Pakistan’s corporate and banking sector regulators on Tuesday confirmed that Hascol Petroleum Limited committed “misappropriations” and “wrongdoings” and said that criminal proceedings will soon begin after the conclusion of an ongoing investigation.
In a hearing by the Senate Standing Committee on Finance, the Securities and Exchange Commission of Pakistan (SECP) – the corporate sector regulator – and the State Bank of Pakistan (SBP) – the banking sector regulator – shared their initial findings in the case of the petroleum company.
Hascol has defaulted on its debts and the minority shareholders’ money has been put at stake, as the company’s equity has turned negative it incurred Rs26 billion losses a year. The meeting was chaired by Senator Muhammad Talha Mehmood.
“After completion of the investigation in the next three months, the SECP will start criminal proceedings against the company,” the regulator informed the standing committee.
“Hascol took huge exposure to one client and something wrong happened there as there were also backward and forward links in this case,” SBP Deputy Governor Jameel Ahmad revealed in the meeting. But the banks did not commit any regulatory violations while extending loans to Hascol Petroleum, he added.
“There is misappropriation in Hascol in addition to inventory losses,” said SBP Executive Director Inayat Hussain. The company’s bank liabilities were only Rs24.3 billion that swelled to Rs56 billion, said Hussain.
Hascol has defaulted in repayment of loans and banks have classified most of their exposure and created provisions of Rs39.4 billion, according to the central bank.
As of end June 2021, the National Bank of Pakistan (NBP) has the highest exposure of Rs18.83 billion while Habib Bank Limited (HBL) has the second largest exposure of Rs5.44 billion, it added.
The standing committee chairman instructed the central bank to provide details of the 18 banks that gave loans to Hascol, the collateral that the company gave and the list of people who gave personal guarantees against loans and financial conditions of these persons.
While citing a meeting of the Hascol officials with banks held in April this year, the Hascol board chairman Alan Duncan alleged that the prior management was atrocious and had misused the trust, did not maintain proper records and ran the business unprofessionally.
The SECP gave a detailed briefing on the status of the company but said that its hands were tied due to a stay order by a court.
“The SECP does not judge business decisions of the companies but intervenes only when some irregularities are observed,” said SECP Chairman Amir Ahmad.
The SECP issued a show cause notice to the company but it got a stay order which was vacated only last month, he added. The SECP pursued the company to withdraw the stay order, said Amir.
The court directed SECP vide order dated January 10, 2020 not to pass final order. The SECP also filed application for urgent hearing on October 19, 2020.
The SECP additional director said that for two years, Hascol showed Vitol Dubai as its main supplier but it then changed the record and replaced the word Dubai with Bahrain.
Till 2018, the company’s financial conditions were looking pretty great. But its assets dropped from Rs73.9 billion in December 2018 to Rs59.7 billion by September last year. The sales also dropped from Rs275.6 billion in December 2018 to Rs99.4 billion in September 2020. During the nine-month period of 2020, the company made a loss of Rs20.9 billion and is crippled by severe debt.
Vitol Dubai is the major shareholder of the company having 40% share. Since December 2019, Alan Duncan – a British politician – is the chairman of the board of Hascol Petroleum Limited.
The company has not submitted financial accounts for three quarters (December 2020 to June 2021), said an SECP additional director. In December 2018, the company had an equity of Rs12.5 billion that turned negative by Rs29.5 billion by September 2020.
After facing problems, the company started restating its numbers after every quarter, according to the SECP, resulting in red flags raised by the SECP.
From a profit of Rs674 million in March 2019, Hascol declared a loss of Rs11 billion in June 2019 and made “substantial revisions” in the previous quarter numbers including increasing cost of sales and revising Rs966 million profit before tax to a loss of Rs5.5 billion.
In December 2019, the auditors had raised “material uncertainty” about the going concern status of the company due to huge losses and erosion of equity. In June 2021, the company announced at the Pakistan Stock Exchange (PSX) that its statutory auditor Grant Thornton Anjum Rahman had resigned.
Senator Saleem Mandviwala said that it seems that the fraud had been planned for years, and a forensic audit should be conducted. Senator Kamil Ali Agha said that such fraud is not possible if the auditing companies fulfil their responsibilities in a true sense.
Senator Musaddiq Masood Malik asked why the SECP did not take action as the company had taken illegal steps on such a large scale. The stock exchange should protect the capital of the shareholders. The standing committee was directed to conduct a forensic audit of the Hascol company.
Detailed discussion was held on the resolution moved by Senator Faisal Sabzwari in the house “recommending the government to give special tax exemption to the small traders and salaried class of Karachi and Hyderabad”. There should be a one-year exemption, suggested Senator Faisal Saleem and Senator Kamil Ali Agha.
Senator Dilawar suggested one-time relief, while Senator Musaddiq Masood Malik said relief should be given to those earning less than Rs100,000. The committee chairman called for a report from the Federal Board of Revenue (FBR) on the total exposure and how many people were benefiting from the scheme within 15 days and recessed the agenda till the next meeting.