Sharifs' personal debt retirement plan is a sham

Amir Mir says the prime minister's move to retire his industrial group's loans is not likely to be settled quickly, amicably or transparently

The Friday Times -- February 26 to March 4, 1999

The surveyors, G.B. Potts & Company (Pvt) Ltd, appointed last year to evaluate the four Ittefaq Group concerns handed over by Prime Minister Nawaz Sharif to retire the ruling family's bank loans have put the market value of the total surrendered assets at Rs 2.334 billion against the Group's total bank default of Rs 5.679 billion.

The surveyors were appointed by the Lahore High Court to evaluate assets of the four units surrendered by the prime minister on June 11, 1998, during a televised address to the nation. Justice Malik Qayyum, the LHC company and banking judge, subsequently named a 3-member committee in July last year to take over the assets and properties of the four industrial units, besides preparing an inventory of their assets and make a provisional assessment of their value. The surrendered units include Ittefaq Foundries Ltd, Ittefaq Brothers Ltd., Brother Steel Mills Ltd. and Ilyas Enterprises Ltd.

The 3-member committee was constituted on the basis of a petition filed with the LHC by the eight creditor banks praying the court to get the Group to pay off their staggering loan liabilities to the creditor banks and other financial institutions. The committee was entrusted with the task of preparing an inventory of the four Ittefaq Group assets to determine their value and inform the court about whether they were sufficient to discharge the outstanding debt liabilities and to dispose them of for that purpose.

The eight creditor banks included the National Bank of Pakistan, Habib Bank Ltd., United Bank Ltd., Agricultural Development Bank of Pakistan, Muslim Commercial Bank Ltd., Pakistan Industrial Credit and Investment Corporation, Bank of Punjab and the First Punjab Modarba.

The assets of the four concerns, taken over by the 3-member committee, consisted of factory edifices and everything within them, including machinery, stock-in-trade, receivables, raw materials and finished goods, the price of the land that the factories are constructed on, and any vehicle on the premises.

As per the terms of the agreement reached between the Ittefaq industrial concerns and the eight banks (under the Companies Ordinance), the liability of the companies towards the creditor banks will be determined by the court, and the companies will then to hand over their assets to the banks accordingly.

According to a schedule of the bank loans drawn up by the prime minister's father, Mian Mohammad Sharif, on October 15, 1990, Ittefaq Group's bank loans stood at Rs 5.679 billion. The defaulters' list issued by the Election Commission of Pakistan on December 1, 1996, put the total bank default of the Group at Rs 4.116 billion.

However, the surveyors appointed by the LHC have estimated the value of the surrendered units at Rs 1.802 billion while those of the stores etc has been assessed at Rs 0.532 billion, thus making a total of Rs 2.334 billion. The 'Valuation Survey Report' prepared by the Karachi based G.B Potts & Company and held by TFT states: "An agreement between Messers GB Potts and Co (Pvt) Ltd, Karachi, and a Committee appointed by the Lahore High Court comprising three members, namely Mr Abdul Qadeer Khawaja (Chartered Accountant), Mr Javed M. Dar (Regional Chief Executive NBP), Lahore, and Ch Sadiq Hussain (Advocate) Lahore, was signed on 8th Septmber 1998 to carry out the valuation of assets of the following four companies as described in terms of reference of the agreement.

"MS Ittefaq Founbdries (Pvt) Ltd., Kot Lakh Pat [Lahore], MS Ittefaq Brothers (Pvt) Ltd., Shahdara [Lahore], MS Brother Steel Mills Ltd., Kot Lakh Pat [Lahore] and MS Ilyas Enterprises, Bund Road [Lahore].

"The three-member committee also appointed a two-member coordination committee to monitor the progress of [the] valuation process and to provide liaison and coordination between Messers GB Potts (Pvt) Ltd and the above units.

"The GB Potts (Pvt) Ltd constituted teams of senior civil and mechanical engineers with vast experience and expertise for the above assignment. Due to provision of incomplete data by the clients, a physical survey of all the four companies was carried out under five heads i.e. Land, Civil Works, Steel Structures, Plant and Machinery and Electrical Installations. Drawings of all civil works and steel structures have been freshly prepared. All data collected by engineerssurveyors was checked by [the] project incharge and re-checked by the coordinating engineer. Separate survey sheets have been prepared for each company and are placed at appendices.

"The present value of each company was determined on following basis: The value of land is determined by making a survey of local market in the one-kilometer radius around each company. Since we did not get [the] official layout plan (registry) hence our measurements are as they exist today within the boundary walls. We have not included the cost of land of Ilyas Enterprises because Mr A.Q Khawaja told us that it is not owned by the company. The value of civil work is determined according to [the] type of structures, covered area etc. [The] value of steel structure[s] was determined by calculating their weights. The value of plant and machinery was determined by getting information on [the] internet, by visiting second hand machinery markets, consulting machinery market magazines and by inquiring from Manufacturers of [the] machinery."

The report then lays down the constraints against which values have been worked out: "The purchase price and [the] year of purchase of each equipmentmachine was not available. The specification of machinery and equipment was not available and the fact that the machinery being considerably old is no more in production line and most manufacturers were not traceable or were unable to provide [the] price of the required [machine] models."

