Arif Habib defeat the Government of Pakistan
this is the tale of a enterprise you may in no way have heard of, however one that consists of just about each aspect of company drama that you could consider. There are allegations of embezzlement, corruption, capability insider trading and what can be a excessive-stakes conflict for the manage of a publicly listed company with a extensive shareholding of the authorities.
The entity at stake? Pakistan Engineering agency, Ltd, publicly indexed at the Pakistan inventory change under the price ticket symbol %, which, incidentally, is likewise the abbreviated way to consult the company.
If one is to most effective believe the allegations in some rather insufficiently researched newspaper reports, the problem appears easy sufficient: a group of influential investment bankers and brokers received insider data about a suffering state-owned agency approximately to be revived and connived to buy shares from a nation-controlled mutual fund that owned a extensive number of stocks. The aim seems to were to gain manipulate over the valuable city land owned through the organisation and sell it off for a big income in the tens of billions of rupees.
Of course, if the matter had been pretty so easy, this will no longer be almost as thrilling a story. fact has a dependancy of being some distance more complicated than fiction, this story has more twists and turns than a well-written thriller novel.
To avoid getting misplaced in the headaches, we will start our tale at the very starting.
How percent were given its start
The agency now known as percent began existence in February 1950 as the Batala Engineering business enterprise (BECO) by way of a person named CM Latif, who installation a manufacturing facility to fabricate mild engineering products on a sprawling 34-acre plot within the Badami Bagh vicinity of Lahore. nearly because the very starting, BECO became a publicly listed employer, listed at the Karachi inventory change.
Over the subsequent decade, because the young nation continued to expand its infrastructure, Batala Engineering did well, with commercial enterprise developing so rapid that it quickly needed to increase its facilities.
So, in 1960, the enterprise sold 247 acres of land in the Kot Lakhpat commercial location in Lahore with the aim of finally expanding its manufacturing operations there.
lamentably, that imaginative and prescient changed into now not to skip, because before the organization ought to absolutely realise its ambition of enlargement, along got here the socialist authorities of prime Minister Zulfikar Ali Bhutto, which nationalised the agency in 1972 and renamed it the Pakistan Engineering employer (percent).
at the time of nationalization, CM Latif owned 24.86% of the stocks of p.c., and the relaxation of the stocks had been owned with the aid of the majority. underneath the 1972 order, the stocks held via CM Latif had been taken over (or stolen, depending on one’s perspective) by means of the country Engineering employer (SEC), a wholly owned subsidiary of the Ministry of Industries. The government-operated mutual fund national funding trust (NIT) also bought 21.24% of stocks of percent through the inventory alternate correctly converting the shareholding sample to this: 33.25% of the stocks have been held immediately or indirectly via the federal government; 21.24% shares had been held by means of the federally managed NIT, and forty five.fifty one% shares had been held by means of most of the people.
it’s miles essential to understand the position of NIT within the shareholding. even as the federal government owns the control organisation that runs NIT, and is among the most important shareholders in the mutual fund, the fund itself technically operates on behalf of all shareholders, which includes private people. for this reason, at the same time as NIT often acts as a quasi-authorities entity whilst it has a seat at the board of administrators of corporations it has big shares in, it isn’t always without delay obligated to achieve this under the fiduciary obligations set forth for it by means of securities law.
the anomaly of NIT’s function is where the hassle starts offevolved in the warfare for manipulate over p.c., particularly since the authorities’s possession of NIT’s management corporation is what gave it control control over p.c. inside the first place.
The disaster of government ownership and tried privatisation
unnecessary to mention, government ownership of % did no longer match the agency well, and within the 30 years that observed its nationalisation, p.c. kept on wracking up losses, gathering a combined Rs2.12 billion in losses by using 2002, continually counting on authorities-assured loans and bailouts to stay afloat. The organization went from being a excessive-flying publicly indexed company increasing rapidly to turning into a dysfunctional ward of the nation, technically nonetheless listed at the exchange, however without a real trading in its shares and no hobby from buyers as it changed into an nearly entirely hopeless purpose.
