The Pakistan Engineering Company Limited (PECO) board of directors (BoD) has decided to issue shares to existing shareholders to raise Rs 284.5 million to meet the company’s funding needs, blaming the former managing director (MD) for the current financial crisis.

In a press release and an announcement to the Pakistan Stock Exchange (PSX), the board announced its decision on the rights issue at a price significantly lower than PECO’s market capitalization. The board of directors of PECO, a publicly traded company, also approved five years of arrears of financial accounts, which will be presented for approval at a general meeting of its shareholders scheduled for February 17, 2025, according to a press release.

“This is a tragic example of the damage caused by unchecked mismanagement and neglect, but today marks a turning point,” said Mirza Mahmood Ahmad, chairman of the BoD. “By approving these accounts, we are re-establishing transparency, accountability and a foundation for PECO’s revitalization.”

The financial crisis follows years of catastrophic mismanagement under former MD Mairaj Anis Ariff, a Ministry of Industries and Production (MoIP) nominee whose tenure saw the company incur losses of over Rs.1.2 billion, according to the board.

During his tenure, Ariff reportedly flouted directives from the Ministry of Industries, the Securities and Exchange Commission of Pakistan (SECP) and the Ministry of Law. He allegedly barred board members from company premises and operated PECO’s bank accounts with one-signature authority in 2018.

The company’s accounts remained unaudited for over four years, with no ordinary general meetings held and no tax returns. This negligence led to PECO’s placement on the PSX’s default list and plunged the company into default with suppliers and financial institutions.

Irreplaceable assets deteriorated or were wasted, trade receivables worth hundreds of millions were consumed, and inventory and accounts payable balances were used to finance losses, completely halting business operations, the statement said. Defaults to financial institutions and suppliers further tarnished the company’s creditworthiness and forced it to lay off approximately 450 employees, leaving a workforce of only 34 employees.

Following the removal of Ariff in 2022 through the intervention of the PDM government led by then Prime Minister Shehbaz Sharif, and the restoration of the elected board, significant progress has been made, according to the statement. The board has since worked to reconstruct financial records, rebuild systems and restore PECO’s reputation. To address the liquidity crisis, the board announced the rights issue to stabilize operations and give shareholders the opportunity to support the company’s turnaround.

The funds raised will be used to settle overdue liabilities, including recovery actions from suppliers and financial institutions. The amount of the rights issue is 50% of the existing paid-up capital, according to the stock exchange announcement. One ordinary rights share is issued for every 2 ordinary shares held by the company’s shareholders immediately before the closing of the share transfer books.

The shares, with a face value of Rs10, will be offered at Rs100 each, including a premium of Rs90 per share. share, making a total of Rs284.5 million. The offer price is significantly lower than the market price to encourage shareholder participation in the company’s revival.

The board decided that the proceeds from the rights issue should primarily be used to meet the company’s need for working capital, payment of utility bills, overdue obligations with suppliers and banks and the restart of operational activities through necessary steps. It said these measures will ensure the continuity of operations and compliance with statutory obligations. “These steps are essential to ensure PECO’s revival, prevent future abuse of power, and restore the company to its former glory while creating significant employment opportunities,” the board stated.

In addition, funds will be set aside to settle overdue trade debt, maintain day-to-day administrative functions and invest the remaining amount in income-generating opportunities to support ongoing operating expenses.

The offered price is significantly lower than the market price, which represents a significant discount to the market value. The discount to the market price has been offered to make the rights issue attractive and accessible to the shareholders, which ensures their participation in supporting the company’s capital needs, the board believes.