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New flotations on KSE.

Stock market is moving on a record breaking rampage. As many as 60 new companies were floated on the Karachi Stock Exchange in 1991. The number of companies on the list of KSE increased to 540. Modaraba companies are becoming instrumental in creating concentration of wealth. A sponsor is now allowed to have one modaraba after another in quick succession along with the doubling of the capital through the issue of 100 per cent right shares. In addition they are also permitted to have an investment bank or commercial bank. More and more of the sponsors are doing the same and this phenomenon is becoming a cause of concern.

New Issues

During the year 1991 as many as 60 companies were floated on the Karachi Stock Exchange. The member of companies on the list of KSE increased to 540 in 1991. Out of 60 companies 28 belonged to textile, 16 to Modaraba and 3 to leasing companies.
Sectorwise Listing of
New Companies During 1991
Mutual Funds 2 100
Modarabas 16 1498
Leasing Companies 3 150
Investment Banks 2 215
Textile Spinning 17 2354
Textile Weaving 7 943
Textile Composite 4 287
Syntehtic & Rayon 1 650
Sugar 2 338
Cables & electrical 1 25
Paper & Board 1 34
Vanaspati & Allied 1 25
Miscellaneous 2 104
TOTAL 60 6483

Public response to the textile issues was overwhelming. For instance public subscription for Din Textile was more than 44 times of the original offer. Similarly Schon Textile received public subscription of about Rs. 665.24 million against its public offer of Rs. 25.00 million which was 26.6 times of the original offer.
Public Subscription for
Textile Companies
 (Rs. in million)
 Public Public
 Name Offer Subscription
Sadoon Textile 15.00 178.00
Din Textile 33.69 1500.00
Bilal Fibres 24.00 406.58
Nishat (Chunian) 39.50 456.80
Schon Textile 25.00 665.24
Ideal spinning 49.60 301.61
Tata Textile 52.40 169.66
Ihsan Yousaf 42.30 362.00
Asim Textile 32.70 34.80
Chenab Fibres 30.00 26.30
Ashfaq Textile 20.00 189.60
J.A. Textile 18.10 62.80
Ghazi Fabric 62.20 285.80
Ayaz Textile 43.67 34.10
Source: Karachi Stock Market


Lot of interest was shown in the modaraba companies. The number of Modaraba Companies now stands at 30 as compared to 14 in the preceding year. The public subscription for modaraba companies was as follows:
Public Subscription for
Modaraba Companies
 (Rs. in million)
 Public Subscription
 Name Offer
1st Capital Modaraba 37.50 329.74
Modaraba Al Tijarah 30.00 258.33
1st Providence 25.00 204.41
1st Crescent 50.00 275.86
1st Premier Mod. 12.50 292.00
1st Intert-Fund 17.50 272.74
1st Elite Modaraba 50.00 335.06
Third Prudential 100.00 549.30
First Professional 25.00 345.24
Nishat Modaraba 50.00 476.00
Trust Modaraba 75.00 535.05
Schon Modaraba 60.00 478.30
Source: Karachi Stock Exchange

The meteoric rise of Modaraba companies has created apprehension. Modarabas are involved in money and capital market activities project financing financial advisory services and financial intermediation. Similarly leasing companies have come to occupy a significant place in the field of investment financing. The leasing companies are basically engaged in the lease financing of capital assets and so are modarabas engaged in leasing.

The first leasing company listed on the stock exchange was in the year 1985. Interest in leasing was dampened and in the next two years, no leasing company was floated. Leasing regulations were in the offing and therefore there was break on the permission for companies to venture in leasing business. In the aftermath of the regulations for overseeing leasing business companies incorporated under the Companies Ordinance 1984, were not allowed to engaged in leasing although this was permitted by their charter to start up a leasing company, special permission had to be sought from the relevant authorities and a minimum paid-up capital of Rs. 50 million was made a prerequisite.

Leasing companies have endeavoured to construct their investment portfolio in a manner that ensures the security of investment. According to available information, the recovery rate of leasing companies is in the vicinity of 99%. As prudent businessmen, the companies managers are providing for bad collections, but so far there has been no need to draw on such reserves.