Then along got here the navy coup of 1999, and with it the very pro-free markets former Citibanker Shaukat Aziz as finance minister. Aziz had no hobby in continuing to spend authorities money bailing out a business enterprise that have to in no way were in government possession first of all (the government did now not create it, in any case). And so, in 2002, the company become positioned on the “active list” of the Privatisation fee, that means the commission turned into authorized by the cupboard to sell the authorities’s shares in the agency.
but, previous to that cabinet decision, the Privatisation fee had sent a letter to NIT, ordering it not to promote its stocks in percent with out prior approval from the fee. What isn’t completely clear – and what has but to be litigated in courtroom – is whether or not the Privatisation commission’s order was superseded via the order from the federal cabinet. it’s also now not absolutely clean whether or not the Privatisation fee turned into inside its legal authority to provide orders to NIT.
however, what passed off next might enhance a few eyebrows.
As part of the try to privatise the corporation, the government had decided to restructure the corporation’s balance sheet: it authorised % to sell some of its prime urban land in Lahore to pay returned money owed that have been assured by using the authorities, mainly about Rs1.8 billion in p.c. liabilities that were without delay assumed with the aid of the authorities that it wanted paid back.
On August 9, 2003, the percent board of administrators become informed that they’d obtained the final approvals wanted – a no-objection certificate from the Punjab authorities – to promote the land and clean the way for privatisation. The meeting was attended via, among others, Asif Jameel, who became a director serving as NIT’s representative on %’s board.
inside the next 4 days, NIT bought nearly all of its shares in percent, all 1.2 million of them. The buying and selling styles in percent’s stocks went completely berserk. in the year preceding the August 2003 board meeting, the common range of shares traded changed into 48,727 according to day. within the month after the assembly, the common number of stocks traded went up to 901,058 in step with day. more p.c. shares have been traded within the 3 weeks after that board assembly than in the previous full yr.
In an investigative file compiled by Javed Hasnain Rashid & agency, a chartered accounting company retained by way of % control in 2018, it’s miles alleged that the remaining shoppers of the stocks from NIT have been veteran investment banker Arif Habib, via Rotocast Engineering (Pvt) Ltd, and Masood Ahmad Khan Soodi, through Maha Securities. The critical allegation within the document is that NIT acted on behalf of Arif Habib and his friends and improperly sold its stocks, an motion that, if genuine, would represent not simply insider buying and selling, but several other counts of securities fraud.
For his element, Arif Habib claims that he did not act inappropriately and in fact, became now not the consumer while NIT became selling in that frenzied month in August and September of 2003. “I had bought stocks of the company a 12 months after NIT had bought in the marketplace,” said Arif Habib, in a announcement e-mailed to earnings.
as soon as NIT sold, however, the government was not the majority shareholder in percent, preserving only a one-third share within the enterprise. It managed to maintain on to maximum of its board seats, but, till March 2006, when the non-public shareholders – led by using Arif Habib – controlled to flip the board of directors. The authorities had formerly held six of the nine board seats prior to 2006. After that election, it handiest had 3 seats, and personal shareholders then managed six.
The private manipulate generation, and the investigations
What followed become a length of super turnaround for %. within the six years finishing June 30, 2004, p.c. gathered net losses of Rs858 million, at the same time as its sales grew from Rs244 million in 1999 to Rs457 million in 2004. inside the six years after that, however, sales nearly quadrupled, going from Rs457 million in 2004 to Rs1,677 million in 2010, an average boom rate of 24.2% a yr. income soared as well, peaking in 2007 at Rs312 million.
