Beckoning Losses: TRG at un-Artificial Intelligence

October 04, 2024 (MLN): TRG Pakistan Limited announced its FY2024 Annual Result on September 30th, 2024, declaring a massive loss of Rs30.84 billion, translating into an LPS of Rs56.56/- per share, which ironically was larger than the market price of the stock on that day.

The company published its Annual Accounts on October 2nd, 2024.

The loss primarily originated in the Company’s technical associate TRG International Limited (TRGIL), which holds a stake in Afiniti Limited; the Artificial Intelligence-based call centre management business.

Afiniti was close to bankruptcy before it underwent a financial restructuring and recapitalization transaction that converted the senior lenders into its majority shareholders. As is always the case, the interest of equity holders gets appropriated in such desperate circumstances.

Interestingly, the Directors Report of the company never discussed the sensitive state of affairs prevalent at Afiniti except after dropping this restructuring bombshell in their current report and in a PSX Notice a few days earlier, on September 20, 2024, which did not mention any negative impacts that later came to light.

The company vaguely mentioned the impending recapitalization of Afiniti in their CBS, held on June 27, 2024, as “Engaged in recapitalization discussions with lenders to reduce interest expense and extend maturities”.

However, the recapitalization seamlessly shall convert into restructuring soon after.

The Board of Directors of the company want shareholders to rest assured that, on a fully diluted basis “the company’s indirect economic stake in the Business is expected to be substantially retained in percentage terms”. In layman's terms, if one presently held 20% interest in a PKR 100/- currency note, one should be equally happy to hold a 20% interest in an Rs50/- currency note instead, especially when that interest is granted i.e., “on an as-converted and fully-diluted basis.”!

And, the Directors Report also points out that “This debt at the Business was incurred primarily between 2019 and 2021.” i.e., before the term of the current Board of Directors is initiated. In other words, the blame for undertaking the leverage is being disowned at the highest level. There is a likely pointer here! 

Recalling, from the Directors’ Report of December 2020 condensed accounts, that the additional debt raised at Afiniti “was used to retire its relatively expensive Series D shares” and this buyback “yielded a 2.5X return for TRGI.” and that “These proceeds were used by TRGI to partially pay down its high-cost debt.” gives myriad colorations to the whole arena.

Transparency and adequate disclosures, it seems, have always remained wanting at the company. From the diversion of liquid assets funneled to a subsidiary of TRGIL i.e., Greentree Holdings Limited, to their vague use in an indirect buyback program, and recent lack of disclosures regarding a possible takeover of the company by the same subsidiary, were some of the pills driven down shareholders’ throat.

One wonders if the saga at Afiniti is just another sequel of the same trope. To quote Karl Marx “Once as tragedy, and again as farce”. 

The Board of Directors, however, didn’t mention in their report that the shareholders won’t get an opportunity to hold Management to account as an AGM could not be held this year either.

This would be the third year for the company to do without an AGM for the adoption of audited accounts.

On a lighter note, the Board of Directors are letting the shareholders know that the whopping loss for the year resulted “primarily due to the revaluation of TRGIL’s stake in the AI Software Business, pending completion of its debt restructuring, and the mark-to-market loss booked on Ibex shares held by TRGIL” while conveniently papering over the fact that Rs4.68 billion of loss resulted simply by the Company’s own 155.67 million shares indirectly held via Greentree Holdings Limited.

One wonders here if errors of omission or those of commission are to take the top.

Meanwhile, SECP is calmly watching this phantasmagoria from afar.

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