DR ASIM Hussain is alleged to have confessed to his guilt in something which many would think scarcely blends with other of his confessed misdoings. If a report submitted in court by the National Accountability Bureau is to be believed, he sought the assistance of former privatisation minister Syed Naveed Qamar for approval from the Securities and Exchange Commission of Pakistan (SECP) of a right issue worth $170 million for stockbroker Jahangir Siddiqui’s flagship company, Jahangir Siddiqui & Company Limited (JSCL), a couple of years ago.

The report, besides containing so many confessions of Dr Asim, a close aide of former president Asif Ali Zardari, also says that he had arranged a meeting between Mr Siddiqui and Mr Qamar in order to get approval of the right offer from the chief regulator.

Background studies suggest that on April 8, 2008, the JSCL issued right shares to foreign investors at Rs475 in private placement.

The JSCL’s annual published report for the year ended June 30, 2008 gives details of the transaction. “Pursuant to the special resolution passed by the shareholders and with the permission of the SECP, a total of 22,020,000 shares of the company were offered to foreign investors. The shares of Rs10 each were offered at a premium of Rs465 per share [i.e. at a subscription price of Rs475 per share] for total consideration of Rs10,459,500,000 [$157.7m]. The shares were successfully placed and the company issued those to foreign investors under the First Proviso of Section 86(1) of the Companies Ordinance, 1984.”

The JSCL at the time even claimed credit for having done a great job. “This issue of shares to foreign investors and minority shareholders by way of a rights offering is Pakistan’s largest ever equity inflow to date in a private sector company totalling Rs15.5 billion”, directors claimed in that annual company report.

The JSCL stock after touching an all-time high of Rs776.80 on March 26, 2008 plunged 62 per cent to Rs298.98 by Aug 8, 2008 in the stock market crash of 2008.

Dr Asim’s allegation of persuading the SECP to approve the JSCL’s right issue could still be a subject of investigation but drawing the conclusion that it was the lone right offer which sparked the stock crash of 2008 is, at best, preposterous.

The JSCL offer of right shares and the stock market crisis of 2008 are two separate events and need to be dealt with accordingly.

First the right issue. What is it anyway?

A certain doctor commentator recently rolled his eyes and expressed his utter surprise on a TV channel, saying: “SECP gave away $173m to JS.” Anybody could see that the good doctor did not have the foggiest idea of what a right issue was.

A right issue is when a company issues its existing shareholders a right to buy additional shares in the company.

A company could offer more shares to its shareholders to raise extra money for the company, to increase cash flow and pay off debts or to fund new projects or expansion in current production capacities. Right issues are done by companies in the normal course of business and the shareholders have the right either to subscribe or rescind the offer.

Now for the stock market crash.

It is a well-known fact that the global financial crisis of 2007-08 is considered by many economists as the worst since the Great Depression of the 1930s.

It threatened the collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide.

The KSE had also other reasons to accelerate the stock meltdown. “The Report on the Pakistan Stock Market Crisis of 2008” compiled by a committee headed by former SECP chairman Shamim Ahmad Khan was released on Aug 12, 2015.

The great crash of 2008 had swept over trillion rupees from the market and no participant, including stockbrokers, could escape the damage.

On April 20, 2008, the stock prices began to collapse and benchmark KSE-100 index plunged by 55pc in four months. To make matters worse, a ‘floor’ was placed under the market fall from Aug 27, 2008 to Dec 15, 2008 that turned the catastrophe into a calamity.

The ‘floor’ remained in place for 108 days, which virtually closed the exit door of the market.

Such blockage was unheard of in the history of the stock exchanges. When the infamous ‘floor’ was finally lifted on December 14, 2008 the market, as was feared, came crashing down to the level of 4,782 points in fewer than 15 sessions.

Many people in the corporate world suspect that the case pertains to the AKD Securities, which was accused of having caused a loss of Rs290m to the Employees Old-age Benefits Institution (EOBI) through an alleged misleading research report on a textile company, and the JSCL right offer issue as disclosed by Dr Asim have been framed by the rival brokers Aqeel Karim Dhedhi and Jahangir Siddiqui against each other to settle scores.

However, such accusations cannot at this moment be conclusively proved.

Published in Dawn, January 10th, 2016

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