I would like to draw the attention of concerned authorities and stakeholders over Saudi Pak Leasing's affairs.
The company claims that the accounts have been made on the basis of a rehabilitation plan submitted to the SECP. The company showed its reliance upon certain recoveries and settlements which would enable it to meet the minimum equity requirement (MER) of Rs 50 million. However, the Note Number 1.2 on the company's balance sheet for the year ended June 30, 2019 does not mention whether the company has provided following details to SECP:
1. How will the accumulated losses be reduced to such an extent that the negative equity of Rs 621 million will be converted into positive by Rs 50 million supported by binding agreements.
2. Substantial proofs of recovery of such a huge amount like binding agreements.
3. Binding settlement agreements with creditors.
4. Any substantial reason why the suit against the company will not result in outflow of cash.
5. How tax liability stemming from profits on settlement gains would be paid.
There is another question, how much profit and cash the company will be able to generate with equity of Rs 50 million which will ensure profitability and continuation of business when the average administrative expenses as per Note Number 29 of Financial Statements for the year ended June 2019 are Rs 48 million per annum.
Further, the Note Number 1.2 does not mention any of the following:
1. Any commitment by Saudi Pak Industrial and Agricultural Investment Company Ltd. (SAPICO) regarding investment required to rehabilitate and bring the Company in profitable operation (which indicates that SAPICO does not find investment in SPLC profitable).
2. Intension of sale of holding in ordinary shares and preference shares which could be confirmed only if all of the following actions are taken by SAPICO;
a. Permission taken from SECP for the sale of Sponsors' Shares
b. Advertisement in Newspapers for the sale of Holding in Shares
c. Binding Agreement with any Prospective Investor
In the absence of above steps by SAPICO, the ongoing problem cannot be considered as mitigated simply by submission of "Rehabilitation Plan". The maximum the company can do is to sell-off the tangible assets and payoff a portion of liabilities, but the problem cannot be solved unless at least Rs 1.5 billion has to be injected in the company. It is important to point out that the company announced in the Financial Statement of 2015 that an investment of Rs 1.5 billion would be made in the company but that could not be materialized despite the lapse of four years.
This is noteworthy that Saudi Pak Leasing Company is a deposit taking entity and therefore the MER for the company is Rs 750 million. In order to bring to the level of MER 50 million, the company will have to change its status from deposit taking entity to non-deposit taking entity. The change of status will require the company to pay-off all the liabilities against deposits taken. According to the Financial Statements of December 31, 2019, the net assets of the company are negative Rs 621,571,232 which shows that all the equity and reserves have been wiped off and the Total Assets of Rs 750,642,197 pertains to creditors only. Under such circumstances, the company cannot make preferential payments to particular creditors. If it wants to do so it should take permission from all the creditors not being paid proportionately. To this effect, the Note No. 1.2 of the Financial Statements of June 30, 2019 and December 31, 2019 do not mention that the company has taken permission from other creditors and has communicated the evidences to SECP.
Because, Note No. 1.2 does not mention that SECP has approved the rehabilitation plan submitted by the company and in the absence of steps mentioned above, it cannot be construed that the existed problem has been mitigated. The fact is that the problem can only be solved if a single investor or a consortium acquires the company with the intention to settle the liabilities and inject enough funds to run the business which under the current business scenario requires at least Rs 1.5 billion.
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