Disinvestment irrespective of whatever its reasons been is feared to send wrong signals to the foreign investors

By Syed M. Aslam
Oct 16 - 22, 2000

ABN AMRO Asia Limited Hong Kong has sold its entire 76 per cent equity stake in First Capital ABN AMRO Equities (Pakistan) Limited (FCAAE), a corporate brokerage firm. The buyer is First Capital Securities Corporation Limited (FCSC), a stock market listed company, which not only owns the remaining equity but also manages the brokerage operations for FCAAE in the country.

The FCSC has called an extraordinary general meeting at its registered office in Lahore on the 27th of this month. Besides transacting ordinary business of confirming the minutes of the previous extraordinary general meeting, the meeting will also transact special business which includes passing of resolution to authorise the chief executive of the company to negotiate, finalise and execute the purchase of the 76 per cent equity stake and to change the name of FCAAE to 'First Capital Equities Limited (FCEL).' The resolutions and their implementation has to get the approval of the Securities and Exchange Commission of Pakistan.

FCAAE was incorporated in Pakistan on January 26, 1995 and its main activity includes share brokerage and conducting business research and its publication. In 1998, FCAAE was rated as the number one brokerage house in Pakistan by 'Asia Money' magazine for its order execution capability and number two in Specialist Research categories. In addition, a poll of American and Asian Fund Managers' conducted by Reuters also placed FCAAE as the number one brokerage house in Pakistan.

The FCAAE has decided to sell its entire 7.602 million shares for Rs one million or a throw away price of just Rs 0.1315 per share. This is indeed an extremely bargain deal for the FCSC as the membership card of the Karachi Stock Exchange alone carries a price tag of over Rs 35 million. While FCSC has said that it has been approached by the ABN AMRO Hong Kong to sell its entire shareholding in FCAAE 'due to its change in regional business strategy' the offloading at surprisingly nominal price, the haste and the manner betrays its claim. While FCAAE's loss is an immense gain for FCSC at hard-to-refuse bargain price.

Observers attribute the surprising sell-off on the finding of the Etrat Rizvi inquiry committee investigating the stock market fiasco in the country this May. The committee had named FCAAE as one of the four brokerages allegedly acting as 'front runners' for the suspended stock broker billionaire Mian Iftikhar Shafi at Lahore. FCAAE was also one of nine brokerages in Karachi whose records were checked by the inspectors of Securities and Exchange Commission of Pakistan early last month apparently to find a clue of its involvement in the stock crisis of May.

The decision to disinvest its entire investment in FCAAE by its parent company in Hong Kong, ABN AMRO Asia Limited, in what looks like extreme haste and at exceptionally nominal price is seen by the observers in the backdrop of the May stock crisis and the investigations that followed. It is viewed as a way-out to minimise the damage that it has done to tarnish the image of a company otherwise held in high esteem internationally. But the disinvestment irrespective of whatever its reasons been is feared to send wrong signals to the foreign investors for the ultimate loss of the country.

Talking to PAGE, Director of AKD SECURITIES, Faisal Bengali attributed the sell-off on the investigation of the May stock prices which implicated FCAAE. He expressed fears that irrespective of the reasons the disinvestment would send wrong signals tarnishing the image and huge loss of trust for the potential foreign investors. A number of foreign brokerage offices have already closed their operations in the country and the rest of remaining two to three are feared to get influenced to take the leap due to the dwindling image and the increasing loss of trust, he added. This is all the more worrying as foreign brokerages are not coming into the country while many of the existing ones have and are in the process of wrapping up their operations in the country, he added.

He stressed that while it is the ABN AMRO securities which has lost money, because despite holding 76 per cent of the equity the brokerage operations were carried out by the FCSC, the disinvestment would have a direct impact on the national economy resulting from loss of trust and negative image which it reflects. The disinvestment should be seen in the greater perspective than that of a foreign investor losing money the spillover of which would now be borne by the local economy.

The chairman and chief executive of FCSC, Salmaan Taseer, has been appointed the first chief executive of First Capital Equities Limited, the changed name of FCAAE, for a period of three years with effect from the date of transfer of the 76 per cent remaining shares. He has agreed that the FCSC has got FCAAE cheap but 'nevertheless at a negotiated price.' That 'negotiated price', however, has turned many heads posing all sorts of questions whose answers will only be provided by the passage of time.