Why not delist all those companies that have less
than Rs 100 million paid-up capital? This was the question raised by an
equities analyst, while I was sitting with some of them and the topic of
discussion was ridiculously low paid-up capital of some of the listed
companies — as low as three million rupees.
For most of us it was not easy to swallow this bitter
pill. He said, how about physical counting of the shares of these
companies? While most of us subscribed to his idea, he could not resist
adding, "The SECP should have taken action against these companies
much earlier because there is a smell of commercial fraud, cheating the
shareholders as well as the financial institutions."
A large number of listed companies suffer from some
common contentious diseases: 1)
non-payment of dividend to shareholders, 2)
no trading in the shares, 3)
suspension of trading and 4)
non-compliance of listing regulations. All these ailments are common in
companies which have less than Rs 100 million paid-up capital.
Therefore, it may be correct to say that all those companies, having
less than Rs 100 million paid-up capital should be delisted without any
further delay. However, best efforts have to be made to ensure that
sponsors buyback the shares held by small investors, if any.
The first lot, which should be delisted by the end of
year 2002, should comprise of companies which are on defaulters list as
well as those which have not gone 'live' till today. The list should
also include those companies where either there is no trading or trading
is less than 10,000 shares in a calendar year.
The stock exchanges have already given enough time to
defaulting companies to comply with listing regulations and no more time
should be given. At the best they (the erring companies) should meet all
the listing regulations by December 31, 2002. To make a mockery of the
law some of the sponsors declare a nominal dividend after couple of
years to avoid posting the names of their companies on defaulters list.
One such example is a company which has declared one per cent dividend
for the year ending June 30, 2002.
One may argue that if a company does not post profit,
how can it declare any dividend. Some analysts strongly believe that the
losses are because of two reasons: 1)
fudging of accounts and 2) bad
management. The first attempt comes under corporate fraud and demands
prosecution of those sponsors. It may be lengthy and time consuming
process but must initiate immediately. Why should one be allowed to rip
off the investors.
As regards the badly managed companies, promulgation
of 'Takeover Law' provides a solution. This Law has been promulgated
now. Due to the delay, investors were right in assuming that the
government was providing un-necessary protection to those who have been
ripping off the shareholders for a long time. Sponsors of such companies
have expanded their business and prospered on the money of shareholders,
but never bothered to pay them any dividend on the investment.
Yet another point needing immediate attention of both
the Securities and Exchange Commission of Pakistan (SECP) and stock
exchanges, is making securities live on Central Depository System (CDS).
It is one of the listing requirements but a number of companies,
particularly those belonging to textile sector, have been resisting
becoming live on CDS. Therefore, all those companies, irrespective of
their paid-up capital, should be delisted immediately.
One may raise a question that delisting of such a
large number of companies from stock exchanges may affect their income.
It is believed the stock exchanges wish to delist a number of companies,
mainly on the ground that they are not paying the annual fee. The only
reason was that they did not want to create a crisis.
It is believed that the delisting can be done in
phases. In the first phase the process of delisting of the companies
with less than Rs 10 million paid-up capital should be completed by
March 31, 2003 through process of buy back. Simultaneously, sponsors of
less than Rs 50 million paid-up capital should be instructed to complete
the buyback process by June 30, 2003. The sponsors of less than Rs 100
million paid-up capital be asked to seek voluntary delisting and
complete process by September 30, 2003.
A question may come to the minds that if such a large
number of companies is delisted, what could be the impact on the listed
capital. It is believed that the listed capital may go down by less than
10 per cent, at the best. The erosion may be low after promulgation of
Take Over Law. Now the sponsorsors who are commiitted to following godd
management practices can take over the management og ailing companies.
Most of these companies have always enjoys strong economic fundamentals
but posted losses due to sponsors' attitude, 'no regard for the
The SECP and stock exchanges must make this difficult
decision immediately. With the reduction in number, they will be able to
monitor the remaining companies more efficiently and effectively. An
improvement in the operations of listed companies will also help in
restoring the confidence of investors in the capital market.