InterContinental seeks Tk900cr govt-backed loan to recover from losses

Highlights: 

• InterContinental Dhaka seeks Tk900cr government-backed loan after costly renovation
• Renovation coincides with Covid-19, severely impacting financial recovery
• BSL faces bankruptcy risk with Tk897cr outstanding loan
• Govt share issuance proposed as only viable capital option

The state-owned InterContinental Dhaka has requested Tk900 crore in financial support from the government, citing severe financial distress following a costly renovation.

The hotel, operated by the state-owned company Bangladesh Services Limited (BSL), has proposed a capital injection of Tk400 crore through share issuance in the government's name and a long-term loan of Tk500 crore, either interest-free or at a low rate.

The Ministry of Civil Aviation and Tourism has formally approached the Finance Ministry on behalf of BSL, warning of the risk of bankruptcy unless the funds are approved.

The request includes an advance of Tk400 crore against the issuance of shares and a long-term operational loan to stabilise the company's finances.

According to BSL, the financial aid would allow the company to clear outstanding dues and become profitable by 2030.

The company forecasts a cumulative net cash flow of Tk730 crore over the next 10 years, which could enable it to resume paying dividends and repay the loan ahead of schedule.

Origins of the crisis

The financial strain on BSL stems primarily from a renovation project at the InterContinental Dhaka.

The hotel was closed in August 2014 and reopened in December 2018 after a major upgrade aimed at meeting international standards under the InterContinental brand.

The total cost of the renovation was Tk728 crore, funded through Tk574 crore in loans from Agrani Bank and Tk154 crore from the company's own funds.

Infographic: TBS

However, the timing of the reopening coincided with the outbreak of the Covid-19 pandemic, which severely impacted operations and delayed the recovery of renovation costs.

Ali Emam Hossain, manager at the accounts and finance division of BSL, said, "The hotel was renovated with the loan. However, after the hotel's operation started following the renovation, the coronavirus pandemic spread, disrupting operations again during this time. As a result, revenue decreased significantly, leading to irregular loan instalments."

Mounting debts and losses

As of June 2024, BSL's outstanding loan stands at Tk897 crore, with a principal amount of Tk503 crore and accumulated interest of Tk394 crore. The company pays around Tk80 crore annually in interest.

Auditor Hoda Vasi Chowdhury & Co reported that the company had accumulated losses of Tk618.52 crore and a current asset deficit of Tk306.85 crore as of 30 June 2024.

The report stated, "These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern."

In the fiscal year 2023-24, BSL generated Tk193 crore in revenue, up 14% from the previous year, and recorded a gross profit of Tk110 crore. 

However, after deducting administrative and finance costs, it posted a net loss of Tk78 crore. In the first six months of the current fiscal year (2024-25), the loss amounted to Tk51 crore, translating to a loss per share of Tk5.20.

Recent performance and share proposal

Before the hotel's closure, BSL was a profitable company and listed in the 'A' category on the Dhaka Stock Exchange.

It last paid a 15% stock dividend in 2014 and has not issued any dividends for the past 12 years.

From 1996 to 2014, the company paid Tk101 crore in dividends to the government and deposited Tk840 crore in VAT, taxes, and import duties from 1998 to 2024. It also earned approximately Tk250 crore in foreign currency since 2019.

To address the crisis, a committee was formed by BSL in November to examine the possibility of issuing shares in the government's name. The company now plans to proceed with this recommendation.

However, as a publicly listed entity, BSL must obtain approval from the Bangladesh Securities and Exchange Commission and hold an Extraordinary General Meeting (EGM) to secure shareholder consent.

Due to accumulated losses, BSL is ineligible to raise capital through typical capital market mechanisms such as Repeat Public Offers or Rights Issues, which are restricted to profitable companies.

Therefore, the current proposal to issue shares exclusively to the government is considered the only viable option to raise capital.

Structural limitations and risk of bankruptcy

The letter to the Finance Ministry states that BSL's inability to comply with Public Issue Rules 2015, due to ongoing losses, prevents it from exploring conventional funding avenues.

Without immediate financial assistance, the company warns that its operations will be severely affected, putting the hotel at risk of closure.

BSL currently has paid-up capital of Tk97.78 crore, with the government holding 99.67% of its shares. The remaining shares are owned by general investors, Bangladesh Parjatan Corporation, and Swiss citizen Prince Sadruddin Aga Khan.

The hotel's management history includes InterContinental (1966–1983), Sheraton (1984–2011), and government operation under the name Ruposhi Bangla (2011–2014).

In 2012, BSL signed a 30-year agreement with the UK-based InterContinental Hotels Group to manage the property, under which the current operations resumed in 2018.

Despite some recent recovery in operations, BSL insists that its debt obligations, especially interest payments, continue to hamper its financial recovery. The company is therefore seeking urgent government intervention to stabilise its finances and return to profitability.

The government is yet to respond to the bailout request.