In the backdrop of cooperative scandal, the SBP and CLA have to play a more effective role in restoring the confidence of the investing public SBP has recently announced the formation of a special wing to oversee the working of non-bank financing companies. A draft proposal stating the benchmarks to be followed and the reports and returns to be submitted by modarabas and leasing companies is in circulation for eliciting comments and suggestions. CLA has also been active in formulating measures to have effective stewardship of the corporate sector. It has recently, inspected some companies and this should be a regular feature.

Modaraba companies are becoming instrumental in creating concentration of wealth. A sponsor is now allowed to have one modaraba after another in quick succession along with the doubling of the capital through the issue of 100 per cent right shares. In addition they are also permitted to have an investment bank or commercial bank. More and more of the sponsors are doing the same and this phenomenon is becoming a caus of concern.

What is needed is close monitoring of both Modarabas and leasing companies regulations and controls to oversee the working of these non-bank finance companies, they would have to be developed in view of the past experience.

New Commercial Banks

The Government sanctioned 10 banks out of which six banks have floated their shares. Askari Commercial Bank is due for opening on January 15, 1992. From the subscription so far received it is encouraging that investors have shown keen interest in the banks shares. Highest subscription was received by Mehran Bank. It was 13 times of the original offer.
Public Subscription for
Banking Companies
Union Bank 05.11.91 150 1661
Bank of
Al-Habib 27.11.91 150 1032
Indus Bank 09.12.91 150 476
Prime Commercial
Bank 17.12.91 150 932
Bolan Bank 11.12.91 150 561
Mehran Bank 28.12.91 150 2000

Stock Market Boom

The stock market is booming with activity. It has broken all records during 1991. The number of companies came for listing increased to 60 as compared to 39 in the preceding year. The General index of share prices touched the highest at 749.41 with the aggregate capitalisation at Rs. 197.060 billion. The following table gives the performance.

The upsurge in the market may be attributed to several factors. The foreign currency accounts Scheme has added a new dimension to the capital market with several options for depositors and increased competition among financial institutions.

During the next few weeks, the KSE expects an investmen of about $300 million from foreign funds managers including $100 million from Dar-al-mal-al-Islami for whom Pakistan is fast becoming a favoured place for investments. The Hong Kong based $20 million Pakistan Fund has been heavily ovesubscribed. It was floated by CitiCorp. Investment Bank and jointly underwritten by Morgan Grenfell, and Merri Lynch. For the first time, Pakistan securities are to be traded on international stock exchanges. The market capitalisation (which was just around Rs. 61 billion in the beginning of the year) has now crossed the figure of Rs. 182 billion. If it goes well in the country, the market has the potential to absorb another Rs. 150 billion.

To further strengthen the capital market, the government has provided legal protection to economic reforms undertaken by it and an ordinance to effect the reforms in economic policies and programmes relating to privatisation, promotion of savings and investments, introduction of fiscal incentives for industrialisation and de-regulation of investment has been promulgated by the President of Pakistan. The profits being declared by various sectors of economy show that the boom in economy particularly in industrial sector is real. The above-mentioned facts reveal that there is a large market potential available in the country for development of capital market.

[Tabular Data Omitted]
Sectorwise Profitability
Sector/ Profit
Industry (%)
Mutual Funds 20.64
Modarabas 12.50
Leasing Co's. 18.00
Textile Composites 23.00
Insurance 14.76
Sugar 16.00
Energy & Fuel 25.34
Automobile & Allied Co's 28.10
Chemicals 17.34
Food 19.27
Source:Economic and
Business Review

A new era is dawning as the economy has embarked upon the denationalisation and privatisation of state-owned enterprises. Currencies are now freely convertible and exchange controls have been abolished. Today, both Pakistanis and foreign investors are at par in matters of establishing industries or setting up of commercial establishments in any field on area in Pakistan with the exception of arms and ammunition, currency and banking and insurance. The government is offering a generous package of tax concessions to new industries. In respect of taxes, there is no discrimination between domestic and foreign investors.

