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Textile companies are conspicuous by their smallest number

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 commercial banks.

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.