TESTING THE HEALTH OF STOCK MARKET
Listed leasing companies
PROF. DR. KHAWAJA AMJAD SAEED*
Aug 06 - 12, 2007
Earlier two articles were contributed and published in PAGE. This third article will focus on the performance of Leasing Sector Listed on Karachi Stock Exchange. The data relates to November 30, 2006 and has been taken from Daily Quotations Sheets of the Karachi Stock Exchange (Guarantee) Ltd.
EFFICIENCY TEST MODEL
The following nine point has been used to test the performance of listed Leasing Companies in Pakistan:
1. Market Share
2. Paid up Capital
3. Par Value
4. Historical Growth
6. Market Capitalization
7. Share in GDP
8. Market Value Compared to Par Value
9. Distribution as Return
Total number of companies listed on KSE was 652 against 19 number of leasing companies listed on KSE. This represents 3%. If leasing is to be popularized as one of the Islamic Instruments of Finance, it is advisable to increase its share through strategic move.
PAID UP CAPITAL
Listed paid up capital of KSE was Rs. 518 billion. Out of this, a sum of Rs. 5 billion related to listed leasing sector. Based on this, its share in the KSE total paid up capital was 0.96%. Concerted efforts are needed to increase paid up capital by establishing more and more leasing companies in Pakistan.
Par value of each listed leasing company was Rs. 10. This, in today's time is too small. In future, par value may be raised to at least Rs. 100.
The following box captures the position relating to historical growth of leasing companies in Pakistan:
BOX NO. 1
From the above box, it would appear that the development of leasing sector has been very show-around 1% per annum.
During January-October, 2006 (10 months) KSE had a total turnover of Rs. 56 billion. Against this, share of listed leasing companies was only 0.063. This represents 0.11%. This shows extremely low volume of turnover.
KSE market capitalization was Rs. 2,952 billion. Against this, total market capitalization of leasing companies was Rs. 8 billion-representing only a share of 0.27%. This is too small.
SHARE IN GDP
Total GDP of Pakistan was U.S $ 128 billion. Share of KSE listed companies was 38% and the share of leasing companies was only 0.10%.
MARKET PRICE COMPARED TO PAR VALUE
One of the Acid Test for checking the financial health of a company is to compare the par value with the ruling market value. Based on this, 47% leasing companies were below their par value. Accordingly, these represent sickness which needs to be properly diagnosed, reasons ascertained and treatment to turn these into healthy ones be initiated. If a leasing company is quoted below 25% of its par value, the spirit of section 295 of the Companies Ordinance, 1984 be carefully examined for a positive step under section 296 of the above ordinance. This will be a right step for paving the way for an institutionalized approach for corrective action.
DISTRIBUTION AS RETURN
Distribution to shareholders is another important indicator. Based on our analysis, Box No. 2 presents the position:
Box No. 2
ANALYSIS OF DISTRIBUTION AS RETURN
Distribution as Return
All leasing companies were not in a position for full distribution as 42% of these did not announce any return to shareholders.
CONCLUSIONS & RECOMMENDATIONS
Based on foregoing analysis, the following conclusions emerge alongwith recommendations for consideration by stakeholders:
A Policy Statement is needed whether we wish to promote leasing as an Islamic financial instrument or not. If the answer is in the positive, then, under the Leasing Association of Pakistan, a workshop be held to help develop a strategy to introduce leasing on wider scale.
Sickness in 47% of existing leasing companies be diagnosed and corrective action be initiated to turn sick units into healthy ones.
Some suggestions have been offered during the review of the performance of leasing in this article. These may be considered by stakeholders.