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Issuance of 70% shares at Rs2: NAB starts inquiry against BoP

Issuance of 70% shares at Rs2: NAB starts inquiry against BoP

ISLAMABAD: The National Accountability Bureau (NAB) has started an inquiry against Bank of Punjab (BoP) on the issuance of 70 per cent rights shares at a premium of mere Rs2 only after a bank defaulter and shareholder in the bank launched a complaint with the anti-corruption watchdog.

Sources said that the anti-corruption organisation has started an investigation against the BoP on a bank defaulter’s complaint.

The NAB team has brought several under investigation, including BoP President Naeemud Din, for issuing right shares that possibly harmed the national exchequer. The bank had issued rights shares of 70 per cent in 2017 at a premium of Rs2 per share.

However, the bank management claimed that the right shares were issued with the approval of its board of directors, State Bank of Pakistan (SBP), the Securities Exchange Commission of Pakistan (SECP) and its majority shareholder, which is the government of Punjab.

The bank president and its management have challenged the matter in the Lahore High Court (LHC) as the action was taken on the complaint of a chronic defaulter of the bank on an extended loan facility of around Rs1 billion. The defaulter was delinquent on the repayments.

The new management of the bank rescheduled his loan and asked him to pay back in instalments.

The agony of the matter is that the complainant, Ali Aslam Malik, is the owner of a stock brokerage firm M/s First National Equity Limited, and was already holding more than 50 million shares in the BoP.

Giving the logic and reasons for issuing rights shares, bank’s president stated in the writ petition that when the current management took over the bank in 2008, it was at the verge of liquidation owing to imprudent lending decisions of previous regimes. The bank’s market perception was very negative due to Harris Steel like fraud and liquidity crunch, while the non-performing loans were as high as Rs80 billion, Capital Adequacy Ratio (CAR) was negative at 14 per cent and the bank had disclosed a loss of Rs10 billion by end of 2008.

During this restructuring phase, the government of Punjab, which is the majority shareholder of the bank, deposited share deposit money of Rs10 billion in 2009 and Rs7 billion in 2011 under agreed arrangements to stable the bank. Against this advance subscription money of Rs10 billion, the bank issued rights shares in two phases of Rs5 billion each, in 2013 and 2014.

Though financial viability was created through capital management measures and superlative performance, non-performing loans of Rs16.5 billion remained un-provided by close of 2016. The paid-up capital of the bank was Rs25 billion and if the bank provided cover to Rs16.5 billion bad loans, it would’ve fallen below the capital adequacy ratio (CAR).

Therefore, the board of directors approved a comprehensive capital management plan for meeting the SBP’s provisioning requirements and pave the way to meet CAR requirement. It was decided to convert the share deposit money of Rs7 billion, deposited by the Punjab government in 2011 for another issue of 70 per cent rights shares. In addition, a letter of comfort (LOC) was secured from the Punjab government on December 31, 2017, to get the SBP’s prudential regulations relaxed till December 2018.

This way, the bank would have enabled to support the capital structure of the bank, ensure the retirement of LOC issued by the Punjab government and achieve compliance with BASEL-III Capital requirement of SBP. While issuing rights shares, the bank management ensured compliance with SECP’s Companies (issue of Capital) Rules 1996, listing regulations of PSX.

Later on, the bank’s operating profit of Rs8.7 billion which it earned in 2017 proved that the capital management plan approved by the board in 2016 successfully generated a solid stream of earnings with consistent growth.

However, on February 23, 2017, when the matter of issuance of rights shares was pending before bank’s board, the BOP president received a letter from Ali Aslam Malik demanding to postpone/adjourn the issuance of rights shares. He had also written the same letter to Punjab chief minister, requesting to halt the process of shares issuance.

However, the issuance of rights shares was delayed as the government of Punjab also forwarded the same complaint to the bank and instructed the management to address the complaint.

The complaint of Ali Aslam Malik discussed in detail the board meeting held on March 2, 2017. The board unanimously decided to proceed with the earlier proposal of rights issuance and advised the bank management to submit a formal proposal in the Board’s next meeting. Subsequently, approval was secured from the government of Punjab on March 28.

The BoP’s board of directors also gave a go-ahead on March 29 for the issuance of 70 per cent rights shares at a premium of Rs2 per share.

In order to give confidence to investors, bank President Naeemud Din, in a normal course from the open market, also purchased one million shares in different tranches and informed about the purchase of shares accordingly to the board of directors. This act was duly recorded and allowed by the board and this was also brought into the knowledge of SECP.

The SECP had also conducted a detailed inquiry into the issuance of 70 per cent rights shares at a premium of Rs2 per share by the Bank of Punjab. The SECP’s report dated January 10, 2018, stated that no fluctuations in the shares of the bank were proved, all the steps were taken in accordance with law and thus no violation of existing rules and regulations was found.

On the complaint of the same person, the mater was also inquired by a committee formed by the government of Punjab and no irregularity was found.

The bank management also stated that NAB has no jurisdiction and power to look into the matters pertaining to the business of a bank as it falls within the exclusive jurisdiction of the SBP and the SECP being the regulators.