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Cover Story

An interview with Inam Ellahi Shaikh and Humayun Zafar Choudhary

Feb 28 - Mar 05, 2000

Pak Gulf Leasing Company Limited (PGL) was incorporated in December 1994 and commenced business on September 15, 1996. It started operations at a time when the country was facing recessionary trend. However, it has been able to post modest profit over the years. This was due to vision of the management and the able guidance of Inam Ellahi Sheikh — who was chairman of the Board of Directors till February 7, 2000. PGL has paid 9.5 per cent dividend for the year ending June 30, 1999, whereas it had paid 10 per cent dividend for the previous year. PGL has a paid-up capital of Rs 100 million and share holding of foreign investors is over 23 per cent.

Humayun Zafar Choudhary is the senior manager, credit and marketing as well the company secretary. He has been associated with the leasing sector since 1991 and working for PGL since January 1, 1998. Choudhary was born in 1953 and completed his B.Com in 1973. He has qualified Part-IV of the Institute of Cost and Management Accountants and has also done foundation course in accounting from Middlesex, UK in 1987. He is also enrolled for doctorate programme in banking and finance with College of Business Management.

"Although the year 1998-99 was a rather tough period, both for the economy and leasing sector, PGL was able to improve its rental income to about Rs 21 million as compared to the income of Rs 19 million posted for the previous year. We were able to improve the profit before tax by Rs 2 million mainly due to stringent cost controls. We preferred to conclude lease transactions at slim margins due to intense competition but at no stage compromised at quality of lessees. However, a diversified portfolio and risk evaluation helped PGL in maintaining strong cash flow", said Choudhary.

Taking the advantage of the presence of Inam Ellahi Shaikh, this correspondent asked him to review the performance of the leasing sector during the year 1998-99. According to Shaikh Sahib, "It is heartening to note that 29 companies, out of 33 companies, posted profit for the year. The other companies which posted loss have been facing a difficult situation for a number of years. It may not be correct to say that they incurred loss only because 1998-99 was a difficult year. However, a point to be noted is that the declining interest rates will bring down the financial cost of most of the companies. At the same time, it is a matter of concern that interest rates charged by the leasing companies have come down sharply as compared to the declining cost of funds due to severe competition."

Shaikh sahib lauded the policies of the present government which are directed towards improving the economy and also appreciated the efforts for cleaning of canals for improving agricultural production. He suggested that efforts should be made to present correct statistical figures of production of crops as plans to achieve self-sufficient and meeting needs of public is dependent on these figures. He also suggested to get rid of the foreign aid to stand on our feet, even if we have to face difficulties but this is acceptable for better future.

The other point to be noted is that despite reduction in average interest rates, profitability of the leasing companies was not impaired in any significant manner. This was mainly due to strict cost controls by the companies and rigorous recovery campaign. Although, the lessees faced declining ability to discharge their financial obligations, the stringent risk evaluation paid-off. Despite a difficult time, lessees made their best efforts to remain current on rental payments, Sheikh Sahib added.

PGL attempts to control credit risk by monitoring credit exposure, limiting transactions with specific counterparts and continuously assessing the credit worthiness of counterparts. The Company follows two sets of guide lines. Internally, it has its own operating policy, whereas externally it adheres to the regulatory framework. Leases are also classified on the basis of rules for non-banking financial institutions.

The Securities and Exchange Commission of Pakistan (SECP) had fixed a deadline for the leasing companies to enhance their paid-up capital to Rs 200 million by end November 1999. According to Sheikh Sahib as well as Choudhary, a large number of leasing companies were not able to comply with the instructions. However, they said, "The country has been facing recessionary trend and conditions were not conducive for raising capital through rights issue. Even bonus shares could not be issued due to limited reserves. However, these companies have requested SECP to extend the deadline for another 3 years. There are signs of economic turnaround, restoration of investors' confidence in capital market. This confidence is exhibited by active participation of retail investors. This makes us optimistic that smaller leasing companies will be able to raise capital by issuing rights and bonus shares. However, one cannot rule out mergers and acquisitions completely."