Something fishy with Bank of Punjab’s Right shares issue, says parliamentary panel

SBP disagrees with observations, says issuance was meant to meet minimum capital requirements

ISLAMABAD: A parliamentary panel smelled a rat in Bank of Punjab’s decision to issue Right Shares to meet its capital requirements, terming it a well-orchestrated move aimed at benefiting a few individuals.

However, the State Bank of Pakistan - the chief regulator of the financial sector -did not agree with observations of the Senate Standing Committee on Finance and said that BoP followed proper channels to offer Right Shares to its existing shareholders.

A rights offering is an issue of rights to a company’s existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period.



The BoP decided to issue 70% Right Shares at a price of Rs12 per share after the SBP asked it to meet capital requirements, which was falling below the statutory limit.

The Senate Standing Committee took up the matter on a complaint filed by one of minority shareholders of the BoP, Ali Nadeem.

The BoP’s decision to issue the Right Shares at Rs12 per share was aimed to benefit the underwriters whose number was suddenly increased from two parties to six parties, claimed Ali Nadeem before the standing committee. He further alleged that the Bank’s top management was involved in it. Nadeem further said that the existing minority shareholders could not subscribe to the Right Issue to avoid heavy losses.

Majority of the members of the standing committee endorsed the views expressed by the minority shareholder on the subject of Rights Issue. It was a pre-planned Right Issue with an intention to benefit some individuals, said Senator Saleem Mandviwalla, Chairman of the Senate Standing Committee on Finance.

He said that increasing the number of underwriters from two to six was also a serious matter.

However, deputy governor of the SBP for banking affairs, Jameel Ahmad, said that nobody could force them if the public did not subscribe to the Right Issue. He said that the BoP followed proper procedures for Right Shares offering. The deputy governor said that the appointment of the underwriters was also as per the requirements.



The BoP has already explained its position on the allegations of wrongdoing in the Right Issue. The value of the bank’s net assets per share was Rs13.41 as on December 31, 2016, and as per market practice, normally, the price of Right Share was not determined on the basis of the highest price on a certain date.

It had also said that the Right Issue would not affect the existing percentage of shareholdings of the government of Punjab as these Right Shares were offered to all the existing shareholders proportionately in accordance with their current shareholding. Accordingly, question of increase in percentage shareholding of any specific shareholder does not arise.

However, the central bank deputy governor said that the General Public subscribed to very nominal Right Shares.

This allowed the underwriters to subscribe the remaining shares that subsequently benefits those underwriters that had also business interests in the banking sector, alleged Ali Nadeem.

The government of Punjab, being the majority shareholder, deposited a share deposit of Rs7 billion as share deposit money. The provincial government converted its share deposit into shares by subscribing to its total Right Issue.



Ali Nadeem also alleged that the BoP’s President was involved in insider trading, as he made big money by offloading shares before the Bank advertised in the press for seeking consultancy services for the Right Issue. Nadeem claimed that the BoP President bought shares at a price of Rs8.50 per share and offloaded these shares at Rs18.70 per share just three weeks before the bank gave the advertisement in the press.

The standing committee decided to seek the support of the Securities and Exchange Commission of Pakistan to probe the inside trading allegations against the Bank’s president.

Published in The Express Tribune, July 19^th, 2017.

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