There are certain important matters that need the public’s attention on the ongoing Jang Group and Jahangir Siddiqui tussle against Mubasher Lucman, ARY Group and other business community leaders like Aqeel Karim Dhedhi.
First and foremost, the link of Jang Group and Jahangir Siddiqui is clear. Mir Shakil ur Rehman’s daughter is married to Jahangir Siddiqui’s son. Hence, any publication of news in favor of Jahangir Siddiqui and his companies or any siding by Jang Group against those unmasking the nexus is a clear conflict of interest.
Jahangir Siddiqui is currently sitting on a multi billion rupees empire through various public limited companies, in which he or his family members or his companies are majority and controlling shareholders. Amongst these are the flagship, Jahangir Siddiqui and Company Limited (JSCL) and JS Bank Limited. Both these companies have a combined balance sheet of Rs. 98 billion audited numbers as of December 2012.
JSCL’s shareholders include key shareholders as follows:
|Name||Shares||% of JSCL|
|Jahangir Siddiqui||329.3 million||
|Ali Jahangir Siddiqui||0.32 million||
|Jahangir Siddiqui & Sons Limited||62.029 million||
JSCL’s control remains vested in the hands of Jahangir Siddiqui as such.
Coming to JS Bank Limited, following are the key shareholders:
|Name||Shares||% of JSBL|
|Jahangir Siddiqui & Company Limited||
In essence, Jahangir Siddiqui is a controller of the JS Bank, which as of December 2012 was sitting on deposits of Rs. 62.54 billion while the same number was higher at Rs. 74.107 billion in September 2013. Amongst these Rs. 62.54 billion, Rs. 16.841 billion or 27% of the funds are in current accounts, on which JSBL doesn’t have to pay any interest and savings deposits of Rs. 17.36 billion or 28% are in savings accounts, which yield less interest for depositors. While money moves here and there, the stickiness of these deposits allow for a lower cost of funds for a bank. The lower the cost of funds, the higher the ability of the bank to make a profit. In December 2012, JS Bank entered into an agreement to buy out HSBC Pakistan which would have allowed the bank to grow and add assets to its portfolio. While it was required for the State Bank of Pakistan and Securities and Exchange Commission of Pakistan to approve the sale, the same couldn’t be received allowing for the sale to be declared void. It is from here, that the recent saga of JS/Mir Shakil and Mubasher Lucman led media attacks albeit with proofs began. Jang Group in their response to allegations have admitted that the “Muntazim” assumed to be Mir Shakil ur Rehman exerted his influence to get the deal through on both SECP and SBP. When the deal couldn’t go through or was unlikely to go through, that’s when the media war began. SBP Governor and SECP Chairman were pressurized to the extent that the court hearing the SECP Chairman case, removed him from office, citing his appointment process to be wrong and thus void.
Coming to the issue LUBP would like to shed light on is the recent announcement by JSCL to invest in an effort by JSBL to stay afloat and continue to do business. In order for a bank to remain in operation, it is required to have a minimum paid up capital of Rs. 10 billion net of all losses before end of year 2013. If one looks at the Balance Sheet of JS Bank Limited as of September 2013, it currently has a capital of Rs. 8.68 billion, meaning it is Rs. 1.32 billion short of it. With not enough reserves in place, and having a share price of Rs. 3.7 right now, the options of raising funds in form of equity are limited. Imagine, if shareholders were to subscribe to additional shares of JS Bank, the bank will have to offer them at a steep discount else no one will subscribe. So by December 2013, the time is limited and the options are less.
JSCL, which has 70% shares of JSBL has found a novel way of plugging the gap, at the cost of shareholders interest. JSBL is issuing 13.98% or Rs. 1.5 billion worth of preference shares in which JSCL will be subscribing preference shares worth up to the full amount as the terms of the preference shares are unlikely to entice any other shareholders. The preference shares to pay 12% per as dividend for a period of 4 years provided JSBL has earned sufficient profit to pay a dividend and that it remains in compliance for the regulatory requirements of SBP. If one does a simple math, for Rs. 1.5 billion worth of preference shares, 12% per annum means Rs. 180 million per annum. What this means that this dividend by JSBL will be paid if the it has made SUFFICIENT profit to pay the shareholders and that it has made necessary provisions to remain current as per SBP.
With the way things are going for JS Bank and the group, with lots of money laundering and other investigations going on, the likelihood of such a dream coming into reality are quite difficult. Surprisingly, in the counter attacks by Jang Group, they are not telling the world that the State Bank has given them a provisional approval for the issuance of these preference shares which are only a way for the JS Group and Jang Group to have an effective control of the bank! If the bank doesn’t meet the Minimum Capital Requirements, it will have to be merged with another bank or have to be bought by another party which is willing to add the needed capital.
On the other hand, one has to assume that the SECP also has to provide its consent to JSCL being the majority shareholder to subscribe to such an instrument.
In order to keep the Bank afloat, Jahangir Siddiqui and Company is willing to put their shareholders on the line. This is not the first time they have done this. Only earlier this year, they paid out a bonus as Advisory Fee to Mir Shakil’s son in law, Ali Jahangir worth Rs. 432 million while the shareholders received only Rs. 572 million in form of dividends! Even out of this, Jahangir Siddiqui himself netted Rs. 247 million as dividend payment. Imagine, 15000 plus shareholders sharing the remaining Rs 325 million, while Ali Jahangir walks away with a cool bonus! That’s what is called “fingers in your honey pot”
Now why does JS and MSR want to have the bank in place. A bank gives a lot of clout to the controller. Imagine, billions of rupees in your control. Imagine how many can be bought be giving out cheap loans or loans that are written off. Imagine investing in shady places and letting the investment be lost. How many palms you can grease. Get cheap deposits and make an earning out of it and then not to pay any interest, profit or dividends to shareholders. That’s what is called stakes being high. We have seen this when Mehran Bank was lost to bad and cheat management. The Bank of Punjab almost went under. We have seen other banks being taken over by others for they lost the capital to bad loans given out wilfully. Does the country want another bad bank requiring bail out?
As an individual shareholder, I would demand that the SBP and SECP block this kind of transaction in which a bad investment is being made by JSCL in their own subsidiary which they are unable to manage properly.
Already the group is facing a barrage of investigations. Do SBP and SECP want their faces egged if the bank was to fail or is the power of Mir Shakil ur Rehman way too much that they allow this transaction to go through provided the Jang Group and JS forget the HSBC deal not going through. As a shareholder, I wouldn’t want to risk more value being lost in the game of I scratch your back, you scratch mine!