The Securities and Exchange Commission of Pakistan (SECP) has started an investigation into matters of TRG Pakistan Limited. The investigation follows a complaint received from a director of the Company against a number of serious wrongdoings by the management of the company. The investigation will look into the decision taken by the Company’s Board of directors for the distribution of liquid assets held through The Resource Group International Limited. It will also look at the purchase activities in the Company’s shares since the start of the year.
TRG, a listed company, was set up as a public limited company in 2002 and received a license to make venture capital investments as a NBFC in 2003. TRG exited from the NBFC regime in 2012. The Company primarily invests in the sectors comprising of technology and IT-enabled services.
In July last year, TRG had announced that it had successfully completed a sale of its health insurance investment with approximately Rupees 21.5 billion being attributable to the Company’s shareholders.
In December the Company announced that it would receive an allocation of TRGI’s liquid assets, comprising cash of USD 120 million (inclusive of approximately USD 10 million in deferred cash) and approximately 5.4 million shares in Ibex Limited, an entity listed on Nasdaq.
Later that same month, the Company had announced that its Board of Directors had decided to continue its investment in its associated entity TRGI, who had been requested to implement an alternate means of providing direct or indirect value, benefit and liquidity to the shareholders of the Company. This was done by agreeing to park the liquid assets in a Special Purpose Vehicle, Greentree Holdings Limited, established in the tax haven jurisdiction of Bermuda.
The complaint notes a number of serious violations. Certain members of the Board of Directors approved the investment structure despite their conflict of interest. These include TRG management including CEO Hasnain Aslam and Mohammad Khan Khaishgi as well as nominees of the Pinebridge investor group, John Leone and Patrick McGinnis. The directors have been accused of rushing through a complicated structure to the detriment of TRG shareholders. The decision was made despite concerns raised by the complainant director. The complaint states the same directors did not work in the best interest of the Company and its shareholders.
These directors, all of whom are direct shareholders or represent shareholders other than TRG Pakistan in TRGI, had opted to receive their share of the TRGI distribution. However, in the case of TRG Pakistan they voted to retain the distribution of liquid assets through the complicated SPV structure in Bermuda. They subsequently proceeded to facilitate the purchase of shares of TRG Pakistan while also serving on the board of TRG Pakistan and the SPV’s parent company at the same time.
The investigation will also look into the legality surrounding the purchase of shares on the Pakistan Stock Exchange, which is in complete violation of Pakistani law as per the complaint. A review of the public announcements made to date confirms that the Company, through this structure, has facilitated the purchase of approximately 87 million shares which amounts to a 16% shareholding in the Company.
The complaint received by the SECP points out that actions taken by the Company were a breach of trust by the board of directors to TRG shareholders. The Company’s own assets have been manipulated to secure control over the Company, while there are doubts raised regarding insider trading in the purchase of shares by Greentree Holdings.
The complainant has stated that both the previous and current chairman of the board of directors, Peter Riepenhausen and Waleed Tariq Saigol respectively, were made aware of the various violations but no action has been taken.
Since the start of the year, when the share purchases by Greentree Holdings commenced, the TRG stock has witnessed considerable trading volume. However, this has also coincided with the share price of TRG falling by 35% while KSE-100 index has fallen by 7% during the same period. There is currently no information made available the amount of funds used to purchase the 87 million shares held by Greentree Holdings.
Investors have raised concerns that cash held in US dollars being used to purchase shares in Pakistan, compounded with the falling share price of the Company, has resulted in a loss to the shareholders of TRG. The Company’s financial statements for the quarter ended 31 March 2022 do not provide any information on the liquid assets held separately.
The fate of the shares purchased has not been communicated by the Company, which has caused confusion to shareholders. A recently published report by a domestic brokerage house has speculated that the share purchases could reach a level where a public tender offer could happen under Pakistani law. This is likely to cause further confusion since the Company’s own assets are being used by a separate entity to acquire control of the Company.
The investigation is expected to coordinate with authorities in Bermuda, where Greentree Holdings is incorporated. The status of the shares purchased and the remaining liquid assets would now be dependent on the findings of the SECP investigation. It is not clear whether share purchases by Greentree Holdings will be stopped during the course of the investigation.
This latest complaint comes only a few months after Zia Chishti, resigned as CEO of the Company and from its Board due to sexual assault allegations made by an employee of one of TRGI’s investments. This led a substantial turmoil in the run-up to the Company’s elections of the board of directors in January this year. This resulted in Zia Chishti eventually voting in favour of directors nominated by Pinebridge investor group and losing his control over the Company, despite being the largest shareholder of the Company.