Cumbersome rules deter firms from listing on boursesArchive
ENTREPRENEURS are showing little interest in taking their firms public. The Securities and Exchange Commission of Pakistan, the apex regulator, registered 5,001 new companies in financial year 2014-15, bringing the total number of registered firms to 67,623.
And this number has nearly doubled in less than a decade. However, the number of companies listed at the Karachi Stock Exchange slipped from 635 at end-2011 to 576 by October 1.
Just seven companies have reportedly come up for fresh listing in 2015.
And all of this happened in the midst of a booming stock market, which has provided a return of 115pc to investors in the past three years. As the benchmark KSE-100 index soared from 11,348 points five years ago to around 33,000 points currently, there has been a phenomenal rise in stock prices. And considered laggards, the textile and cement sectors have attracted most of the investors’ money.
These soaring stock prices should have encouraged private-equity firms to seek listings and cash in the tremendous gains by selling shares to the public. That, however, has not happened, which brings up the all too familiar question: why?
Former National Investment Trust chairman Tariq Iqbal Khan suspects that the entrepreneurs dread the prospect of listing due to the ‘code of corporate governance’. Companies have to be on their toes to comply with regulations that can be as thick as telephone directories, he says.
He cites the weekly, monthly, quarterly, half-yearly and yearly returns that have to be filed; material information to be provided to stakeholders within 24 hours; cost-accounting details in some industries; and other instances of over-regulation. All of this warrants a separate office and a clerk who has to be ever alert to comply or be hounded by the regulators.
Khan also mentions the many foreign pharmaceutical firms that delisted to escape the spotlight on the transfer-pricing issue. “Reputable groups of companies are offered credit by banks at slightly above Kibor, which dissuades them from going into the hassle of raising funds from the equity market,” he says.
Pakistan Business Council CEO Kamran Y. Mirza observes that the burden of regulations has grown heavier for public companies across the world since the collapse of Enron in 2001. A raft of new ‘code of corporate governance’ rules has been introduced, which Miza suggests is the right thing to do to regulate public listed companies.
He also disputes the notion that private firms are avoiding listings. “It is after a long time that the health of the country’s economy is showing signs of improvement.” He believes that the number of initial public offerings will rise going forward.
He adds that more companies are also raising capital through right issues. Searle Pakistan last Thursday asked its shareholders for cash in rights issue at 10pc.
But aside from regulations, most corporate watchers also reckon that private companies and family firms are comfortable in operating under the cloak of secrecy. Many companies want to avoid spotlight and hide their important sales and profit figures from their competitors.
And even when they opt to go for listing, the families exercise tight control of their company’s affairs. The family members sit on the boards of directors and retain disproportionately large shareholdings, leaving a tiny free-float for the public — partly to avoid the threat of a hostile take-over. Several family names abound among Pakistan’s listed corporates, mainly in the textile, cement, fertiliser and banking sectors.
Published in Dawn, Business & Finance weekly, October 5th , 2015
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