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ISLAMABAD: Securities and Exchange Commission of Pakistan's (SECPs) internal correspondence has reportedly unveiled unsavoury affairs of M/s Hascol Petroleum and M/s Vitol Dubai Limited.

This was indicated by Syed Ali Adnan, Additional Director, Companies Supervision Division, SECP, in a letter to Muzaffar Mirza, Nauman Akhtar and Anwaar Ahmed on September 30, 2020.

The letter is in relation to investigation and inspection proceedings of Hascol Petroleum Limited, for which legal opinion is solicited. The purported facts of the case are as follows - the present status of investigation u/s 257 of the Companies Act, 2017: accounts of Hascol Petroleum Limited for the half year ended June 30, 2019 were examined and it was observed that figures reported for the first quarter ended March 31, 2019 were "revised' substantially. The offsite wing issued an Internal Recommendation Note (IRN) for initiation of investigation u/s 257 of the Companies Act, 2017 (the Act) primarily in view of misstatements in the financial statements and deteriorating financial position of the Company as per financial statements.

Show Cause Notice (SCN) u/s 257 of the Act was issued to all the directors of the Company on October 4, 2019 and the same was issued to the Company through addendum dated November 6, 2019 querying as to why independent inspectors may not be appointed to investigate affairs of Company with major focus on the

Company's financial statements where in it had disclosed that it has been importing the fuel through Vitol (Dubai) which accounted for 77% (2016); 79% (2017); and 68% (2018) of the total fuel purchases of the company. It is observed that the company is prima facie, purchasing petroleum products at relatively higher prices in comparison to other listed companies. For instance, PSO's average declared price was $ 530, $ 547 and $ 621 per ton in January, February and March 2019, respectively. M/s Shell, $ 553, $ 524, $565 per ton, Total Parco, $ 535, $ 530 and $ 572 per ton, Attock, $ 630, $ 515 and $ 531 and M/s Hascol $ 659, $629 and $ 613 per ton, respectively.

Accounts for the year ended December 31, 2018 depicted that the company purchased LPG plant from Marshal Gas (related party). One of the Directors of the Company namely Liaquat Ali holds 2.2% shareholding in Company and is also major shareholder of Marshal Gas (Pvt.) Limited (holding 6.44% shareholding of the Company). Further, Fossil Energy (Pvt) Limited holds 10.66% shareholding in the Company and Saleem Butt, Chief Executive of the Company is also a major shareholder of Fossil Energy. It was observed that the financial statements of Fossil Energy for the year ending June 30, 2018 reflect that Fossil Energy has entered into a joint venture agreement with Vitol (holding 27% shareholding as on June 30, 2019).

The Audit Committee of the Company comprises three members as per information disclosed in the financial statements for the year ended December 31, 2018. Out of the three Directors, two are representing related parties. Liaquat Ali is a common Director of Marshal Gas (Pvt) Limited and Abdul Aziz, is a nominee Director of Vitol.

The funds generated through the right issue amounting to Rs3.7 billion primarily to fund the upcoming projects including development of storage facilities, retail outlets and lube oil and grease blending plant prima facie "were not utilized according to the stated purpose".

During the examination of half yearly accounts of the Company for the period ended June 30, 2019 it was observed that the first quarter accounts for the period ended March 31, 2019 have been "revised" substantially. Prima facie the revision of the figures appears as follows: (i) the amount of other revenue decreased by Rs. 100 million; (ii) cost of sales increased by Rs. 2.86 billion; (iii) gross profit decreased by Rs. 2.96 billion; (iv) profit before tax amounting to Rs 966 million has been revised to loss of Rs 5.45 billion; (v) earnings per share of Rs 3.73 for March 2019 has been revised to loss per share of Rs 28.87; and (vi) other expenses have increased to Rs 3.46 billion.

The Company's replies of October 24, 2019 and November 16, 2019 were analyzed and a hearing was fixed for November 21, 2019 before ED (CSD)/Authorized Officer (AO). Meanwhile, the Company filed a petition in the Sindh High Court (SHC) against the SCN. SHC on November21, 2019 adjourned the matter for two weeks and directed: (i) the Commission to file its comments; and(ii) the Company/Petitioner, "...to file appropriate reply against the Show Cause Notice and may appear before the concerned authority for appropriate orders...".

The Company, through its authorized representative, attended the hearing fixed by the Commission on November 21, 2019 and requested that: (i) the Company be given an opportunity to clarify the matter; and(ii) sought time of 4 to 6 weeks to submit necessary documents/clarification in relation to the SCN.

Authorized Officer allowed time of 3 weeks to the Company to submit the necessary information/documents. In SHC the matter was fixed for December 6, 2019; para-wise comments on behalf of Commission were submitted with the request to dismiss the appeal being infructuous as the Petitioner had made appearance before the Commission in the matter. The Counsel for the petitioner sought further time from the Court.

