The battle for TRG is raging. Will Zia Chishti get his way again?

Nearly two years after its founder and CEO fell from grace following allegations of sexual assault and misconduct, one of the most traded companies on the Pakistan Stock Exchange (PSX) in the midst of an all out war. 

The saga to wrestle control of The Resource Group (TRG) has reached the grappling on the floor stage with the company’s former CEO Zia Chishti issuing full page advertisements in newspapers targeting the company’s incumbent directorate and pleading with minority shareholders to pressure them to call an Extraordinary General Meeting (EOGM). 

What does Chishti hope to achieve with these tactics? As the largest single shareholder in TRG Pakistan it seems he wants back in at the helm of the company and is rearing for a hostile takeover. As of now the company’s board of directors are managing to hold back the onslaught. But armed with the largest individualistic stake in TRG Pakistan and the support of other shareholders, will Chisti be able to wrest back control? For now the matter has gone to the Sindh High Court (SHC) which has put an end to any immediate EOGM being called. But how did matters get to this point for TRG? 

Once in a lifetime opportunity

In the summer of 2021, things could not look better for TRG Pakistan. Its shares were some of the most traded on the PSX and as a company TRG was going from strength to strength having just announced a dividend of 44% or Rs. 4.4 in the third quarter of FY 2020-2021. The dividend was followed by the company showing earnings of Rs. 47.4 per share for the year and then gave out another sizable dividend of Rs. 4.4 per share in the first quarter of FY 2021-2022.

Talk to any leading investment company or brokerage house in the country and they would tell you that TRG was a great investment specifically in the technology sector as it was expanding and growing at a rapid rate. The man behind this success was Zia Chishti. Born to a Pakistani mother and an American father, Chishti started his career as an investment banker. He went on to invent Invisalign braces and founded the company Afiniti. Initially a call-center operator, Afiniti started to identify itself as an AI pioneer, saying its software could supercharge the efficiency of call centers by matching customers with agents most likely to solve their problem or make a sale around 2017. On the back of this pitch and at a time when technology companies were getting the lion’s share of new investment, it seemed nothing could stop Afiniti.

Due to his Pakistani origins, Chishti kept some of his investments in his father’s home country. Afiniti is partly owned by TRG (The Resource Group) Pakistan, which was created in 2002 specifically to act as the global holding company for all of TRG’s investments. It was listed on the then Karachi Stock Exchange in July 2003. TRG was the original company that Chishti had founded out of which Afiniti had grown.

The ownership structure of TRG is highly complex and consists of several layers of holding companies. TRG Pakistan is the overall holding company, but it does not own the entirety of TRG International, which in turn does not necessarily own the entirety of the shares in its portfolio companies. At each stage, there are minority investors who own significant stakes, which makes it difficult to track exactly how much the overall portfolio is worth, and how much of it is owned by the shareholders of the publicly listed company on the Pakistan Stock Exchange.

What we do know is that Chishti is the majority shareholder in TRG Pakistan and as an umbrella holding company for TRG’s investments TRG Pakistan is important for Chishti to control his empire. 

For most of its existence, TRG Pakistan’s subsidiary was TRG International, which is a British Virgin Islands-incorporated holding company that in turn owns stakes in most of TRG’s portfolio companies. However, in June 2020, TRG Pakistan’s share in TRG International changed from 57.16% to 46.03%.  It is no longer a subsidiary, but is instead, technically, an affiliated company. And while this means that control of TRG Pakistan does not mean control of the international company, it does give Chishti (who also has shares in the other affiliated companies) significant sway over these investments, 

Because of all this Chishti was flying high in Pakistan. He was honoured with government awards and was jetting to and from Pakistan. His company was highly respected and he was a star for Pakistani investors. Until he wasn’t.   

The fall from grace 

It is no secret why Chishti was ousted from Afiniti and then TRG as well. In November 2021, Chishti was accused of sexual assault by a former employee during a congressional hearing in the United States. The house of cards started tumbling almost immediately. Chishti stepped down as the CEO of Afiniti in the United States on the 19th of November and as CEO of TRG Pakistan soon after. He immediately came to Pakistan where an EOGM was called for TRG Pakistan. Despite his best lobbying attempts, Chishti was unceremoniously booted from the company’s board of directors on the 11th of January 2022 bringing an end to his control on his own investments. 

By this point it seemed clear that Chishti was out and he would go into relative obscurity. But he did not take the ouster kindly. Events since his ouster from the board of directors of TRG Pakistan show that Chisti is still looking to get his company back and is willing to be hostile to do so. 

A hostile takeover? 

