Summit Power skips merger obligations, breaches rules, BSEC finds

HM Murtuza | Published: 23:10, Nov 28,2016

 
 

Regulator summons company officials to a hearing on Dec 15

The Bangladesh Securities and Exchange Commission has found that Summit Power Limited breached a number of securities rules including not fulfilling some obligations before its merger with three of its associate companies in August this year.
Not taking BSEC’s permission prior to the issuance of its shares to transferor companies’ shareholders before setting effective date was one of the infringements, BSEC officials said.
The enforcement department of the commission recently issued a show-cause letter to the managing directors, directors and company secretaries of transferee company Summit Power Limited (SPL) and transferor companies Summit Purbanchol Power Company Limited (SPPCL), Summit Uttaranchol Power Company Limited (SUPCL) and Summit Narayanganj Power Limited (SNPL), asking them to appear before the commission for hearing on December 15 along with their explanations on the violations.
The BSEC on August 25 formed an inquiry committee following delisting of SPPCL from the bourses on August 24 in connection with its merger with SPL along with SUPCL and SNPL, sparking heavy reaction from the regulator.
Taking cognizance of the committee’s report, the commission later asked its enforcement department to start further proceedings regarding the issue.
The BSEC in its observations, sent to Summit officials, said SPL, before setting the effective date for delisting of SPPCL, was supposed to take BSEC’s approval for issuing its shares to the shareholders of transferor companies.
Taking board decision to allot shares, filing return of allotment of shares and applying to stock exchanges and to the Central Depository Bangladesh Limited (CDBL) for increasing the number of its shares were the other pre-merger obligations for Summit Power before announcing the effective date, said that the BSEC letter.
Summit Power, however, did not fulfil the pre-merger obligations and provided false or incorrect price sensitive information to the commission and the stock exchanges as well as published for all stakeholders August 23, 2016 as the record date for closing of shares transfer book of SPPCL, SUPCL and SNPL in violation of section 18 of Securities and Exchange Ordinance, 1969.
Apart from that, the BSEC also observed that it was evident that the companies, including Summit Power, did not calculate net asset value per share on current cost basis as on December 31, 2015 to determine the valuation of shares of each company, rather they calculated NAV per share on the basis of historical cost.
In the merger scheme approved by the court, Summit Power said that the valuation of shares would be conducted on current cost basis.
Experts said in case of machinery and equipments, the valuation of the power generation companies under current cost basis could be lower due to the depreciation factor as prices of machinery and equipments devaluate due to the factor.
‘As a result, the valuation of shares of both transferor and transferee companies did not reflect the true and fair view of the state of affairs of the companies,’ it said.
Through the activities, all the four companies violated the verdict of the court and the 3.9.d of the scheme of amalgamation as approved by the shareholders and the court, the BSEC letter said.
By violating the amalgamation scheme, the companies also violated section 22 of Securities and Exchange Ordinance, 1969 and section 15 of Depository Act, 1999.
On the other hand, Summit Power was supposed to resume trading on the bourses on August 24 with 106,78,77,227 shares including those of SPPCL as per the amalgamation scheme and exchange ratio.
The commission also found that Summit Power also violated rule 12 (2) of Securities and Exchange Rules, 1987 as it did not prepare its financial statement at the effective date of amalgamation, August 24, in accordance with the Bangladesh Financial Reporting Standards–3 as adopted by the Institute of Chartered Accountants of Bangladesh.
SPL, SPPCL, SUPCL and SNPL appointed auditor Mashi Muhith Haque and Company on August 9 to get opinion whether the methodology employed in the scheme for valuation of shares and resultant share exchange ratio was fair and reasonable. SPL and SPPCL, however, refrained from giving any price sensitive information regarding the appointment to their shareholders in violation of a BSEC notification.
Asked about the contraventions, Summit Group chief financial officer Swapon Kumar Pal, however, refrained from making any comment on the issues.

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