The extraordinary TRG EGM saga

Zia Chishti went quietly as the EGM spelled a shakeup for TRG

By Ariba Shahid

By all accounts this was an extraordinary board meeting. Hardly anything about it was routine. On Tuesday, January 11 shareholders of TRG Pakistan voted themselves a new board of directors and avoided what only a day earlier looked like a bruising fight. The pot of gold at the end of that rainbow was $120 million held in cash by TRGs holding company, TRG International, incorporated in Bermuda, in which its Pakistani affiliate owns 46 percent shares. TRG International owned three other companies, one of which it sold for $600 million back in July 2021, of which TRG Pakistan’s share was $120 million. Another company, Ibex Ltd, a massive company with almost 30,000 employees worldwide that provides business outsourcing services such as customer support, was listed on the Nasdaq back in August 2020 and its share price there has oscillated between $10 and $25. It currently trades around $15. The real prize, of course, is the third company called Afiniti, whose value has not yet been determined but knowledgeable sources tell Profit that it could be close to $2 billion given the company’s revenue growth. On December 10, 2021, TRG informed its shareholders that “that the TRGI Board has approved allocation of its liquid assets to its shareholders”, adding that their portion of these liquid assets”would be approximately USD 120 million” which would include around $10 million as deferred cash. In addition the liquid assets included 5.4 million shares, which at their current trading price would come to another $80 million or so. The next decision the TRG board had to take was simple. What were they going to do with this money? One option was to keep it with the parent holding company from where it could be invested in Afiniti, the up and coming star of the TRG bouquet, and used to increase the company’s total value in the long run. Another option would be to bring the money back to Pakistan and distribute it among the shareholders, an option that not many of the large shareholders were keen on given that much of the money would be lost in taxes and would do little to increase the company’s assets it distributed out. A third option was to use some of the funds to undertake a share buy back in Pakistan, consolidate the companies scattered shareholding, while using the rest for reinvestment in other TRG ventures abroad. Until recently Zia Chishti himself would have been a key player in choosing between these options. But the force of the scandal he was hit by meant people no longer wanted him associated with any of the companies he had founded. He stepped down from all of his roles in Ibex on November 18, two days after the damning testimony given by Tatiana Spottiswoode detailing sexual assault against her by Chishty. Ten days later he stepped down as CEO and Board member of TRG Pakistan, and a couple of weeks later stepped down from TRG International as well. But on January 4,

2022, as the latest board election approached, his partners, associates, shareholders and investors were jolted to learn that he had included his name along with that of his mother and two associates in the list of people offering themselves as directors to be elected. Alarm bells rang around the TRG investing community. Had he had a change of heart? Was gearing up for a fight to regain his place in the company he had founded?

“Disgraced Afiniti founder Zia Chishti plots comeback weeks after quitting over harassment claims” screamed a headline in the Telegraph published the next day. The company’s stock plummeted from a high of Rs123 on Jan 4 to Rs 99 by Jan 10, losing almost 20 percent of its value on the eve of the EOGM where investors feared a messy board battle was about to get underway. Activist investors mobilized during these days, and reports circulated in investor circles saying the $32 million foreign inflow into equities in the month of January was actually money coming from TRGs parent company to help shore up its stock price. A battle of the proxies ensued after Chishti revealed his hand and announced his intention to run in the Board elections as a director.

His mother – Sadia Chishti, half-brother – George Lear, two long time associates – Jose Ignacio Guerra Holguin and Ioannis Demetriades, and himself were among the 26 contestants up for election. This showed that he indeed was plotting to rejoin. Chishti, had, however, given his proxy to his legal counsel, Mahmud Farooq through his 86.8 million shares, retaining 3 million under his own name.

Other shareholders moved to form blocs of their own to bring as many of the free float shareholders under their umbrella as they could to forestall his ambition, while those still on speaking terms with the disgraced founder urged him to stand down. All the makings of a boardroom coup were now in place. The prize was control of TRG Pakistan, along with its liquid assets of almost $200 million and shareholding in a company whose valuation could well come in ten times that amount whenever it is ready for monetization.

But on the day of the EOGM, a disheveled and defeated looking Chishti folded his hand without a fight. He sauntered into the meeting long after it began, wandered the hall briefly to exchange curt greetings with a few large shareholders, before walking up to the stage to sit and exchange some words with the company CEO, Hasnain Aslam. Above the two of them was the giant board projecting the video of those shareholders who had joined by video call.

When votes were counted, neither Chishti nor his associates were anywhere near the top ten on the list, which could only happen if Chishti instructed his proxy to vote for his rival’s camp. Chisthi was not in the room to hear

The new face of the company

The elected members of the companies board include Khaldoon Bin Latif, Farrukh Imdad, Hasnain Aslam, Waleed Tariq Saigol, John Leone, Patrick McGinnis, Zafar Iqbal Sobani, Abid Hussain, Asad Nasir, and Suleman Lalani. They will serve for a term of three years commencing January 14, 2022. What this means is that the company has nine independent directors, including three from JS group, namely Asad Nasir, Suleman Lalani, and Abid Hussain. Khuldoon bin Latif is the CEO at Faysal Funds, an asset management company owned by Faysal Bank. Farrukh Imdad is the group head at Hamdard Pakistan and Director General at Hamdard Foundation Pakistan. Waleed Tariq Saogol is currently the Chief Executive Officer and Director of Maple Leaf Capital Limited. Zafar Sobani, who got relected, was previously an independent director on the board.

