PAKISTAN WEEKLY REVIEW.
KSE-100 Index closed at 11,607 down 3.6% over the week. Average Daily Volume during this week stood at 112 mn shares as compared to 88 mn shares last week. On daily closing basis, index touched a high of 12,045 and a low of 11,607.
CURRENT ACCOUNT IN SURPLUS IN FEB
During February 2011, the country witnessed a current account surplus of USD 53 mn while in January the deficit was USD 132 mn mainly with the support of record remittances and higher exports. The surplus of current account was supported by improvement in trade balance as export rose to USD 15.454 bn compared to USD 12.493 bn in the same period last year, showing 23 % increase.
The current account deficit during the first eight months (July-Feb) was USD 98 mn as against USD 3.027 bn during the corresponding period of previous year. The trade balance improved slightly as it was negative USD 7.163 bn during the July-Feb period compared to negative USD 7.564 bn in the same period last year. Higher prices of cotton, rice, wheat and other commodities on the international market helped the country to receive higher export proceeds. However, the record remittances sent by the overseas Pakistanis greatly supported the external account balance. Record remittances negated the possible impact of higher oil prices on the international market. The country meets its 90% energy requirements through oil imports. The low current account deficit also supported the country to keep its foreign exchange reserves at the highest level.
TAXES HIKED IN WAKE TO INCREASE REVENUES
The Govt. has imposed 17 % sale tax on fertilizers, agricultural tractors, pesticides, plants, machinery and equipment and its parts, a 15% income tax surcharge for tax year 2011 and raised special excise duty (SED) from 1 to 2.5%. The new taxes would bring in additional revenue of PkR 53 bn in the remaining period of current fiscal year. This is done to increase the revenue to meet the fiscal deficit. Moreover, the govt. has further slashed revenue target of FY11 to PkR 1,580 bn down by PkR 87 bn. Increasing taxes would burden the masses which already bearing the brunt of high inflation and economic slowdown.
ADB'S USD65M LOAN FOR ENERGY SAVING PLAN IN DOUBTS
The government is likely to lose a USD 65 mn loan approved by Asian Development Bank (ADB) for an energy saving program as it has failed to meet the targets set by the lender. ADB approved financing of up to USD 40 mn from its ordinary capital resources and USD 25 mn equivalent from Agence Francaise de Developpment (AFD) for delivery of 30 mn incandescent bulbs with Compact Fluorescent Lamps (CFLs) to residents. The government is to contribute USD 20 mn for this project. The government asked the ADB for a flexible public sector financing mechanism to support energy efficiency in the short to medium term. A multi-tranche financing facility is considered the most appropriate modality for energy efficiency investments in Pakistan .
JSCL TO SELL STAKE OF JS GLOBAL TO JS BANK
Jahangir Siddiqui Company Limited (JSCL) has planned to increase the capital base of its subsidiary JS Bank Ltd. in order to meet the central bank's minimum capital requirement for JS Bank. JSCL has decided to dispose its investment in JS Global Capital Limited (JGCL) by selling its 43.47% stake of JGCL to the JS Bank in exchange for the issuance of new shares of the bank. JS Bank Ltd has a paid up capital of 8.15 bn and has already issued 33% rights in CY10. The transaction is subject to waiver from the Global Investment House KSC, a shareholder of JS Global in relation to their pre-emptive rights. The swap ratio for the issue of new shares of JS Bank to JSCL will be determined later. JS Bank has also approved to increase the paid-up share capital of the bank through issuance of further shares at discount, other than right shares, to JSCL and other shareholders of JS Global against acquisition of shares of JS Global.
IFC TO INCREASE STAKE IN MICRO FINANCE BANK
International Finance Corporation is seeking to acquire upto 16% stake in the new National Rural Support Program (NRSP) Micro Finance Bank to provide support to bank enabling it to extend crop and livestock loans, develop deposit base and encourage savings. The NRSP bank's main products are small loans for farmers to buy seeds, pesticides and fertilizers, livestock loans and the micro-enterprise development loans. It would be operating with 40 branches initially and the co-investors in the project include Acumen Fund and Kreditanstalt fur Wiederaubau. The step bodes well for promoting the economic well being from small levels and is expected to spur economic activity in the area.
