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APTMA complains that SECP did not consult it before finalizing the regulatory framework

May 06 -12, 2002

Strangely many corporates in Pakistan do not wish to be regulated, operate in a transparent manner and avoid even self-regulatory mechanism. This has resulted in poor development of capital market, minority shareholders not getting desired return on their investment and, on top of everything, sponsors of public limited companies thriving at the cost of all the other stakeholders. Since the corporates fail in evolving self-regulatory mechanism, often the regulators have to come up with unilateral regulations in the larger interest of protecting the interest of all the stakeholders of public limited companies.

Lately, the Securities and Exchange Commission of Pakistan (SECP) has come up with the Code of Corporate Governance. Though, it was adopted by the three stock exchanges operating in the country, it seems that the SECP is trying to delay its implementation. This impression has emerged due to a number of seminars and meetings arranged at the request of the SECP. It also seems that the Chairman of SECP is seeking an exit on the pretext that corporates wish to delay implementation of the Code.

The most vehement disapproval of the Code, so far, has come from All Pakistan Textile Mills Association (APTMA). A meeting of APTMA members was recently held with Khalid Mirza, Chairman, SECP, at Karachi. In his welcome address Nadeem Maqbool, Chairman, APTMA, requested that the implementation of the Code be deferred for at least six months for necessary consultation with the representatives of the industry.

Nadeem also emphasized, "Inspite of the most significant contribution of the textile industry, we regret to point out that SECP did not consult APTMA before finalizing its regulatory policies and procedures." He also pointed out, "Immediately after the draft of the Code was placed on the SECP's website on March 4, 2002, APTMA forwarded its critical comments and observations on major issues. We are also preparing a point-wise response to the Code which we hope will be studied by SECP and due consideration accorded to practical problems and issues which may arise due to its implementation."

Responding to the presentations of Chairman and members of APTMA, Chairman SECP apprised that the Code of Corporate Governance is very diluted and mild as compared to the Code already implemented in developed as well as other developing countries. Chairman, SECP was of the opinion that those companies which implement the Code as part of up-gradation of their management and system would be the ones that will prosper and attract investment in future."

According to an analyst, "Chairman, APTMA, boosted that listed textile companies have a representation of 44 per cent on the Karachi Stock Exchange, but most probably forgot to tell the number of textile companies on defaulters counter. He also forgot to tell the share of total paid-up capital and market capitalization of the listed textile companies.

The number of listed textile companies may be high but their share in the total listed capital is certainly not really high."

According to the annual report of Karachi Stock Exchange for the year 2001, out of 749 listed companies, 220 belong to textile sector. The paid up capital of textile companies is around Rs 23.6 billion as compared to the total listed capital of Rs 233.9 billion. As regards dividend payout, the situation is not enviable. For the year 2000, out of 224 listed companies, 157 posted profit and only 116 paid dividend (this include companies paying cash dividend as well as issuing bonus shares).

According to another analyst, "The history shows that the sponsors of textile companies often resist any effort to improve performance of listed companies. It is on record that they did not agree to cost audit and even approached the court of law to avoid becoming 'live' on Central Depository System. They wish to defer implementation of the Code of Corporate Governance and are also resisting promulgation of the Take-over Law."

Lately, the SECP has encouraged voluntary delisting and way is also being paved for the easy exit. Many analysts say, "Since a large number of public limited companies are like 'sole proprietorship', the sooner the stock exchanges delist them the better it will be". As such bulk of the daily trading volume pertains to less than two dozen companies. They suggest that companies with less than Rs 50 million paid up capital should be delisted immediately.

The carrot and stick policy followed by the SECP has already caused huge losses to investors. While the sponsors of erring companies have thrived, the regulators have hardly responded to outcry of small investors.