KARACHI, Dec 9: Greed, treachery, conspiracy and lethargy can be traced in the events that led to the suspension of trading in the stock of Callmate Telips Telecom Limited (CTTL) -- the long distance and international (LDI) private operator in Pakistan.
At the start of the second trading session after the prayer break on Friday, a notice descending from the offices of the Securities and Exchange Commission of Pakistan (SECP) Islamabad was read out on the trading floor of the three stock exchanges. As nervous traders pondered over its contents and implications, the KSE index of 100 shares plunged 81 points to 10,643.
It was the concluding part of the notice that made all the difference: “In exercise of its powers under section 9(7) of the Securities and Exchange Ordinance, 1969, the commission hereby orders that the trading in the shares of the company be suspended for a period of 60 days with immediate effect”.
The reason for the apex regulator to have taken such a step was the announcement of 30 per cent bonus issue by Callmate, without compliance with the provisions of Rule 6 of the Companies (Issue of Capital) Rules, 1996.
The rule in brief requires a certificate from the auditors in regard to the adequacy of free reserves after the bonus issue and a submission of the same to the bourses. The SECP stated that the ‘bonus issue was prima facie contrary to the law”.
It also said that the suspension of trading in Callmate stock had been done in “public interest to avoid negative impact on the interests of the shareholders due to the effect that these developments are likely to have on the trading value of the shares”. But it was exactly that which happened following the suspension of the stock.
Market participants following the events believed that more than half a dozen stock brokerage houses had been left holding the dirty end of the stick. But for most part they were themselves to be blamed for their greed.
Information gathered from various sources suggested that it was in the middle of last month that a foreign sponsored investment bank known for its aggressive trading at the bourses lured some half a dozen middle-sized brokerage houses into buying shares of Callmate for a Middle Eastern client.
The proposer bank agreed to finance the purchase and promised the sale of their holding at Rs120 a share, which happened to be more than double the stock market ruling price at the time. It is difficult to believe that those in the business of high finance in stocks could be so naïve, but a chief of one of the aggrieved firms swears that such was the case.
In consequence of a run on the share, the Callmate stock saw an incredible number of 12 successive upper locks from Nov 17 to Dec 4, which carried the price from Rs57 to as high as Rs102. But there, the buyers were left dry. Was it treachery, no one can be sure, but the proposer backed out of the deal. As the share began to be jettisoned, it hit four lower locks from Dec 5 to 8. And then came the notice from apex regulator of suspension in trading in the Callmate stock for 60 days.
All of that leaves a forest of question marks: Total paid-up shares in Callmate stands at 65 million, of which 36 million are in the Continuous Funding System (CFS) or ‘badla’. What would happen to the clients and brokers who have interest in those shares? Unable to release their holding on any working session within 22 days as is the rule, the cost to financees would mount incredibly high and they are likely to forego their 20 per cent margin and turn their pockets inside out in front of the brokers.
No one is suggesting a default, but the pressure on the brokers would be tremendous. Some market participants also question that since the ‘free-float’ of the Callmate stock was 50 per cent, how did 55 per cent (36 million shares) emerge in the badla market? There is also the grim suspicion that in opting to pull punches in public with the mightiest audit firm in the country, Callmate had sealed its own fate. The issue began with the removal of auditors by the company through a resolution in an ExGM on Oct 12 and appointment of another firm Zahid Jamil & Co, after disagreements between the company and the old auditors took an ugly turn.
The major issue in contention was whether it was appropriate to recognise revenue when the cards were actually utilised by customers (usage-based policy recommended by the auditors) or at the time of sale to dealers (despatch base policy followed by the company).
The SECP intervened to overturn the shareholders’ decision of change of auditors. A company board meeting was nonetheless held on Dec 1, which declared the profit for the year ended June 30, 2006 and announced cash dividend and the bonus issue. Latter on Dec 5, the board also announced results for the first quarter of the current year ended Sept 30, 2006.Investors wonder what took the regulator almost a week after the announcement of bonus by the company to pronounce it as illegal. Why couldn’t the sound of loud drums of 12 upper locks in succession wake up the chief watchdog. Could that be put to lethargy on the part of the SECP in not having acted in time?
SECP Chairman Razi-ur-Rehman Khan told Dawn he was looking into the case of the upper locks in Callmate. In regard to the suggestion that the SECP had been too slow to move on the Callmate case, when eye brows were being raised on daily locks in the scrip for 12 trading days, The SECP chief simply remarked: “It is your prerogative (to believe what you may)”.