Essentially what we have now is an attempt at a hostile takeover, and it isn’t the first time TRG Pakistan has faced one. In fact, it was Chishti who had tried to engineer one back in October 2022 in what was his first attempt at regaining control of his companies. The October putsch was in conjunction with the JS Group which has significant shareholding in TRG Pakistan. 

As a result, a petition was filed by the company in the Sindh High Court in October of 2022 which stated that Chisti, in cooperation with Jahangir Siddiqui & Company Limited with 12 other individuals, was looking to acquire shares of the company in order to take over the board of directors.

In order to take over the company, the lawsuit alleged that the JS Group was working with its partners to take over TRG Pakistan. According to laws, a group of investors can join together and buy shares of any company that they want. Associate companies, companies who have close ties to the listed company, need to disclose when they buy even a single share. JS Corporation Limited is an associate company for TRG Pakistan  

Once the acquiring company buys more than 30% of shares of a company, they need to make a public offer to the market.

The public offer brings to light the fact that the acquiring company, in this case JS Group, should have made a public offer to acquire more shares which would have to be announced to the whole market. The lawsuit stated that the whole group had acquired 34% of the shares, crossing the 30% threshold, and had not made a public offer. They had acquired the shares in a surreptitious manner and had not disclosed it.

Once the lawsuit was filed, the Sindh High Court restrained the JS Group from exercising any voting control in excess of the 30% they had acquired unlawfully. The lawsuit alleged that Chishti and his group were finding ways of taking over the company by circumventing the laws and were also involved in disrupting the affairs of the company by launching social media based campaigns and filing complaints to the Securities and Exchange Commission of Pakistan (SECP).

The crux of the matter lies in the fact that TRG Pakistan accused the “Chishti Group” of holding more than 34 percent shares of the company while not making a public offer or proper disclosures as they are required to. It stated that JS Group owned 13.8 percent, Chishti with his wife owned 19.7 percent while DGM Securities and Al Habib Capital Markets, brokers for Chishti’s wife, held 0.8 percent collectively.

After this move was thwarted, another move was made in January 2023. Court filings again show how an attempt of a hostile takeover was thwarted. The company disclosed to the PSX that the Sindh High Court had passed an interim order on 7th January 2023 to restrain the same parties from creating a third party interest by using the shares of Chishti and his wife. Campaigns against the company itself

Chishti has not been sitting meekly in this entire time. And while his attempts to regain TRG Pakistan have been somehow thwarted up until now, he has had the company’s current management under fire. 

TRG has had to take out notices at regular intervals denying any social media campaign that is being run against the directors of the company. In order to ramp up the pressure, Zia Chishti filed a defamation suit against the company which led to  bailable arrest warrants being issued for the directors of the company. The directors got the warrants suspended in February 2023.

The defamation suit that was filed has also been suspended with a stay order passed by the Sindh High Court on 20th of March 2023.

The battle for the company is not only being fought against Chishti but also from within the company itself. One of the directors, Mr. Asad Nasir, has filed complaints against the company to the SECP based on the matters that were voted in December 2021 prior to the elections being held after Chishti’s ouster.

The company came into focus again when an ad was taken out in the leading publications of the country. The ad goes into detail to make a case regarding the malpractices of its directors and how they are destroying the company from the inside. 

Accessing the links given in the ad showed that there was no such website and there is no name or contact information in the ad itself. The site being referenced has come online much later with a group being made on Facebook. We now know, based on a court order filed by TRG Pakistan, that the ads were an attempt by Chishti to unite the shareholders and ask for an EOGM to be called. 

The ad and the new TRG management’s response 

The ad that has been published accuses the current CEO and a director at the company with two other directors of destroying the value of the company while they pursue their own interest. The ad goes on to say that Mr. Aslam with Mr. Mohammad Khaishgi and Mr. John Leone, two other directors, have little stake in the company and have taken “illegal” control over the company’s affairs.

The ad is targeted at the shareholders who are being made aware that the company has been damaged due to operational mismanagement and that Afiniti, considered the crown jewel for TRG Pakistan, has actually seen a collapse in its revenue and equity value. Ibex, a subsidiary of the company has seen its share price crash by 50% from its peak while the company is using its cash reserves to buy its own shares using an opaque subsidiary of TRG International called Greentree Holdings Limited to allow these directors to maintain their position. Under the leadership, the revenues of the company have halved, even though the dollar has increased in value which should have been beneficial for the company. TRG Pakistan repatriates the income earned from foreign sources from dollars which should have seen an increase as the rupee depreciated.

The ad also takes aim at the other shareholders who are allowing these directors to stay in their position while the company is suffering due to mismanagement.

