CFS A BAILOUT PACKAGE FROM PM SHAUKAT AZIZ

The new directives of the Prime Minister offers great relief and support even to the weaker players and share holders

By AMANULLAH BASHAR
Sep 05 - 11, 2005

Prime Minister Shaukat Aziz, while in Hong Kong which is usually known as the house of international brokerage houses, took a serious note of the remarks over what it was described as the depressed looking stock market and sending a negative signal of the state of economy in Pakistan.

The Prime Minister expressed his serious concern over unabated decline during his visit to Hong Kong and issued immediate directives for introduction of the new mechanism of financing in place of Badla and margin financing.

Though the new system was still in the making and being conceived properly by the IT experts to put it in the form of a software, yet the immediate result of the system was that it bailed out the market of the financial constraints, the major factor for the decline.

The market players, however, say that more or less it is an improved form of Badla system which also gives a face saving to the authorities responsible for phasing out of Badla or COT system.

It is, however, being hothe g system titled as CFS would bring back the lost image of the stock market in Pakistan. The capital market, it may be recalled was rated as one of the fastest growing capital markets in the world till the Tsunami-like jolts played havoc in March last.

In order to restore the decay at the stock market, PM Aziz approved a new set of directives for the stock exchanges to introduce Continuous Funding System (CFS) to replace Badla financing from August 22 and an amendment in the Future Rules Act, whereby, setting ground for the introduction of futures of 60, 90 and 120 days period.

A quick look at the following table gives a real picture of the effectiveness of the new financial regime introduced on the directives of the PM:

DATE

KSE-
INDEX

MARKET CAPT. ('000)

FUTURE TURNOVER
('000)

CFS: TOTAL QUANTITY*

CFS: TOTAL VALUE*

CFS: TURN-
OVER*

22-Aug-05

7590

2036566207

91832

165,401,300

16,390,672,345

87,102,700

23-Aug-05

7558

2016738339

110838

184,495,000

18,614,833,605

99,993,600

24-Aug-05

7512

2022804997

83325

208,772,800

20,507,000,865

77,277,200

25-Aug-05

7554

2024166245

81330

218,488,800

22,098,858,735

79,174,700

26-Aug-05

7586

1999929909

92678

230,362,400

22,489,769,655

89,786,400

29-Aug-05

7691

2095031675

76979

242,532,700

23,768,880,470

83,780,300

30-Aug-05

7744

2100967986

94695

249,159,500

24,201,611,715

93,247,300

31-Aug-05

7797

2110134517

95406

257,530,000

24,517,701,710

103,942,800

1-Sep-05

7769

2083443008

68538

254,620,700

24,528,316,985

91,125,300

2-Sep-05

7790

2061759332

100220

251,410,800

24,973,726,060

83,534,300

*For BOP, DGKC, FCCL, FFBL, HUBC, MCB, NBP, OGDC, POL, PPL, PPTA, PSO, PTC, SNGP

The immediate impact of the scheme of things was reflected in an impressive gain of 278 points by the KSE-100 Index on the very first day of introduction of the new mechanism on August 22. The Index level on that day was 7590 points. On the first day of the introduction of the new system the market started with an extremely positive note enabling a number of scrips opening near their upper circuit levels.

The impatient bulls were ecstatic, as the replacement of COT with CFS had created a win-win situation for all the parties, said a leading broker. The euphoria was witnessed across-the-board as 80% of the scrips that were traded on the day closed in the positive zone.

On that particular day, the energy stocks in the lead of index heavy weight OGDCL performed superbly on the back of the buoyant outlook of international crude oil prices. Banking, fertilizer, cement, telecom and other sectors also depicted notable strides. PPL, POL, FFBL, D.G. Khan Cement, BoP, Fauji Cement and SNGP closed limit up. Telecom giant PTCL posted an increase of 4.2% with volumes at 95m shares. Trading volumes also remarkably surged to 419million shares. The positive momentum, except a few trading sessions, when the correction was naturally due, the market continued to regain its lost strength though comparatively in a steady manner.

The CFS' immediate impact on the market was to take it out of the liquidity crunch, which was being described the root cause for fast erosion in volume of trades.

The new system which allows a maximum amount of CFS currently capped at Rs25billion is expected to further enhance in the days to come. Currently it is available in the 14 top volume stocks. The new directives of the Prime Minister offers great relief and support even to the weaker players and share holders and provides a leeway to them to take fresh positions.

So far, the results showed by the bourses in Pakistan indicates that the remedial measures, though taken considerably late, however it is never too late than never as they have started proving a right step to improve the liquidity of the stock market and reset the capital market of Pakistan on the primary task of capital formation.

On September 2, the last trading session before filing this report, the KSE-100 Index continued to march on the patch of recovery at the level 7789 points. The market players were pinning strong hopes that the Index will regain the mark of 8000 level much before the end of September.

However, an improved picture of the stock market is being painted on the back of declaration of the half early financial results of corporate sector.

The CFS requires that the stockbroker availing this opportunity has to place the security in the Central Depository System (CDS) separately and those securities cannot be pledged and deposited further with KSE. Those brokers who were providing badla and were using the same shares for exposures will need to look for their required returns as they will not be able to use shares for exposure.

New Companies approved under the CFS domain include, Pakistan Petroleum Ltd (PPL), Muslim Commercial Bank Ltd (MCB), Fauji Fertilizer Bin Qasim Ltd (FFBL), Fauji Cement Company Ltd (FCCL), Bank of Punjab (BoP), Pakistan PTA Ltd (PPTA) and Sui Northern Gas Pipelines Ltd (SNGPL).