SECP probes ‘price manipulation’ in BoP’s right issue

Proceedings reveal complainant in the case is actually a big defaulter of the bank

ISLAMABAD: The corporate sector regulator has launched a formal investigation into allegations of price manipulation in the right share issue of The Bank of Punjab (BoP) amid revelations that the complainant has actually been a big defaulter of the bank for the past nine years.

The Securities and Exchange Commission of Pakistan (SECP) was formally looking into the BoP right issue, but it would take time to complete the investigation, Akif Saeed, Commissioner Securities Market Division, informed the Senate Standing Committee on Finance on Wednesday. In May this year, the BoP had issued 70% right shares at Rs12 per share to meet the minimum capital requirement.

Ali Nadeem, a minority shareholder of the bank, had complained to the standing committee that the decision to issue right shares at Rs12 per share was made to aid underwriters in purchasing the bank shares.

Nadeem accused the BoP management of being part of the plan and claimed that minority stakeholders could not subscribe to the right issue because they would have incurred losses.

However, the committee’s proceedings revealed that Nadeem had actually misused the parliament’s forum for vested interests as the company he was representing defaulted on a loan of Rs1 billion.

During numerous hearings, Nadeem, who had presented himself as a victim, did not disclose the conflict of interest.

Three companies of Nadeem’s employer including First National Security Limited, were defaulters of Rs1 billion of the bank, revealed Khalid Siddiq Tirmizey, Deputy Chief Executive Officer of the BoP.

He said the complainant launched a campaign early this year against the BoP’s decision to issue right shares, which delayed the transaction. During this period, the bank’s share price dropped at the stock exchange, he added.

The BoP’s disclosure showed that the petitioner had mala fide intentions and he misled the parliamentary panel, observed Senator Ayesha Raza Farooq of the PML-N.

Committee Chairman Senator Saleem Mandviwalla also regretted that Nadeem misused parliament for personal agenda and his non-disclosure of the Rs1 billion default created trouble for the standing committee.

The BoP had issued the right shares - a transaction in which the company seeks more funds from its shareholders to meet capital requirements - on the instructions of the State Bank of Pakistan.

However, the general public and institutional investors subscribed to only 0.26% of the right shares, which allowed the underwriters to pick all the remaining shares, SBP Executive Director Anayat Hussain had told the standing committee in its last meeting.

Hussain had said that after the right issue, the share of underwriters stood at 17.47% in the total issued shares. Next Capital and Arif Habib Limited were the underwriters, said Saeed.

Another shareholder had alleged that Next Capital did not meet the criterion of underwriter as the company subscribed to Rs2.7 billion worth of shares and its equity was only Rs200 million.

The SECP commissioner said the regulator would also look into the eligibility issue during the ongoing investigation.

Tirmizey said the bank’s financial condition was not hidden from anybody. He said that at close of the year 2016, Rs16.5 billion worth of non-performing loans remained un-provided for.

He said that due to Punjab government’s letter of comforts, the SBP has relaxed its prudential regulations till December 2018.

By the end of 2018, the bank will have to create provisioning for all non-performing loans, said the deputy CEO. The BoP’s paid-up capital is Rs25 billion and if the bank provides cover to the Rs16.5 billion bad loans it will fall below the capital adequacy ratio limit, said Tirmizey.

In the past four years, the BoP has issued three right shares to meet the capital requirement after the bank’s equity eroded due to Rs82 billion non-performing loans in 2008.

Published in The Express Tribune, August 24^th, 2017.

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