The Court adjourned the matter till second week of January. Pursuant to the hearing held in the office of AO, the Company submitted some documents. The matter was fixed for hearing before AO on January 2, 2020 which on request of the Company was re-fixed for January 9, 2020. The Company vide its letter dated January 08, 2020 requested for further adjournment which was not acceded to and the counsel was advised to attend the hearing on January 9, 2020. The newly-appointed authorized representative & the Company Secretary attended the hearing and requested for adjournment of hearing, which was not acceded to Company filed an application in the SHC on the grounds that SECP had not accepted the adjournment of hearing request of the Company. The Court, in its order of January 10, 2020, directed SECP not to pass final order till next hearing.

The letter also says that interim order had further been extended up to next date of hearing i.e. February 14. According to the letter, fresh proposal for inspection u/s 221 of the Companies Act, 2017 was also submitted which says the offsite wing examined the annual audited accounts of the Company for the year ended December 31, 2019. In view of major "anomalies" observed, an IRN for initiation of inspection into affairs of the Company under section 221 of the Act has been received from the Offsite Wing. The following major issues have been highlighted therein: (i) the Company in its annual audited accounts for the year ended December 31, 2019 declared massive losses which have wiped out the equity. The auditor of the Company (Grant Thornton Anjum Rahman, Chartered Accountants) reported material uncertainty w.r.t. Company's ability to continue as a going concern. Performance of the company when compared with the previous reported quarterly accounts for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 have "revealed" the following: (i) Company's equity which was Rs. 1.06 billion as on June 30, 2019 is eroded and now stands at Rs. 8.9 billion as on December 31, 2019; (ii) total assets exceeded total liabilities by Rs. 1.06 billion on June 30, 2019, which now is reversed and its total liabilities exceed its total assets by Rs. 8.9 billion as on December 31, 2019; (ii) current liabilities exceed the current assets by Rs. 43 billion as on December 31, 2019; (iv) the Company in the quarterly results for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 disclosed gross profits for each declared result, however in the annual result for the same year ended December 31, 2019 declared a gross loss of Rs. 1.85 billion; (v) the net loss of the Company which stood at Rs. 11.16 billion on June 30, 2019 is now further increased to Rs. 25.87 billion as on December 31, 2019.

The letter also says that Hascol made PSX announcement for transfer of shares owned by Mumtaz Hassan Khan on January 24, 2020 to Vitol. The examination of replies received revealed that an amount of Rs1.186 billion on account of above transaction is received in Hascol bank account on November 14, 2019 from Vitol. Restatement of figures of year 2018 in the annual accounts for the year ended December 31, 2019 on account of unaccounted liability of Vitol Bahrain (Rs.977 million) and other adjustments including Trade payables (Rs.1.6 billion), Cost of Sales (Rs.688 million), and retained earnings (Rs.728 million). Related Party transactions with Hascol Lubricants (Pvt) Limited (Rs.3 billion for issuance of shares), Vitol Bahrain E.C. (Rs. 140 billion approx.), Hascol Terminals Ltd (Rs.1.6 billion approx.) during the period March 2019, June 2019 and September 2019. Non-disclosure of information pertaining to transfer of lubricating business to related party in the accounts for period ended June 30, 2019 and September 30, 2019.

The operating expenses of the Company as per quarterly accounts for the quarter ended September 30, 2019 were Rs. 5.047 billion. In the annual accounts for the year ended December 31, 2019 the same reduced to Rs. 4.896 billion; and Distribution & Marketing and Administrative expenses decreased by Rs. 151.48 million.

The Additional Director ACD framed the following issues saying that the matter is being referred to PLAD for soliciting expert opinion on following issues with specific reference to the court case and initiation of an inspection under section 221 of the Act: (i) whether Order for inspection u/s 221 of the Act can be issued, keeping in view the fact that proceedings of SCN under section 257 of the Act are subjudice before the Court considering the following: (a) SCN under section 257 of the Act was issued primarily for material misstatement in the first quarter accounts of the Company for the period ended March 31, 2019 reported in thehalf yearly accounts for the period ended June 30, 2019; and (b) IRN has been issued by the offsite wing for initiation of inspection proceedings under section 221 of the Act on the basis of annual audited accounts of the Company for the financial year ended December 31, 2019. The financial year ended December 31, 2019 includes the quarters ended March 31, 2019 and the half yearly period ended June 30, 2019, which is subjudice before the Court in the investigation proceedings under section 257 of the Act.

On July 13, 2021, SECP issued an official statement, saying that it took notice of Hascol's reported accounts for the period ending June 30, 2019 during October 2019. In this regard, the SECP has "diligently" followed its requisite internal protocols in compliance with its mandated role and responsibility. However, being the apex corporate regulator of the country, SECP has to conclude its proceedings after following due process as envisaged under the law.

The SECP does not comment on its regulatory actions until they are finalized and orders are issued, at which stage they are published on its website without any exception. However, recently some "misreporting" in the print media has been undertaken that is devoid of facts and has been published without seeking SECP's version, the statement said.

Copyright Business Recorder, 2021

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