It has been claimed that on September 25th 2023, Mr. Zia Chishti, the largest shareholder of the company, looked to remove all the members on the board of directors and amend the Articles of Association in order to improve the governance at the company. The ad is phrased from the point of view of the shareholders of the company who are demanding for an extraordinary general meeting to be held to vote on the matter in relation to the board of directors. The ad ends with the request to join the effort in order to save the company and to share proxy votes in order to vote the present directors out. 

The letter ends with making a case for holding of an EOGM by the company itself and a special agenda item can be added which would allow the directors to be retired and new directors to be elected. The goal of the meeting would be to take control away from the directors currently running the company and bring in better directors who can take the company back to its past glory. 

Specific allegations being made against the directors state that the directors did not bring back $120 million in cash and $70 million in securities into Pakistan as dividends and used them to park this money into Greentree Holdings Limited which is not controlled by TRGP.

Additionally, it alleges that TRGP’s voting interest in TRGI has been decreased to 45.3% even though it has an economic interest of 68.8% in the company which is not being disclosed to the shareholders. The company has given away some of its control over the board of TRGI which takes away some majority control that TRGP has over TRGI. The matter of $190 million worth of dividend was left parked at GreenTree Holdings Limited without the approval of shareholders of TRGP. Lastly, it alleges that the company withheld information of any litigation that was filed against which should be known to the shareholders.

The solution to these issues that has been given in the letter is to call an EOGM and to relieve the current directors from their posts. It claims that the current board of directors is not able to manage the situation and is allowing the three directors to mainly run the company on their behalf. While the directors need to be removed, it is also stated that articles of association need to be changed to bring the corporate governance framework of the company in compliance to Companies Act 2017. The company has not done so and follows the provisions of Companies Ordinance 1984 which has been repealed.

In response to all of this, TRG has tried to once again put out strong statements against the possibilities of Chishti regaining control of the company. On the 4th of October, the company said in a statement that “any association with Zia Chishti would be highly damaging to the value of the company’s underlying assets, and it is engaged in multiple lawsuits involving unlawful attempts by the ex-CEO to regain control of the company.”

“This is with respect to newspaper advertisements published by Muhammad Ziaullah Khan Chishti attempting to requisition an extraordinary general meeting of TRG Pakistan Limited, with the agenda involving the removal of 9 out of 10 directors of the Company, as well seeking amendments to the Articles of Association of the company,” read the notice to the bourse.

The small case of Annual General Meeting 

According to laws of Pakistan, a limited company registered with the SECP has to carry out an Annual General Meeting (AGM) on a yearly basis. The purpose of this meeting is to vote on certain issues and agenda items. Usually, these meetings deal with issues like appointing an auditor for the next year, pass the minutes of any pending AGM and to hash out other pending issues. As a shareholder, investors have an opportunity to put different items on the agenda which can, in their view, benefit the company.

Zia Chishti, as a substantial shareholder, tried to add an addendum to the AGM by looking to make M/s. Grant Thornton Anjum Rahman, Chartered Accountants, the new auditors and the Central Depository Company (CDC) the share registrar for the company. This addendum was filed on 18th October 2022 for a meeting that was announced for 25th of October. 

At this point of time, a letter had been attached from M/s. Grant Thornton Anjum Rahman themselves which showed that they were interested in being appointed as auditors. It seems like Mr Chishti had gotten his way. The company was mandated to hold the AGM and had to put these agenda items to be passed or rejected at the AGM. The company outwitted Chishti by filing a request at the Sindh High Court to adjourn the meeting from being held. The Court agreed with the company and restrained the company from holding the AGM till any future notices or orders were issued. On 26th October, M/s. Grant Thornton Anjum Rahman also withdrew its consent to be the auditors for the company.

As TRG Pakistan is a listed company, one of the main battlefields that has been used by the two sides is that they have looked to accumulate shares of the company in different forms. Chishti group has looked to acquire the shares of the companies by using the JS Group and his wife’s accounts to accumulate shares. This has been thwarted at different stages by the Sindh High Court due to petitions filed by the company itself. On the other hand, TRG Pakistan is using Greentree Holdings Limited. As of June 30 2021, the company did not hold even 1 share of the company. Fast forward to June end 2023 and it holds nearly 156 million or 28.54 percent of the total shares of the company.

The shareholding is a very important aspect of this battle as both sides know that holding the shares gives them power to vote on the board of directors and the general direction the company is going in. TRG Pakistan knows that an attempt was made in the earlier elections held in 2022 where Chishti wanted to be elected to the board of directors. At that time, due to the damage done to his reputation, the move might have been criticised. Now Chishti feels that he needs to get a hold of greater shareholding in the company to make an impact. Directors in Pakistan are elected for three years. The next election will be held in 2025 and it seems that this tussle will continue till then. Only time will tell what happens until then. But for now Chishti is unrelenting and the TRG management is barely holding him at bay.