The Potts' report then puts down the present values compiled from the enclosed survey sheets of each company are as under:

 MS Ittefaq Foundries (Pvt) Ltd. (Rs 1,296,150,744.00)

 MS Ittefaq Brothers (Pvt) Ltd. (Rs 144,626,215.00)

 MS Brothers Steel (Pvt Ltd. (Rs 306,203,881.00)

 MS Ilyas Enterprises (Pvt) Ltd. (Rs 48,047,214.00)

Grand Total --------- (Rs 1,795,028,054.00)

Working under various constraints, the report says, the valuation is considered nearest to the real value of assets of the four companies worked out by adopting best possible procedure and expertise. "In our opinion, all valuable assets of the four companies have been taken into consideration in the above mentioned values".

The preliminary report by GB & Potts says that of the 33 units surrendered by the ruling Sharifs, just three are operative while the rest have already been closed down. Ittefaq Foundries (Pvt) Ltd., Brothers Steel (Pvt) Ltd., Ittefaq Brothers (Pvt) Ltd., and Ilyas Enterprises (Pvt) Ltd., collectively comprise 33 units. The first interim valuation report [dated: 8-9-98] of the four defaulting industrial units, prepared by G.B Potts, says that 18 of the 19 units installed at the Ittefaq Group of Companies, three of the four units installed at Ilyas Enterprises, six of the seven units at Ittefaq Brothers and all three units installed at Brothers Steel, are non-operative. Only the Fabrication Machine Shop, the Fabrication Shop and the Oxygen Plant are barely functional.

This fact came to light in a report of the LHC committee's sixth meeting September 3, 1998, titled 'Present Position of the Factories'. The meeting was attended by all the three committee members.

Meanwhile, the three-member committee has pleaded to the LHC that the Ittefaq Group of Companies be directed to immediately deliver the assetsproperties of its companies in accordance with the court orders passed on July 8, 1998. The committee has also requested the court to instruct the management of the companies in question to refrain from removing any moveableimmovable assets, or taking any action that may have an adverse effect on the properties.

Ittefaq Foundries, which borrowed bank loans of Rs 1,972,770,948, faces a loan default of Rs 1,148,841,000. Ilyas Enterprises, Ittefaq Brothers and Brothers Steel had borrowed loans of Rs 165,484,088, Rs 354,154,192 and Rs 226,993,546, respectively. Additionally, Brothers Steel and Ittefaq Brothers have defaulted on Rs 97,852,000 and Rs 909,386,000, respectively.

A major difficulty the committee is likely to face is how to determine the Sharif family's share of bank loans. The Ittefaq empire, comprising seven brothers and their respective families, has more than 100 shareholders, who have been at loggerheads with each other since October 1990 when the grand patriarch, Mian Mohammad Sharif, allegedly announced a unilateral settlement of the Ittefaq Group assets [by drawing up a schedule of Group's assets and liabilities] that was simply rejected by the families of Mian Mohammad Bashir and Mian Mohammad Barkat, two of the seven Mian brothers.

Mian Aslam Bashir, the eldest son of Mian Bashir, accused his uncle Mian Sharif of undervaluing the properties that he wanted to keep for himself, while overvaluing those he was willing to hand over. By that time, Nawaz Sharif had become prime minister and Mian Aslam Bashir now publicly voiced his fear that his uncle might use his son's position to coerce the family into an unfair settlement.

Disregarding the reservations of his elder brothers, Mian Sharif, who was the financial head of the family, continued to pursue a settlement on the basis of the October 15 [1990] schedule. Almost a year later, on September 25, 1991, Mian Sharif managed to convince four of his six brothers to accept the schedule.

A memorandum of understanding was then signed between five parties -- Mian Sharif, Mian Aziz, Mian Meraj, Mian Siraj and Mian Shafi. Each of the family was to receive cash or assets worth Rs 283.792 million. But the families of Mian Barkat and Mian Bashir rejected the settlement and dispute it to this day. A formal settlement between the warring Mian brothers has yet to be reached. Various suits of recovery filed by commercial banks and other financial institutions against the defaulting Ittefaq Group have been stayed by the courts, since no decision can be taken till the division of assets is finalised. There does not seem to be any hope of this happening in the immediate future.

Interestingly enough, while the surveyors appointed by LHC, have estimated the value of the surrendered Ittefaq units' fixed assets at Rs 1.802 billion, the schedule drawn up on October 15, 1990, by Mian Sharif, puts the combined value of the fixed assets of the four units at Rs 875 million. According to this schedule, the extended Ittefaq family's total liability stood at Rs 5.679 billion as of October 15, 1990.

With this background in mind, the counsel [Salman Akram Raja] for the eight creditor banks recently informed the company and banking judge of the LHC that the banks would not be able to recover the loans from the four companies in question unless legal formalities for handing over the Ittefaq properties are completed. Even otherwise, if the four Group concerns are sold out for Rs 2.334 billion, as per the G.B Potts & Company's assessment to clear the outstanding bank loans, Rs 3.345 billion in bank defaults still remain outstanding.

However, when contacted for comments, a top executive of the Ittefaq Group claimed that the properties handed over by Prime Minister Nawaz Sharif to the creditor banks against his defaulted loans were more than enough to meet his family's liabilities, which were "not more than Rs 2.5 billion". Asked why the PM had surrendered his highly overvalued defaulted companies to retire his bank loans instead of paying in cash, the executive said that the companies were neither overvalued nor defaulted ones. "They still have a lot of potential and can be run successfully even today". That's why, he added, "the PM has given the creditor banks crate blanche".