May help developing a strong cottage industry base
in Pakistan
By SHAMIM A RIZVI
Islamabad
Aug 06 - 12 , 2001
The Chairman, Securities and Exchange Commission of
Pakistan (SECP) Mr. Khalid A. Mirza has said the first phase of
reforms in the capital market has been completed and a solid
foundation has been laid to ensure healthy growth of Capital Market in
a transparent manner. In the second phase which has already started,
the Commission is focusing its attention to play a developmental role
besides monitoring the implementation of the reforms carried out in
the first phase and its consolidation.
The Chairman, SECP who was talking to this
correspondent in his office in Islamabad last week, felt satisfied
that the reforms carried out in first phase has been noticed both
within and outside the country. Within the country, as a result of
these measures, public confidence in the stock market has been
restored to a large extent. There has been a marked increase last year
in the number of companies declaring and paying dividends as compared
with the position about two three years back. During last year, more
than three hundred companies out of 780 listed with Karachi Stock
Exchange declared dividend and paid an amount of over 33 billion to
shareholders.
The fact that the capital market in Pakistan today
conforms to 30 international standards as prescribed by the
International Organization of Securities Commissions (IOSCO) was
acknowledged internationally. In its recent meeting, at Stockholm,
IOSCO, in recognition of Pakistan's achievements in this field has
honoured Pakistan to play host the International Conference on
Emerging Markets in November this year.
Mr. Khalid Mirza represented Pakistan at the annual
meeting of IOSCO in Stockholm where other strong contenders were
Nigeria, South Korea, Poland and Egypt. India was also among the
contenders to hold this important international event, but it decided
to support Pakistan at the time of voting. According to the Chairman
SECP, Pakistan has been honoured to host this important conference
because of its improved image, mainly due to economic reforms of the
government and IMF's consent to release the third tranche of
adjustment loan. The successful Asia Pacific Regional Committee (APRC)
of IOSCO was held in October 2000 in Bhurban was also to the credit of
SEC.
"The participants went back with extremely
positive attitude towards business environment in Pakistan and
supported Pakistan to hold this major official international
event," he said and added that heads of securities regulators,
finance ministers and key economic policy makers from about 70
emerging markets would attend the conference at Lahore in November. He
was hoping that top securities regulators from selected OECD countries
will also participate.
He said that SECP has managed to implement 30
principles of IOSCO that conform to international standards of
securities market under the capital market reform programme of this
government in collaboration with the ADB. "Of these standards,
important steps include implementation of T+3 system of settlement,
independent management for stock exchange, and enhanced monitoring
capacity of the Securities regulator to provide maximum protection to
the investors," he added.
For the second phase of Capital Market Reforms in
Pakistan we have not waited for the time the ADB releases the second
programme loan," he said, adding that SECP has already launched
the further reform agenda with the beginning of this financial year.
He was anticipating the next loan from the ADB by
June 2002. "Much before that we would be working on many fronts
having segmental financial assistance from different donors." The
second phase of capital market reforms would be implemented quickly,
he maintained, with the establishment of National Clearing House and
Settlement System. "What we have already launched is increasing
the market depth by introducing the trade of futures and derivatives
parallel to further improvement in the risk management by the stock
exchanges." Enhancing the institutional capacity of the SEC as a
regulatory body is also part of the second phase of reforms which
would also regulate short selling. Audit would also be the focus of
this programme where international audit principles besides the
international company standards would be implemented, the Chairman
said.
Continuing Mr. Khalid Mirza said that the coming
year is of consolidation of reforms and to ensure smooth functioning
of the market under new framework. The Commission has planned several
developmental steps to improve market functioning and more importantly
to restore investors' confidence. We need to concentrate on
institutional strengthening of the Commission through induction of
quality staff and training existing team of managers to coordinate
under the changed management environment, where performance comes
first. The second phase of computerization will include nationwide
networking that would have significant impact on employees'
productivity, transparency, and client service. On the securities
market side, we plan to undertake in-depth studies on revival of
mutual funds sector, regulation of online trading, introduction of
derivatives, and development of a second-tier or OTC market. In
coordination with management of stock exchanges, we need to further
strengthen the risk management of stock exchanges. "I would like
to encourage stockbrokers to set-up electronic communication networks
(ECNs) to have a wider access to stock trading. I would also like to
encourage Pakistani companies to raise capital from international
stock exchanges and similarly we would welcome foreign companies to
get their securities listed on stock exchanges in Pakistan," he
added.