And at the same time as the allegedly unauthorised sale of NIT stocks had been reported to the authorities almost at once, no actual action become taken for the duration of the Musharraf management, perhaps in element due to the fact the end result the authorities have been aiming to reap – personal control manage of p.c. and an end to authorities bailouts of the business enterprise – had efficaciously been carried out, despite the fact that a full privatisation auction had not taken place.
that modified in 2008, when President Musharraf left workplace, and the newly elected government of President Asif Ali Zardari became sworn in.
With a newly reinvigorated Parliament after a decade of army rule, there has been renewed interest in the legislature to look at the report of the army authorities. the general public bills Committee (p.c) of the countrywide assembly, led with the aid of Sardar Ayaz Sadiq, commenced looking into the problem of the allegedly unauthorised sale of NIT’s stocks in %.
The % formed an investigative committee constructed from senior civil servants who had been tasked with searching into what happened and who turned into accountable. The committee ended up blaming officers at NIT for acting improperly and claimed that insider buying and selling had, in reality, taken area. They endorsed that the government make efforts to regain controlling shares in % at as little a loss to country-owned entities as viable.
The file’s specific language, however, is noticeably controversial. It claims, as an example, that there has been insider buying and selling and that non-public shareholders have been able to benefit manipulate of p.c. because of that insider buying and selling. yet, it holds officers at NIT accountable, and urges the government to buy again stocks as opposed to annoying they without a doubt be confiscated.
The unwillingness of the p.c-appointed research committee to suggest any motion against Arif Habib and his friends has been constituted via many inclusive of Habib to intend that the committee has exonerated his movements. “The committee, the SECP [Securities and Exchanges Commission of Pakistan], as properly the national duty Bureau have investigated and determined no wrongdoing [on my part],” stated Arif Habib, in his assertion to profit.
The government then entered into negotiations with Arif Habib to attempt to get him to promote his shares with at the least some authorities officers believing they may compel him to achieve this. however, Arif Habib decided to hold his shares and as an alternative presented the authorities that he could abide by way of 3 situations:
The government could be allowed to regain control over the percent board of directors
Arif Habib might pool his stocks with the authorities’s shares for sale when p.c.’s formal privatisation method started
Arif Habib could provide the authorities the right of first refusal earlier than selling any of his stocks
however even as he turned into inclined to make this offer, the authorities seems to sense this isn’t always sufficient and is unwilling to accept something much less than Arif Habib selling his % shares returned to the government. As a result, at the same time as the chairman of the board and the CEO are still government appointees, the personal shareholders, together with Arif Habib, still manipulate six of the 9 board seats on the percent board of directors.
The government become capable of wrest at least enough manage that allows you to advantage lower back partial control control, with the proper to hire the CEO. however, that appears to be where things went wrong.
the new CEO, and the warfare for manipulate
In March 2016, the government appointed a civil servant – Mairaj Anees Ariff – because the CEO of p.c.. And nearly from the very beginning, the non-public region shareholders have been deeply sad with the situation, which has resulted within the organization descending into chaos, accusations of embezzlement and corruption being traded among the CEO and the non-public quarter shareholders, and the dredging up of the vintage issue of the way the personal shareholders controlled to even get control over the organization within the first place.
In brief, the state of affairs is this: Mairaj Ariff desires to assert manipulate because the CEO of percent, and believes that the non-public shareholders, led through Arif Habib, are instigating a revolt beneath him, in particular via their have an effect on with some of the senior finance and operations workforce, which includes the CFO. The non-public shareholders, meanwhile, accept as true with that the CEO is unqualified for the job and isn’t handiest going for walks the business enterprise into the ground but also embezzling organisation funds even as doing so.
subjects came to a head on October 3, 2018, when Mairaj Ariff wrote a letter to NAB alleging that 3 senior organization officials – the CFO, the general manager Audit, and general manager Works – have been performing as “front guys” of the personal region shareholders. it’s far unclear what he means by using “front men”. If by means of that he method that they may be appearing on behalf of the shareholders, it is uncertain why any such thing might be unlawful, since organisation officers have a fiduciary obligation to shareholders, and the personal zone shareholders are in the majority.
despite the fact that, Mairaj Ariff became in no mood to tolerate any dissent and went up to now as to hearth the three officers and have them bodily barred from coming into percent’s workplaces.
