KARACHI: TRG Pakistan Limited made a disclosure to the Pakistan Stock Exchange confirming that one of the members of its board of directors, Asad Nasir, has filed a complaint with the Securities and Exchange Commission of Pakistan (SECP) against the current and former directors primarily regarding matters voted on in December 2021 where the complainant was the sole dissenting director.
The disclosure was made as a response to news articles providing information on the complaint. The company added that it strongly believes the complaint is entirely without merit and is in the process of responding to the complaint.
As per the recent press coverage, the SECP has commenced an investigation after the complaint highlighted a number of irregularities and wrongdoings led by the company management. The investigation is examining the decisions taken by the company’s board of directors with respect to the distribution of liquid assets held by The Resource Group International Limited (TRGI), a subsidiary of the Pakistan RG. It is also investigating the purchase activities in the company’s shares since the start of the year.
The complaint is against the decisions made by the company in December last year after it had announced to its shareholders a distribution by TRGI, whereby the company would receive an allocation of liquid assets comprising cash of US$120 million (inclusive of approximately US$10 million in deferred cash) and approximately 5.4 million shares in Ibex Limited, an entity listed on Nasdaq.
However, instead of receiving these liquid assets, the company subsequently announced that its board of directors had decided to continue its investment in its associated entity TRGI that had been requested to implement an alternate means of providing direct or indirect value, benefit and liquidity to the shareholders of the company. Subsequently, TRGI transferred the liquid assets due to the company in a special purpose vehicle, Greentree Holdings Limited, an entity established in the tax haven jurisdiction of Bermuda.
The complaint has alleged a number of serious violations of Pakistani law. The complaint names some members of the Board of Directors, including TRG management, CEO Hasnain Aslam and Mohammad Khan Khaishgi as well as nominees of the Pinebridge investor group, John Leone and Patrick McGinnis. These directors, amongst others, approved the investment structure despite their conflict of interest in the matter.
The directors and their related company deny these allegations and insist international law has not been broken. The complaint states these directors rushed through a complicated investment structure, which was not in the best interest of the company’s shareholders, while ensuring they personally or parties they represent benefitted through the distribution at TRGI. The decision was made despite concerns raised by the complainant director.
As per the complaint, the purchase of shares, by Greentree Holdings, is in complete violation of Pakistani law. To date a total of 91.5 million shares have been purchased which represent approximately 16.8 per cent of the company’s shares. It further points out concerns regarding insider trading in the purchase of shares by Greentree Holdings.
The complaint primarily focuses on a breach of trust by the board of directors to the company’s general public shareholders. In this process, the company’s own liquid assets are being used to secure control over the company. Previously the management team’s control was exercised through the shareholding held by TRG founder Zia Chishti. However, Zia Chishti’s acrimonious departure from the company last year due to a sexual assault allegation led to turmoil followed by the TRGI management, with the assistance of the Pinebridge investment group, working to ensure they gained control over the company.
The complaint was raised after the issues had been raised with the previous and current chairman of the board Peter Riepenhausen and Waleed Tariq Saigol respectively. Both chairmen had looked into the allegations of Pakistani law violations, but did not agree with the complainant and thought no law was being violated. However, with no action being taken, the complainant has escalated the matter to the apex regulator.
Though TRG Pakistan denies allegations of Asad Nasir, after his complaint to SECP, another director has added credibility to the complaints raised and resigned from both the TRGI (International) and TRGP (Pakistan) boards. The board member wrote a letter to TRGP where he explained he had voted based on the information shared at the time by the management as well as a legal opinion shown to him, but now he thinks that certain information was withheld. He has recommended that the money should be brought back to TRGP. To distance himself from any allegation of conflict of interest or illegal activity, he has resigned from both boards.
The SECP, when asked to comment on the complaint, issued the following statement: “Please note that, the SECP, inter alia, is mandated to maintain fair, orderly and efficient capital markets, promote robust corporate and insurance sectors and protect the rights of investors through beneficial regulations. In order to perform its regulatory functions, SECP regularly carries out inspections, inquiries, investigations and takes such other regulatory actions, as deemed necessary, in accordance with its administered legislation.
However, on account of SECP’s operational SOP’s and relevant laws, unless a matter is concluded, we cannot either confirm or deny initiation of any purported action or proceedings against any regulated entity or person. Please note that any final conclusion, decision or enforcement action, if any, is made public through placement on SECP’s website for public information, subject to policy of the Commission and permissibility under the law.”
In recent months, minority shareholders have raised concerns over the lack of clarity in the share purchase exercise. Unlike share buy backs allowed under Pakistani law, there is no information provided on how many shares will be purchased, nor has there been disclosure on the status of the purchased shares.
Minority investors have also raised concerns that cash funds available in US dollars have been replaced with a Pakistani asset. The asset has lost intrinsic value in the period since the purchases begun and compounded with the exchange rate fall, has led to a loss to the company and its shareholders.
The company’s financial statements published for the quarter ended 31 March 2022 do not separately provide disclosures on the liquid assets and their carrying value, which has caused further confusion amongst the shareholders. The investigation is expected to expand outside of Pakistan as both TRGI and Greentree Holdings are incorporated in Bermuda.