Industrial machinery required in rural or less developed areas, if not manufactured in Pakistan, will be allowed to be imported free of custom duty, sales tax and other normal import tariffs. Pakistan is now on the road towards a free market economy. Major foreign banks and international mutual funds operators and investors are showing greater interest in the far-reaching economic changes which have taken place in Pakistan. The new openness of the economy has revitalized the stock exchange and created enthusiasm among financiers. New stock offers now tend to be 10 to 40 times over subscribed, while the Karachi Stock Exchange (KSE) index has risen more than 730 points in the last six months.

The Amanullah Group has been permitted by the Corporate Law Authority to establish Stock Exchange at Islamabad. Amanullah Group would obtain assistance from Singapore Stock Exchange for setting up the stock market. This will be the third stock exchange in the country. The other two are located at Karachi and Lahore. There are 540 companies listed on KSE and 437 on Lahore Stock Exchange. Another 34 companies are in the course of listing on LSE. Although all the companies listed on KSE are also simultaneously required to be registered at LSE many have not done so. The official decision on this effect was taken a few years ago to increase volume of business at Lahore. Lahore Stock Exchange would be shifting to its new building at 19, Khayaban-elqbal, in the near future, where best possible facilities would be provided to the investors, listed companies and other users. A dedicated line is being installed in the new building which would make it possible for transfer of information about share prices between Karachi and Lahore Stock Exchanges. This would enable the investors to see the fluctuation in share prices on both exchanges.

Many companies specially the old companies defied recent official pressure to do so. Lahore Stock Exchange offers very little business and the companies do not want to burden themselves with payment of listing fees and quote charges at two exchanges.

A new change is that several companies have come to float their shares at a premium. For instance Fauji Fertilizer floated its share with a premium of Rs. 5. Similarly shares of Mehran Bank were floated at a premium of Rs. 10. To protect the small investors the Corporate Law Authority has now been given suo motto powers to deal with the defaulting companies who are avoiding dividend payments to their shareholders.

The encouraging sign was the permission to foreign banks to invest in shares in Pakistan to the extent of 30% of its paid-up capital. Another favourable factor is the creation of Pakistan Fund by Asian Development Bank for an amount of $5.4 million for underwriting public issue of shares.

Turnover of shares have gone up sharply. For instance turnover of share in the month of November, 1991 was 73.737 million as compared to 28.760 million shares in January 1991.
Turnover of Shares
Month Million Index
January 28.260 310.16
February 26.339 317.28
March 42.792 324.57
April 62.596 369.36
May 41.779 383.67
June 27.523 387.67
July 75.930 488.12
August 58.898 486.80
September 45.586 483.78
October 46.709 499.10
November 73.737 613.43
December - -
Source: Karachi Stock Exchange
Number of Companies and
Paid-up Capital
 No. of Paid-up
Name Cos. Capital
Mutual Funds 23 687.700
Modarabas 30 2892.197
Leasing Companies 9 548.238
Investment Banks 8 1324.346
Insurance 30 547.835
Textile Spinning 123 5953.846
Textile Weaving 16 1074.575
Textile Composite 32 1776.972
Woollen Textile 8 149.829
Synthetic 14 1599.518
Jute 10 425.174
Sugar 31 299.016
Cement 10 1143.234
Tobacco 7 504.817
Fuel and Energy 11 4204.798
Engineering 15 707.842
Auto 7 Allied 18 926.653
Cables & Electrical 14 500.679
Transport &
Communication 3 3921.135
Chemical &
Pharmaceutical 34 2147.171
Paper & Board 13 743.618
Vanaspati & Allied 17 241.384
Construction 4 116.423
Leather & Tanneries 6 235.169
Food & Allied 18 1008.653
Glass & Ceramics 8 357.812
Miscellaneous 28 863.243
TOTAL: 540 36801.876
Source:Karachi Stock Exchange
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Karachi Stock Exchange
Publication:Economic Review
Date:Dec 1, 1991
Previous Article:Performance of the top 75 companies.
Next Article:Modaraba companies on KSE.

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