MUGHAL postpones book closure scheduled for February 5

January 31, 2025 (MLN): Mughal Iron & Steel Industries Limited (PSX: MUGHAL) has temporarily postponed the book closure, which was originally scheduled to commence on February 5, 2025. 

The revised book closure dates will be communicated in due course, the company’s filing on PSX revealed today.

This decision follows a previous letter issued by the Securities and Exchange Commission of Pakistan (SECP), in which the SECP stated that the company had submitted a draft right offer document (OD) to the SECP. 

The document proposes the issuance of 50 million unlisted Class C ordinary shares (representing 14.90% of its existing paid-up capital), with 50 voting rights per share.

The company plans to offer these shares at an offer price of Rs30/- per share to existing ordinary shareholders by way of a right offer.

The proposed Class C shares shall not have any rights to dividends, bonuses, and rights issues, the letter reads.

Before this transaction, the company issued 335.6mn Ordinary Shares having 335.6mn voting rights and 335.6mn dividend rights. 

Thus, 100% of the voting rights and 100% of dividend rights are vested in these shares. 

The proposed transaction will result in the creation of an additional 50 million shares having 2.5 billion voting rights and 0 dividend rights. 

After this transaction, the combined voting rights of the Ordinary Shares will be reduced from 100% to 12% whereas the combined dividend rights of these shares will remain 100%. 

On the other hand, the combined voting rights of Class C shares will increase from 0% to 88% whereas the combined dividend rights of these shares will remain 0%. 

The SECP has analyzed this transaction in light of its implications for corporate governance, rights of ordinary and minority shareholders, price discovery, fairness, and public interest. 

Variation of shareholding rights does not imply unlimited powers to the decision-makers in a listed company to vary the shareholder rights. 

The exercise of legal powers ought to be in line with these overarching principles and avoid absurd or unfair outcomes. 

One-share one-vote is one of the most widely recognized principles of corporate governance as it treats all shareholders equally. 

Any deviations from this principle should be limited and based on strong justification.

The proposed transaction seems to be a drastic deviation from this principle.

It aims to enable the sponsors of a listed company to maintain control over the company through a small number of Class C shares, without holding a majority or even a significant proportion of the existing Ordinary Shares.

"This seems unjustified and is likely to result in perverse incentives and a distorted governance structure", the letter noted.

The shares carrying an overwhelming proportion of the voting rights shall have no right to benefit from those decisions by receiving dividends”, it further added.

On the other hand, the shares carrying all of the dividend rights shall have little voting power and effectively no control over the decisions.

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