The SECP has taken more initiatives for the development of fixed
income securities and encourage the debt market. Since 1995 as many as
27 companies have raised finances through TFC to the extent of Rs.
12.765 billion. Out of these, a total of 12 companies has been given
permission during the current year to float TFCs for an amount of Rs.
7.875 billion, of these five companies have been given permission for
issue of TFCs worth Rs. 2.950 billion during the last week. These
companies includes the following, which are issuing TFCs for the
amount shown against their names:
|
S. # |
Name of Company |
Total Offer |
Green Shoe |
Total Offer |
| |
|
(Rs. in million) |
Option |
(With Green Shoe Option) |
|
1. |
First International Investment Bank (Ist tranche of total authorizedRs. 500
million) |
100.00 |
(100% of Public Offer) |
200.00 |
|
2. |
Gulistan Textile Mills Ltd. |
300.00 |
(100% of Public Offer) |
400.00 |
|
3. |
Dawood Leasing Co. Ltd. |
250.00 |
(100% of Public Offer) |
265.00 |
|
4. |
Packages Limited |
700.00 |
(100% of Public Offer) |
850.00 |
|
5. |
I.C.I (Pakistan) |
1,600.00 |
(100% of Public Offer) |
2,000.00 |
| |
TOTAL |
2,950.00 |
|
3,715.00 |
TFCs have a great potential of raising resources
not only for the private sector but also for the public sector
including the provincial and local governments/authorities within the
available framework. The potential is largely unexplored.
The Chairman SECP was asked two specific questions
which are reproduced below along with the answer in view of their
importance:
Q. Despite all these reforms the stock market
has not picked up. How you will explain the long continuing depressing
trends in the stock market?
Ans. The stock markets all over the world go
through various cycles and I am afraid, the market in Pakistan is
going through a bear trend at the moment. However, in my opinion, this
trend is temporary and should come to a halt soon. The Government has
put in place important economic reforms that are likely to have a
positive impact on industrial revival. At the capital market front,
SECP has implemented unprecedented structural reforms that would
ensure the transparency and efficiency of stock exchanges. With a
possible industrial revival, the capital market in Pakistan is ready
to regain investors' confidence. As I have mentioned before, the
continuous down turn in the market has a lot to do with general
sentiment of the investors that usually undermines market
fundamentals. I would like to assure you that our stock market would
start generating new capital soon. Already, over Rs. 4 billion have
been raised through TFCs during past few months.
Q. There is an allegation from some circles
that the SECP has rushed through its agenda without fully taking into
confidence the management and board of directors of the stock
exchanges that has adversely affected trading volume in the 3 stock
exchanges in the country. In this connection introduction of T+3 is
specially mentioned which according to these circles is the main cause
of decline in trading activities in the bourses. What are your views?
Ans. This allegation is absolutely baseless.
The Commission has not rushed through its reform agenda in any way.
All these measures including T+3 have been implemented after
consultation with the representatives of all the three stock exchanges
in the country. The timing and strategy of implementation was also
decided after due consultation. The Commission has been patient and
taken months in discussion and mutual consultation while keeping in
mind the practical difficulties likely to be faced by the brokers in
implementing any regulatory measures. This is not correct to say that
the introduction of T+3 system has caused a sharp decline in the
trading activity of KSE. The T+3 system, which provides for the
settlement of trading account (trading date+3 days) is presently
practiced in most stock markets in the World and is unanimously
proposed by the G-30 countries. As a matter of fact, countries like
Hong Kong and Bangladesh are moving a step further to T+1. it was
originally proposed in 1998 in Pakistan. Later on, the KSE proposed
implementation of T+3 on June 12,2000 as a remedial measure after the
stock market crisis of May 2000. T+3 finally implemented on pilot
basis with 2 scrips on April 30 and continuously adding more
companies. I hope all listed companies will be in T+3 system by the
end of this year.
|
