bearing bond pays interest on surrender of the coupons, clipped from its certificate. The holder of such a bond receives periodic payment during the life of the bond.
As per its plan, Unique Hotel will not repay any principal amount in the first two years. The first coupon will be redeemed on the 36th month of bond issuance. The remaining four annual instalments will be paid till the end of the seventh year.
Unique Hotel Company Secretary Md Sharif Hasan told The Business Standard they are going to issue bonds for the first time.
"We preferred bonds to bank loans because nowadays bonds are offering a quicker and affordable way to collect capital for business expansion," he added.
The company will soon apply for approval from the Bangladesh Securities and Exchange Commission (BSEC), Sharif said on Sunday.
Unique Hotel's preference to issue bonds to finance its expansion projects is believed to be an outcome of recent government initiatives to boost the local bond market.
Stamp duty on registration of corporate bond's trust deed was reduced from 2 percent to 0.1 percent last month. And the duty will not exceed Tk10 lakh by any means. The much awaited policy support has reduced the cost of stamp duty in the case of Unique Hotel's planned bond from Tk10 crore to Tk10 lakh only.
However, Unique Hotel, like most other corporate bond issuers, did not choose to offer its bonds in the public market. The bonds will be placed to private investors instead.
Experts have long been emphasising on process simplification and expedition in offering bonds to stock market investors alongside rationalising the cost of bond trading at stock exchange platforms.
There are only two corporate bonds and decades-old eight debentures listed in the Dhaka Stock Exchange (DSE), against a total of 321 companies listed in the country's prime bourse.
Since July 2012, the BSEC has given permission to issue 94 corporate bonds with a total size of over Tk37,000 crore and 16 corporate debentures worth over Tk1,100 crore as of June 30, 2019. But all the issuers preferred private placements instead of public offerings.
The total approved debt securities over the period were 10 times the combined size of initial public offerings.
Of the currently outstanding corporate bonds worth near Tk24,000 crore, almost all are by financial entities regulated by the central bank.
Meanwhile, the market for treasury bonds are also stuck in the primary arena and within the market infrastructure module of the Bangladesh Bank in case of secondary trading limited within dealer banks.
Outstanding treasury bills and bonds are now worth over Tk2 lakh crore. The DSE debt board includes over Tk50,000 crore of treasury securities, but no secondary trade takes place there because of abnormally high cost of trading.
A tripartite committee in December last year recommended mandatory free-of-cost listing for all upcoming treasury securities alongside capping the cost at Tk100 for each trade.
Unique Hotel's bank loan and credit rating
At the end of 2019, Unique Hotel and Resorts had Tk275 crore loans from the Standard Chartered Bank. Of that, nearly Tk130 crore was taken in foreign currency.
Besides, the hotel and hospitality management company has short-term loans worth nearly Tk156 crore from Standard Chartered Bank, Bank Asia, Bank Alfalah and Prime Bank.
Credit Rating Information and Services Ltd at the beginning of this year marked Unique Hotel as an "AA+" rated company in the long term, while its short term credit rating is "ST-1".
Unique Hotel's projects
Currently, Unique Hotel owns the luxury hotel, the Westin Dhaka, in the capital's Gulshan area and the HANSA in Uttara. It has plans to launch the 7-star St Regis Hotel and the 5-star Hyatt Centric Dhaka Hotel in Gulshan by 2025.
The company has invested around Tk1,600 crore for building the Sheraton Dhaka Hotel, Hyatt Centric and St Regis. Of those, Sheraton will be in operation from March this year, according to the company secretary.
It is also investing in a 600MW power plant named Unique Meghnaghat Power Limited, which is expected to go into operation by 2022.
Unique Hotel and Resorts is also diversifying its portfolio by establishing a private economic zone.