Two directors, John Leone and Patrick McGinnis are from Pinebridge Investments, a New York based private, global asset manager focused on active, high conviction investing. Hasnain Aslam serves as the Chief Executive Officer at TRG Pakistan. He is also a founding parent and the Chief Investment Officer at TRG.

Did Chishti put up a fight?

As per sources, a day before the elections, Chishti was running the numbers and finding ways through which he could make a comeback. This comes just weeks after he was forced to quit. Despite all his plans, on the day of the EOGM, a defeated looking Chishti was found avoiding the meeting. He was mostly outside the auditorium.

He made a brief entrance to gauge whether he was getting backlash, and then returned for longer. The participants at the EOGM did not pay heed to him the way they had gushed over him in the past. He had lost his celebrity status. The people that had once called him “charismatic” ignored his presence. They did not want any attention drawn on him.

He then made his way up to the stage, a bold move, and spent some time on a calculator. And finally, as one can see in the pictures exclusively obtained by Profit Magazine, Chishti signed over his proxy to Pinebridge as per a contractual agreement. This is based on an agreement made 15 years ago.

However, although Chishti is not on the board himself, it is said that he may muster support from other investors including Ali Siddiqui, Pakistan’s former ambassador to the US, who sits on Afiniti’s advisory board. This, however, depends on how the new board gets along and the plans put forward.

Why is all this important?

In the past, when one was asked about TRG, the default answer would be that Zia Chisti was ‘charismatic’. So ‘charismatic’, that both the JS Group and AKD – traditional rivals- were bullish about TRG. The question “Why TRG?” was often answered with “It has Zia Chishti”. Following the news of the scandal, one member of the TRG Pakistan sales team said, “I dont know how things are going to be after this. Until this point, my boss told us TRG’s key selling point is Zia. I wonder what my pitch is going to be now.” This board election was important considering 85 per cent of the company’s shares are free float, giving activist investors a chance to launch a bid to acquire controlling stake on the board. While speaking to Profit, a newly elected board member on condition of anonymity said, “‘We want to work together with all directors, stakeholders and shareholders for the benefit of the company and create value’ EoGM was an important event but the process of maximizing shareholder wealth starts now.” Despite the fact that in the past Chishti was made to seem larger than the company itself, one could say that activist investors staging a coup to oust suggests that the investors now believe in the company and their abilities more than they once believed in Chishti. An activist investor is an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors. It is the equivalent of taking things in one’s own hands. The process is not all that simple. In order to effectively do this, one needs votes to get elected on the board. Some activist investors feel that winning a seat alone is not enough and having a majority on the board is important. Those present at the EOGM told Profit that a number of investors want the company’s image to be free from Chishti. “He is irrelevant now when it comes to the board and major decision making. He is no longer the face of the company. He is just another shareholder with a 15-20% holding. We don’t want the company associated with him after what has happened,” said one investor referring to the sexual abuse scandal that Chishti is mired in. Another said, “It would be best if pictures of Chishti at the AGM don’t make rounds online. That is how bad we want to remove him from the TRG narrative. After what he’s allegedly done, why would any individual

Zia Chishty at the EGM. He spent much time exchanging short greetings with some large investors, conferring with the company CEO Signing away his vote in favour of the directors from Pinebridge Investments

want to associate with him.”

ESG and its significance

“In the past, ESG has often been overlooked by investors and companies but this move will get more people thinking about it and will hopefully send out the right message,” said one of the newly elected directors. As an investor or a capitalist, most of your attention is leaned towards money and returns. However, ESG, Environmental, Social, and Corporate Governance is an evaluation of a firm’s collective conscientiousness for social and environmental factors, and is becoming increasingly more important in today’s day and age. As Pakistan is adapting and gradually making moves towards greater compliance and implementation, it becomes absolutely necessary if the company has big foreign clients. Low ESG ratings or perception could result in a loss of contracts and customers in the long run and a deteriorating global perception. So in essence, Zia not being on the board is better for the business and for shareholders especially when it comes to image, reputation and brand equity for TRG Pakistan.

How did the market respond?

On the day of the EOGM, TRG shed its price for the first half of the day, however, in the second half the share price moved up with the company closing up 2.07 points or 1.90 per cent. The share opened at Rs110.11 and hit a high of Rs112.90, and a low of Rs106.25.

The next day, TRG opened at Rs 112.75, which shows investor confidence as the stock remained range bound for the larger part of the day and shed value near closing. The stock hit a high of Rs 113.5, and a low of Rs 107.55 intraday and closed at Rs 108.5, down 2.46%.

In the case of TRG, there were fears that the stock would tumble following Chishti not being appointed on the board in light of how he was made to be bigger than the actual company and seen as the driving force. The fact that the stock remained stable shows that the market also believes that there is more to the company and its potential than Chishti.

What really is TRG?

The company is the brainchild of Chisti, a Pakistani-American in every sense of that hyphenated label, born to an American father and Pakistani mother, who grew up in Pakistan but studied and worked in the US. After being ousted from his first billion dollar company, he decided to form TRG.

In 2002, TRG Pakistan was created, 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.

The ownership structure of TRG is somewhat complex: 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. Crucially, 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. This is a key point we will return to.

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.

In August 2020, this company completed its initial public offering on Nasdaq. At the time, its post money valuation was approximately $350 million, with the total amount raised in the IPO, prior to expenses, of approximately $90 million.

The crown jewel in TRG’s portfolio, however, is Afiniti, a company that develops artificial intelligence software that is designed to help companies improve the efficiency of their business processes, specifically their call center operations. TRG’s investment in Afiniti started in 2005 as a seed investment into a company that was developing a solution that TRG felt its portfolio companies would be able to use. Over time, it morphed into a business in its own right. n