STATE BANK TO LAUNCH A 10 MN POUNDS FUND
State Bank of Pakistan (SBP) has planned to launch a 10 million pounds "Financial Innovation Challenge Fund" to increase delivery channels in Pakistan . SBP has also launched Improving Access to Financial Services Fund (IAFSF), for improving the financial literacy among the existing and potential microfinance clientele, which will enhance their capability to access and make productive use of financial resources.
OIL and GAS SECTOR:
OGDC MAY LOSE JHAKRO FIELD
OGDC is expected to lose Jhakro field with oil and gas reserves worth millions of dollars as the Sindh Govt. is reportedly making a bid for the Field declared dormant by OGDC. Sindh Govt. has demanded that it be granted the lease for Jhakro field after OGDC lease for the field expires. Jhakro field is estimated to produce 500 barrels per day, 10 million cubic feet gas per day (mmcfd) and 21 tons of LPG per day. The lease was given to OGDC in 2002 that expired in 2007 on account of non-commercial production. The management had applied for the extension in lease of Jhakro field, there is no rule to re-grant the extension and in this situation OGDC loses the right over the field and Sindh Govt. gets the lease.
POWER TARIFF HIKED BY 2%
Government has notified the imposition of 2% surcharge on every unit of electricity with effect from 15th March 2011. As a result, the power tariff will go up by an average of 17 paisa per unit, ranging between 8 to 27 paisa per unit. The government intends to collect PkR 400 mn in the remaining half of this month, PkR 850 million in April and PkR 1 bn each in May and June respectively. Moreover, the government will increase the power tariff by 2 % on May 1 and June 1 as agreed with the IMF. This will fetch over PkR 8 bn. The decision will be applicable to all categories of power consumers across the country excluding the lifeline consumers (consuming 1-50 units per month). The increase in power tariff was one of the conditions of the IMF before tranche being disbursed. Electricity price hike affects almost all the business activities and therefore has a multitude affect on inflation that has remained a key concern for the policy makers.
FAUJI CEMENT TO START PRODUCTION FROM ITS SECOND PLANT
Fauji Cement Company Ltd. (FCCL) is all set to make its second production-line operational before the end of April. Its new plant would be the single largest production line of clinker in Pakistan with a production capacity of 7,200 tons per day. The total cost of new plant is around PkR 20 bn. FCCL produces 3,700 tons per day of clinker from its existing plant. To construct the new plant, the company has taken heavy loans where Fauji Cement had a total long term financing of Rs13.51 billion as on December 31, 2010, to be repaid by 2018. The company is considering exporting the new production mainly to Afghanistan . It posted profit after tax of PkR 251.13 mn in 1H FY11, against PkR 193.62 mn last year.
From July 2010 to February 2011, the sales of Pakistan 's cement in national and international markets stood at 19.70 million tons, down by 10.48% than last year. The addition of Fauji Cement's line would enhance the country's total capacity by 2.68 million tons to 43.91 million tons. The capacity utilization of the industry had been declining since 2004-05 when it hit a peak of 91.32 %. In FY10, it dropped to 76.53 % and to 71.66% in the first eight months of FY11.
ENGRO GROUP PLANS TO RAISE PKR 5 BN THROUGH IPOS
Engro Corporation plans multiple initial public offerings (IPOs) of group companies to raise around PkR 5 bn in 2011 to fund its expansion plans. IPOs of its food, fertiliser and power generation companies are planned. The group may also seek to be traded on foreign exchanges through a global depositary receipt (GDR) issue by most probably listing the Engro Fertilizer. Engro's holdings are in the fertiliser, food, petrochemical and power sector generation sectors, where it has invested USD 1.7 bn in the past few years. It is also involved in a joint venture with the government of Sindh to mine coal from Thar Block II, which would cost up to USD 4 bn for which construction work is expected to take around four years.
The coming week would be filled with political uncertainties over US and Pakistan ties and reaction of the public in response to the release of Raymond Davis. The launch of Securities Lending and Borrowing (SLB) product in the stock market from March 21, 2011 would be positive and may increase the volumes in the market. However, heightened political tensions between the govt. and opposition are expected to keep the over all sentiment dampened. We recommend a cautious stance as market is expected to remain lackluster and directionless.