Tuesday Jan 24, 2023
KARACHI: The CEO of HBG Investment — whose project Shaukat Khanum Memorial Trust (SKMT) had invested $3 million in 2008 — is also a trustee of the SKMT, The News reported Tuesday.
This was revealed in the SKMT's records shared online. It also said that the project essentially got a seven-year interest-free loan from Shaukat Khanum.
In a Twitter thread shared on Monday, former president of the Sindh High Court Bar Association Barrister Salahuddin Ahmed broke down the details of the investment, raising some questions regarding the role of the trustee and the prudence of such an investment.
Ahmed said that the Trust invested $3 million in a “real-estate project in Oman in 2008 and exited [the] investment in 2015 after seven years only getting [its] original $3 million back. Bad investment? Sure. But is it bad faith?”
Saying that what intrigued him was the reason SKMT invested in Omani real estate in the first place — given its speculative nature — Ahmed tweeted that “charitable endowments are not private equity firms. Their investments are usually (and should be) held in safe government bonds and bonds/shares of blue-chip companies and not speculative real-estate projects”. To understand the reason, Ahmed says that the Trust’s statements shed some light: “A [company] called Sugarland launched a real-estate project in Oman. Sugarland, in turn, was owned by HBG Investment based in Dubai along with an Arab partner who contributed the land for the project. SKMT decided to invest $3 million in the project”.
According to the details Ahmed went through, he said SKMT did this “by buying all the Class B (non-voting) shares of Cinnabar (a British Virgin Islands company owned by HBG). So while SKMT shared in risk/reward of any investments of Cinnabar, it would not have any voting rights/control over Cinnabar which would stay with HBG”.
There is, however, limited information on the exact arrangement between SKMT, HBG and Cinnabar — since Cinnabar is in the British Virgin Islands. Ahmed explains though that “to be fair, such arrangements/investments are not uncommon among private equity funds investing money of millionaires ready to take high risks for high returns”. However, he asked: “But for a Pakistani charity to invest thus in Omani real estate in 2008 during a global financial crisis?”
Per the records being referred to by Ahmed, “the total value of land in [the] project collapsed from $28 million to only $10 million. We don’t know if this was due to [the] global crisis or because the land was overvalued in [the] first place. But in any case, [the] project became unviable”.
“In 2012 SKMT told HBG it wanted to pull out. HBG promised to find [a] buyer for SKMT’s share. Finally in 2015 HBG bought out SKMT for the same $3 million it [had] paid back in 2008," he added.
Concluding the investment trail, Ahmed said that the Omani project basically “got a seven-year interest-free $3 million loan from SKMT”.
He then took on the question of whether this could be a case of conflict of interest, saying “globally, for charities to invest in specific real estate is unusual. If they want a property portfolio, they buy a diversified REIT."
“But turns out ‘[the] CEO of HBG (Imtiaz Hydari) was also a SKMT Trustee. SKMT also made its investment through HBG (we don’t know if/what fees were paid). So clear conflict of interest? Well, I’m sure he did [the] polite corporate thing of shaking everyone’s hand and leaving the room before the vote. But while I don’t mean to impugn integrity of anyone on SKMT’s board, there do seem to be lapses of prudence/propriety requiring enquiry," he added.
The revelations regarding the investment of funds of the Shaukat Khanum Memorial Trust in a private housing project had come during the hearing of an Rs10 billion defamation case filed by Imran Khan against Defence Minister Khawaja Asif.
During his testimony, the former prime minister had admitted to investing the funds in the project, saying that the SKMT board had told him about the investment and that $3 million were deposited back by the board members and the matter had since ended.
After the media reported the SKMT investment, the trust had issued a clarification saying that it was common for charity organisations to create an endowment fund. According to SKMT, “the endowment fund is supervised by an investment committee, with all investments made by the fund upon the recommendations of this committee. The chairman does not, and has never, made investment decisions in isolation.”
SKMT’s statement also says that full records of all donations are maintained and audited by independent third parties to ensure compliance with all applicable regulations, not only within Pakistan, but in all jurisdictions where funds are collected on behalf of the SKMT, or with the aim of supporting it.
The Trust, however, failed to mention that the CEO of HBG was an SKMT trustee. On Sunday, the management of SKMT clarified its funds have never been misused or “diverted”, for any reason, by its chairman, Imran Khan, or by any other individual or entity.
The SKMT spokesperson stated all its funds, including those invested in its endowment fund, are used only to support its mission, namely the provision of world-class care to cancer patients.