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FOREIGN INTEREST WEAKENS OVER POLITICAL UNEASE, CURRENCY DEPRECIATION

Political uncertainty raised further after the departure of Mian Nawaz Sharif. The benchmark index of Pakistan Stock Exchange posted 4.8%WoW for the week ended at 43,078 points. Average daily trading volume declined by 3.38% WoW to 183.5 million shares. The volume leaders: were ANL, ASL, TRG, BOP and KEL. Other key news impacting the market included: 1) Nawaz Sharif’s counsel filing review petition against Panama leaks case verdict, 2) NAB sending letter to Saudi authorities requesting details of the Azizia Steel Mills, 3) total foreign exchange reserves falling consecutively fifth week to US$19.948 billion during the week ended 11th August, 4) country’s service exports rising 1.76%YoY to US$5.5 billion in FY17 and 5) net FDI for July were reported at US$222 million. Performance wise, scrips losing the most during the week were: ASTL, PSMC, EFOODS, CHCC and GWLC, among the commercial banks only NBP managed to end the week in green territory.

Foreign interest continued to diminish amidst rising concerns over currency depreciation and political uncertainty. Net outflows during the week were reported at US$2.04 million as compared to US$31.16 million a week ago. The market is likely to witness the bearish trend in the days to come due to the prevailing political uncertainty. Result season has also failed to provide any impetus. Globally, Trump administration is scheduled to review Pak‐Afghan policy, any change in the policy can potentially result in restricting foreign aid, putting further pressure on the external sector.

There has been a persistent decline in foreign reserves of Pakistan, which is not a good omen. Experts express their apprehensions that Pakistan may soon become ineligible for financial assistance from one of the two main arms of the World Bank Group – the International Bank for Reconstruction and Development (IBRD), as the country’s official foreign currency reserves are rapidly depleting. One of the key conditions for qualifying for IBRD loans is that the loan-seeking country should have official foreign currency reserves equivalent to three month’s import bill. Pakistan was touching that border line as its reserves were reported at US$14,310.5 million. Net foreign reserves held by commercial banks were reported US$5,631.3 million. Total liquid foreign exchange reserves held by Pakistan were reported at US$19,941.8 million on 11th August 2017. During the week under review reserves held by SBP decreased by US$88 million.

The first unit of Neelum-Jhelum Hydropower Project (NJHPP) and Tarbela-IV Extension would start generating 2,379MW power during the next year. According to a news item, journalists were informed that with a power generation capacity of 969 megawatts, the first unit of NJHPP would start operation in February 2018, second in March and the third and fourth units would be ready for inauguration in April 2018. Similarly, for 1410MW Tarbela-IV Extension, the first unit would be ready for power generation by February 2018, second by April 2018 and the third unit by May 2018.

HUBC reported 4QFY17 earnings of Rs3.06 billion (EPS: Rs2.65) taking FY17 profit attributable to holding company to Rs10.7 billion (EPS: Rs9.24), down 10%YoY. Faced with higher non-pass through O&M costs, continued rise in general and administration expense up by 8.2%YoY and Other Income going down by 6.4%YoY during the year. While the result was in-line with market expectations, the Company beat payout expectations by announcing dividend per share of Rs2.50, taking full year pay out to Rs7.5/share. The payout ratio came to 81.2% this year as compared to 106.9% last year. This also highlights the dire liquidity situation prevailing due to the expansion.

Maple Leaf Cement (MLCF) plans to raise around Rs4.3 billion through issue of right shares to partially finance its additional dry process clinker production line being set up at a cost of Rs23 billion. The company will issue a total of 65.966 million shares in the ratio of 12.5 shares for every 100 shares held at a price of Rs65/share. As of August 15, 2017, the company’s share was traded at Rs94. To meet the increasing demand for cement and maintain its share in the growing market, the Board of Directors decided to set up an additional dry process clinker production line of 7,300 tons per day to enhance the grey cement capacity up to 18,000 tons per day at the existing plant site. The total project cost is estimated at Rs23 billion, which is expected to commence trial production in the first half of year 2019. Funds are required to partially finance the expansion project through shareholders’ equity, whereas the rest of the project cost will be met through borrowing and internal cash generation. The funds from 12.50 percent right shares will contribute towards the completion of the expansion project, whereas the overall revenue will increase considerably due to the increase in profitability of the company.

The State Bank of Pakistan (SBP) has asked authorized dealers (banks) to start processing applications for sugar exports. The SBP issued a circular on August 11, 2017 stating that the process will begin as per the instruction given by the Ministry of Commerce on July 2 for the export of 300,000 tonnes of sugar. The mills are not satisfied with the limit of 300,000 tonnes set by the Economic Coordination Committee of the cabinet. They claim there is a glut-like situation in the domestic market. They demand that the limit on the export volume of sugar should be enhanced. Sugar prices recently increased in the domestic market as some parts of the country suffered shortages of the commodity. The SBP advised the authorized dealers to forward the requests of sugar mills to the director of the central bank`s Foreign Exchange Operations Department (FEOD) for approval. Sugar exporters will have to provide irrevocable letters of credit or advance payment voucher, swift message and reporting schedule or credit advice.

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