Companies require capital and government should protect individual investors...

Apr 23 - 29, 2007


The firms across the world may operate for any reason bounded by their mission, vision and core business operations; however, there is one common aim for businesses to exist, and that is to make profits. Profit-making is not an easy phenomenon to undertake; it has several pre-requisites associated. There lies constraints associated to the extent of existence of a firm; i.e. a sole proprietor may have restricted access to profits than a firm that has a number of partners. Similarly, a firm that has access to wide range of capital is expected to have more reach to resources than the firms otherwise, and thus, brightening its chances to gain more profits. Also considerable is the fact that when firms grow, or view a window of opportunity, they need to have access to several sources to ensure that they do not miss the ride. Having a firm listed gives them several options in this case to have resources and capital generated for the available alternatives. Listing can be of two types; either listing a TFC (Term Finance Certificate) and generating a debt or listing a share/stock to have equity added on.


Security and Exchange Commission of Pakistan (SECP) is the authority that grants listing approval to the firms that wish to be listed at any of the three stock exchanges in Pakistan - Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE). SECP does not allow any sort of trading unless the listing is approved and company is listed. This approval and actual listing requires the checking of whether these instruments are sufficiently in public interest or not, and other formalities. The listing application is decided upon in a period of 3 months as a maximum term, and if rejected, the reason is also communicated. There is a form for listing that needs to be filled along with the required documentation and the applicable fees is to be duly submitted that confirms the completion of application submission process.


It is also important to know the capital that can be raised through a public offering or through listing. If a firm has a capital base up to Rs.500 million then at least 50% of this capital should be offered. If a firm has a capital base in excess of the same amount, then the public should be offered Rs.250 million or 25% of the capital base, whichever is higher. The securities can also be offered to the overseas Pakistanis, and that figure should not exceed 20% of the net offering. However, the employees of the company cannot be offered more than 5% of the net offer. In case of Modaraba, 30% of the capital can be retained with family, friends and relatives while the 70% of the remainder needs to be offered to the public.


It is noticeable that as per the statutory requirements, the minimum paid-up capital should be at least Rs.200 million. Along with other requirements for approval, the submission of prospectus holds extreme importance because it is the snapshot of the company that is presented to the general public. The prospectus must address a certain format, and should specifically mention the details as prescribed by the SECP. Through the prospectus, the details of issue, allotment, and transfer should be specified. The details of issue include the par value, premium/discount (if charged and its reasoning), lot size offered, and so on. The allotment details include the explanation of how the allotment would take place in case of over or under subscriptions, and also if the lot size that would be entertained as a priority. Transfer details include specifications about how shares can be or would be transferred during the course of holding. The lot size specification is also important because it not just specifies the lot size offered but also the lot size that would be traded.


Dividend is one of the major sources of attraction particularly for the long-term investor of securities. The Listing Regulation ensures that the dividend income is received by the investor on time. The dividend income, as per the regulations, should be sent across within 45 days of the meeting in which it was declared.


A listed company shall hold its Annual General Meetings (AGM) and lay before the said meetings its financial statements within four months following the close of financial year. Each Modaraba shall hold an annual review meeting of its certificate holders and lay before the said meeting its financial statements within four months following the close of financial year.


Every listed company shall immediately advise the Exchange of all decisions taken by its board of directors regarding any change in authorized, issued or paid-up capital, by issue of bonus shares, right shares or refund of capital, etc.


A listed company distributing shares of its unlisted subsidiary company in the form of specie dividend, right shares or any similar distribution shall get such subsidiary company listed on the Exchange within a period of 120 days from the date of approval of such distribution by the shareholders at a meeting of such company. In case of failure of such subsidiary company to apply for listing or refusal by the Exchange for such listing on account of insufficient public interest, or for any other reason whatsoever, the company distributing specie dividend shall encash the shares of the subsidiary company at the option of the recipients at a price not less than the current break-up value, or face value, whichever is higher, within 30 days from the expiry of 120 days or from the date of refusal of listing whichever is earlier, failure in which behalf shall be default in which event the trading in the shares of the listed company be suspended by the Board or the company de-listed. Every listed company shall notify the Exchange immediately regarding changes in its board of directors by addition or removal by death, resignation, or disqualification.


All listed companies shall facilitate the Quality Control Review (QCR) of the audit working papers of practicing chartered accountants, carried out by the Institute of Chartered Accountants of Pakistan (ICAP) and, therefore, shall authorize their auditors to make available all the relevant information including the audit working papers to the QCR Committee of ICAP. No listed company shall appoint or continue to retain any person as an auditor, who has been found guilty of professional misconduct, by the Commission or by a Court of Law, for a period of three years unless a lesser period is determined by the Commission. In case a firm has been appointed as an auditor, and if any of its partners has been held guilty of professional misconduct, the firm shall only be eligible for appointment as an auditor provided a written confirmation is given by the firm to all the stock exchanges of the country and the Commission with a copy to ICAP to the effect that such a partner shall not be engaged in the audit of any listed company for the specified period.


Having a firm listed is not the sole issue of concern, there is more to it than the eye sees. There are different clauses under which a firm may be de-listed, its trading be suspended or moved to default counter. Such a situation may take place if:

i) The security is traded at a rate below 50% of its face value
ii) There is no dividend of any sort (cash or bonus) for a span of 5 years
iii) Failure to hold an AGM for 3 consecutive years
iv) Firm is liquidated either voluntarily or by the court's order
v) Failure to pay listing fees for 2 years
vi) Failure of compliance with any of the regulatory requirements
vii) Refusal to join CDS after securities stand eligible for CDC

The penalty implied is not removed till the cause of it is not taken care of by the company.


Not every company that applies for being listed gets a nod to move forward with it. SECP is the body that sets out regulations for listed companies that include, but not limited to, the above-mentioned clauses. It is essential to have such a regulator in the economy to ensure that the public money is going into safe hands. That is probably the reason why there are firms that attain public limited status after development of goodwill that takes years. SECP is a strict regulator that takes quick actions on any activity that may hamper public interest by means of stock manipulation. The most well-known examples of recent past have been the temporary suspension from trading of Callmate Tellips (CTTL), Javed Omar Vohra (JOVC), and Crescent Standard Investment Bank Limited (CSIBL); however, there are exceptions like in the past where market forces forced people into bankruptcy due to extensive market manipulations that ruined common man's spending... a similar trend is expected in near future so the readers should remain alert...