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 shareholders'.

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.