Arif Habib, but, has a totally unique model of events. They agree that the CEO and CFO did now not get alongside. They absolutely disagree on why. “sadly, the highhanded and inept manner, in which Mr. Mairaj A. Ariff were going for walks the day to day affairs of the employer have been pronounced to exclusive fora by using the senior management of the agency. a lot so, that the chief economic Officer of p.c. become constrained to report a criticism towards the Mr. Mairaj A. Ariff after he turned into pressured by means of Mr. Mairaj A. Ariff to falsify the money owed of the corporation to hide the losses being incurred in the course of his tenure. Ever for the reason that refusal of the CFO to adhere to such unlawful needs of Mr. Mairaj A. Ariff, he has been on a vendetta in opposition to the senior management of the organisation; he have been preventing them from attending their statutory duties and has additionally been seeking to save you conferences of the Board of directors under one pretext or the other,” said Arif Habib, in his announcement to income.
for their component, Arif Habib and the other shareholders allege that the CEO is trying embezzle price range, which they’re looking to prevent him from doing. They went to date as to try to block the enterprise’s accounts at United bank Ltd, a circulate that was resisted through the CEO, and for which Mairaj Ariff received assist from officials at NAB.
p.c.’s debts in United bank have been suspended after some organisation officials submitted files to the bank soliciting for a suspension of these debts.
The % bills were restored on January 29, 2019, after NAB intervened, in line with resources at Ministry of Industries. The president of United financial institution become summoned on the places of work of the mixed research team (CIT). The responses submitted with the aid of the bank for the explanation of suspension of bills had been deemed “unsatisfactory” with the aid of the NAB and therefore % money owed were made operational once more. for the duration of the time that these accounts had been suspended, salaries and bills for uncooked materials by way of percent have been not on time.
The justification from the % officers became that Mairaj Ariff had unilaterally appointed a new CFO after firing the vintage CFO, Mian Anwar Aziz. A civil courtroom in Lahore has issued an injunction towards Aziz’s termination. They alleged that Ariff unilaterally sought to alternate the authorized signatories of the financial institution account maintained with UBL without obtaining approval from the board of administrators. by means of exerting pressure on UBL officials, Ariff were given the signatories changed and also carried out positive transactions from the bank account, which include a withdrawal of Rs5.6 million which quantity is unaccounted for in %’s debts.
who is accountable for the losses?
The last dispute among the non-public shareholders and the authorities-appointed CEO is who’s responsible for the truth that %’s revenue have plummeted during the last three years and the business enterprise has swung from making a income to a loss. Arif Habib and the opposite shareholders squarely vicinity the blame at the CEO’s ineptitude, while the CEO blames what he calls meddling with the aid of officials whom he accuses of being dependable to the shareholders and now not him.
Mairaj Ariff guidelines at what he believes to be a darkish schedule that Arif Habib and the opposite shareholders have. “As a nation business enterprise, if % shuts down, the non-public buyers can pressurise the authorities to promote the 250 acres of land really worth about Rs100 billion rupees, or even more,” he said, in an interview with profit.
And to further enhance his function that the personal shareholders had been performing in a nefarious manner, he commissioned that investigative record with the aid of Javed Hasnain Rashid & enterprise, a chartered accounting company, laying out what he believes to be the illegitimate way wherein Arif Habib gained his stocks in p.c..
in the end, however, as a good deal because the government may dislike the reality that Arif Habib is a shareholder of percent, they appear to have acted in a manner that suggests that they either accept as true with his model of the story or do now not have any evidence to show otherwise. Mairaj Ariff was eliminated from his function in February 2019 via a unanimous vote of the board of administrators, bringing – for the instant – an give up to the drama at percent.