Textile companies are conspicuous by their smallest
By SHABBIR H. KAZMI
Jan-28 - Feb-03, 2002
The sector wise breakup of securities in the Central
Depository System (CDS), textile sector has the lowest number of 'live'
securities in the system. Though, 187 securities, belonging to textile
sector, had been declared eligible only 35 are live. As opposed to this,
all the 41 companies belonging to investment companies/securities
companies/banks are live. Despite a policy decision by the stock
exchanges, if a company is not live trading in its share can be
suspended, no such action has been taken by the exchanges as yet. Even
the central bank, which issued instructions that financial institutions
would not lend money against shares which are not listed at CDS, the
business is going on as usual.
It seems that regulators have not been able to
implement their own decision either due to a policy of 'accommodation'
or let the people play with the words. Once the stock exchanges make a
policy decision they must follow it in letter and spirit. If there is
any legal lacuna the central bank must make the necessary ammendments to
avoid mockery. At no stage one should be allowed to work against a
policy aimed at protecting the interest of general public. In this
particular case only one point seems to be true, 'regulators are not
interested in implementing their own policy decisions'.
It is evident that the biggest beneficiary of
'securities being live' are shareholders of listed companies. However,
the sponsors seems to be least bothered about those who have invested
their hard earned money in these companies. It is also evident that a
large number of sponsors despite earning millions of rupee profit do not
like to share the profit with shareholders. It is also on record that
getting the share transferred takes from 45 days to 180 days. If these
shares are registered in the CDS, instant transfer is possible.
Sponsors, resisting the policy, say that the initial
cost is 'too high'. A closer look at the tariff clearly negates this
perception. According to the tariff the deposit demanded by Central
Depository Company (CDC) is as low as Rs 100,000 for a company having a
paid-up capital of Rs 50 million. By making a company 'live'
shareholders can be saved from hassle faced in getting the shares
transferred. The other benefits are saving in stamp duty paid and
avoiding loss of shares or getting fake shares etc. It is difficult to
understand that sponsors are willing to pay the fee to a registrar but
are not willing to pay a small amount to CDC for doing the same job.
Some analysts say that money is not the
consideration. They apprehend that many sponsors have issued duplicate
and triplicate set of shares against which funds have been obtained from
the financial institutions. If these securities become live, this secret
would be out. This is the reason, even financial institutions are
keeping their eyes closed.
According to informed people in the banking sector,
these institutions take the plea, 'it is not fresh lending but renewal
of a facility approved in the past'. Simply by taking this stand, they
are contended with paper scrips. Therefore, they are not discharging
their duty of protecting the interest of depositors. However, the
central bank cannot avoid the blame of being 'imprudent'. Being the
regulator it has to ensure that the policy is fully implemented. Some of
the sector analysts even go to the extent of saying that the audit teams
of central bank are aware of this muddle but do not take any steps to
protect the employees of banks, mostly working in the nationalized
Some analysts say that the largest blame go to
investors who neither know their duties nor are aware of their rights.
Investors, who have been the victim of delayed transferred still buy
those shares which are not registered with the CDS despite knowing that
they would have to go through many hassles. This support the sponsors to
resist efforts to make these securities live.
Some analysts say that the largest percentage of
shares not registered with the CDS is held by speculators and/or Badla
providers by referring to volume leaders as well as large paid-up
capital companies. According to these analysts, bulk of the 'market
float' is not registered in the CDS. They go to the extent of saying
that despite repeated change in ownership the shares are held by a few.
These analysts also say that due to these practices,
at times, people are able to bring a change in the composition of Board
of Directors. To dilate this point they refer to a regulation 'if a
person holds more than 5 per cent shares of a financial institution or
more than 10 per cent shares of any company, he must declare this' which
is violated grossly, the reason being securities not listed in the CDS.
While efforts are being made to improve corporate
governance, an important step is to make all the securities live in the
CDS. The SECP, the stock exchanges and the financial institutions must
ensure that all the securities become live at the earliest.