CAN FAISALABAD HOUSE A STOCK EXCHANGE?
It is a good site, recommends a 3-member committee constituted by CLA
Nov 16 - 22, 1996
With a population of 2.8 million, Faisalabad is the third largest city of Pakistan. It has the biggest yarn market in Asia and is the largest cotton fabric export center. Contribution of Faisalabad to the total cotton fabrics exports from Pakistan stood at more than 70 per cent during 199495. Export earnings through Faisalabad Dry Port, which was established on persistent demand of the local industrial groups, during the year 199495 were to the tune of Rs 11.255 billion. The establishment of stock exchange will help the government's existing policy of extending taxation, capital and industrial base as huge resources will be tapped and channeled for productive purposes instead of being diverted into speculative and unproductive activities.
Pattern of industrial growth
Faisalabad has the largest concentration of textile industry with 31 textile spinning mills and 1,50,000 cotton looms and 2500 silk looms in the unorganized sector. Similarly, it has 27 units of yarn sizing. Presently, the number of domestic and foreign financial institutions operating stands at 72, out of which 43 financial institutions have their regional offices in Faisalabad. Also, 44 listed and 55 unlisted companies have their large sized industrial units located in Faisalabad area.
In spite of spectacular growth of trade and industry, the need for a stock exchange is strongly felt to give further boost to the trade and industry to further flourish. According to regional heads of the foreign banks "there are lots of untapped resources in the local market, people are investment-minded and the stock exchange would be very successful in the shortest possible time." With the establishment of a stock exchange, the local capital market will develop and attract investment from the areas of Faisalabad, Sargodha, Jhang, Sahiwal and other surrounding small cities.
The business community of Faisalabad has had no exposure to modern business techniques, except for a few leading industrial groups. Lack of awareness and knowledge, and apprehensions about the procedure for going public and enlistment at the existing stock exchanges is a major inhibiting factor in their development. As such, most of the companies are still private limited companies in spite of having great potential for modernisation by public floatation. Most of the leading industrial groups have had to shift their corporate offices to either Lahore or Karachi and one of the major reasons for the same is nonexistence of a stock exchange at Faisalabad.
A number of industries are located in and around Faisalabad but the masses of the area do not have/share ownership in these industrial undertakings for the reason that members of Karachi, Lahore and Islamabad stock exchanges have not provided sufficient facilities to local people to buy/sell shares of these companies.
Then there is the problem of raising finances. The major reason why large enterprises are unable to raise finances within the country and rely mostly on foreign investment is that there is no institution to channel the investable funds locally available for productive purposes. It is a proven fact that opening of new stock exchanges in various cities would create awareness amongst the residents of these areas about equity investment, which is the most productive channel of investment encouraging shifting of funds from commodity and real estate trading to equity investment.
Majority of the industrial groups do not have exposure to the requirements for enlistment on a stock exchange. Psychological barrier could be another factor inhibiting listing on the exchange for Faisalabadbased industries. Local industrial groups would naturally feel much more secure and confident while going for enlistment at the proposed Faisalabad Stock Exchange. According to the sources in the CLA, accredited agents of the Members of LSE, whose number is around 10, report daily transactions of around 200,000 shares. In addition, some investors are directly investing with the stock exchanges.
CLA view point
The Corporate Law Authority constituted a threemember committee to see whether Faisalabad had good prospects for a stock exchange. "The Committee, after having considered all aspects, is of the view that Faisalabad appears to be a suitable site for establishment of a stock exchange in future, which would definitely prove instrumental in channeling the vast resources of the city into productive use," an official of the CLA told PAGE. However, a stringent criterion for selection of sponsors/members of the stock exchange will have to be laid so that only those persons who have the requisite educational background and enough resources are accommodated and the bitter experience of other stock exchanges is not repeated. Even the hypothesis of representation of existing experienced members of other stock exchanges viz., KSE, LSE did not prove beneficial for ISE, as majority of such members (except a few) have refrained from establishing their offices and commencing their operations to-date. Therefore, the conditions in case of a new stock exchange have to be drawn anew. Keeping in view the experience of ISE, the lapses observed in the functioning of ISE would be helpful in identifying areas where strict conditions have to be enforced. In its recommendations, the Committee has proposed that a stock exchange with a membership of 100 persons may be considered for establishment at Faisalabad.