PECO to raise Rs284m via rights issue

Board blames ex-MD for Rs1.2b losses, offers discounted shares to revive company

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ISLAMABAD:

The Pakistan Engineering Company Limited (PECO) Board of Directors (BoD) has decided to issue shares to existing shareholders to raise Rs284.5 million to meet the company's funding requirements, blaming the former managing director (MD) for the current financial crisis.

In a press statement and a notice to the Pakistan Stock Exchange (PSX), the board announced its decision for the rights issue at a price significantly lower than PECO's market value. The Board of Directors of PECO, a public-listed company, also approved five years of delayed financial accounts, which will be presented for approval at a general body meeting of its shareholders scheduled for February 17, 2025, as per a press statement.

"This is a tragic example of the damage caused by unchecked mismanagement and neglect, but today marks a turning point," said Mirza Mahmood Ahmad, Chairman of the BoD. "By approving these accounts, we are re-establishing transparency, accountability, and a foundation for PECO's revival."

The financial crisis follows years of catastrophic mismanagement under former MD Mairaj Anis Ariff, a nominee of the Ministry of Industries and Production (MoIP), whose tenure saw the company incur losses exceeding Rs1.2 billion, according to the board.

During his tenure, Ariff reportedly disregarded directives from the Ministry of Industries, the Securities and Exchange Commission of Pakistan (SECP), and the Ministry of Law. He allegedly barred board members from entering company premises and operated PECO's bank accounts with single-signature authority in 2018.

The company's accounts remained unaudited for over four years, with no Annual General Meetings (AGMs) held and no tax returns filed. This negligence led to PECO's placement on the PSX's defaulters' list and plunged the company into default with suppliers and financial institutions.

Irreplaceable assets deteriorated or were squandered, trade receivables worth hundreds of millions were consumed, and stock-in-trade and creditors' balances were used to fund losses, halting business operations entirely, said the statement. Defaults to financial institutions and suppliers further tarnished the company's creditworthiness, forcing it to retrench approximately 450 workers, leaving a workforce of just 34 employees.

Following the removal of Ariff in 2022 through intervention by the PDM government led by then-Prime Minister Shehbaz Sharif, and the restoration of the elected board, significant progress has been made, according to the statement. The board has since worked to reconstruct financial records, rebuild systems, and restore PECO's reputation. To address the liquidity crisis, the board announced the rights issue to stabilise operations and provide shareholders with an opportunity to support the company's turnaround.

The funds raised will be used to settle overdue liabilities, including recovery suits from suppliers and financial institutions. The quantum of the rights issue is 50% of the existing paid-up capital, according to the stock market notice. One ordinary right share for every two ordinary shares held by the shareholders of the company immediately prior to the close of the share transfer books will be issued.

The shares, with a face value of Rs10, will be offered at Rs100 each, including a premium of Rs90 per share, raising a total of Rs284.5 million. The offer price is significantly lower than the market price to encourage shareholder participation in the company's revival.

The board decided that the proceeds from the rights issue will primarily be utilised to address the company's working capital needs, payment of utility bills, overdue liabilities of suppliers and banks, and restarting operational activities through necessary steps. It said these measures will ensure the continuity of operations and compliance with statutory obligations. "These steps are critical to ensuring PECO's revival, preventing future abuses of power, and restoring the company to its former glory while generating significant employment opportunities," the board stated.

Additionally, funds will be allocated for the settlement of overdue trade debts, sustaining day-to-day administrative functions, and investing the remaining amount in income-generating avenues to support ongoing operational expenses.

The offered price is significantly lower than the market price, representing a substantial discount to the market value. The discount to the market price has been offered to make the rights issue attractive and accessible to shareholders, ensuring their participation in supporting the company's capital needs, according to the board.