STOCK EXCHANGE PIVOTAL TO PRIVATIZATION PROCESS

There are certain projects, according to Mr. Baig, where it is imperative to have strategic investors

KHALID BUTT, Bureau Chief, Lahore
Oct 02 - Oct 08, 2006

The leading lights of the Lahore Stock Exchange including its Chief Executive officers are upbeat about the process of privatization initiated by the present government and consider it highly appropriate and beneficial for the country.

However, there were also some reservations and suggestions to make the whole thing free of any controversy or criticism as happened in some recent cases.

Hamid M. Imtiazi, the genial Managing Director of LSE, expects that the Stock Exchange will have to play the pivotal role in the privatization of all the projects to keep it transparent and free of any suspicion. It will also ensure, he emphasized the right price. He said when any government holding is off-loaded in the Stock Market as IPO it determines the true price. It can also be a benchmark for offloading strategic share shareholding of the state owned assets.

He also referred to the current debate being waged in media, public and various forums of the advisability or otherwise of offloading of corporate bodies, both profitable and non-profitable. It however all boils downs to the fact that all transactions must get a reasonably good price. Some of the recent transactions like PSM, PTCL, KESC, UBL, aroused a lot of speculation and controversy which call for handling the entire process with due process of transparency and care to avoid criticism, he added.

A senior director of LSE and Chief Executive of ABM Securities (PVT) Ltd. Asif Baig Mirza, dilating on the process of privatization said it was a dire requirement in view of the huge losses being incurred by over 50 state entities amounting to about Rs.100 billion per year. Government was finding it hard to meet these burgeoning liabilities being incurred by the state entities.

These mounting losses were mostly due to inefficiency, corruption or bad governance. It was therefore imperative that government should go for privatization to avoid these multi-billion rupees losses. An accelerated privatization was also one of the pressing requirements of the multilateral international agencies like World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) to avoid such losses and ensure funds for more productive use, education, health, debt reduction and poverty alleviation. This conditionality was complied with by the government to press on with privatization plan on a high priority basis. There was an in-depth analysis and attempts were made to identity those companies, which require privatization providing time space to advance liquidity. A strategy was devised whereby some if the projects were re-structured first and plans were made to offer them to Privatization Commission for better price.

For strategic investment, some of the government holdings were offered to public in tranches through Stock Exchange. These included NBP, Kot Adu Power (KAPCO) UBL, PIA etc.

He particularly underscored the vital role of Stock Exchange, which he said was used for offering the shares to the public. This, he felt, kept the transactions totally non-controversial and absolutely transparent, besides maintaining efficiency and handling of the shares against cash. It also helped to broaden the capitalization of the stock market in Pakistan , which was urgently needed. It brought good quality shares, which attracted a lot of public interest. It also provided opportunity of diversification of savings and helped to find new investors in stock market and this broadened the investment base. The public, he added, was allowed to share the profits of the state entities pocket capital gains and participated as shareholder in the governance of the company. The new companies, after getting listed in stock exchange are required to follow the code of corporate governance.

This will help to improve their overall performance in the coming years.

There are certain projects, according to Mr. Baig, where it is imperative to have strategic investors, who are willing to bring in foreign exchange investment, technical expertise, apply modern management and marketing techniques, improve human resources, and are capable of bringing the much-needed turnaround. It is worth mentioning that Pakistan was able to have FDI of over $ 3.5 billion US dollars, in last fiscal. Privatization proceeds from strategic investors, for projects like PTCL, KESC, issuance of cellular phone licenses to Warid, Telenor, were the main components of this FDI figure. It helped a lot to work as cushion in the wake of ballooning trade deficit of $ 8 billion US dollars, due to very high petroleum prices globally.