November 19, 2002	Tuesday	Ramazan 13, 1423

KARACHI, Nov 18: All but two of the thirty-nine modarabas listed on the Karachi Stock Exchange, have been trading at disconcerting discounts to their par value. The exceptions are First Imrooze Modaraba, now tagged at Rs31 and the First Grindlays Modaraba priced at Rs27.55.

The investors apathy towards the Modaraba sector, even in these bullish times, is appalling, particularly since it is difficult to identify a cause. It couldn’t be the returns on investment, for in line with previous years, as many as 20 Modarabas declared dividends in 2001—quite a few, at rates that were much higher than the average market yields.

But one reason that investors are treating FGM with more trust— represented by the premium in the Modaraba’s stock price—could be the group backing. In Pakistan, the Standard Chartered Group comprises Standard Chartered Bank; Standard Chartered Grindlays Bank and the First Grindlays Modaraba. The other reason could be that for most of the 16 years that the Modaraba has been in operation, it has continued to maintain the growth momentum.

For the first-quarter ended September 30, 2002, FGM has posted profit of Rs39.7m, reflecting 7.6 per cent improvement over profit of Rs36.9m, in the corresponding three months of 2001.

Already for all of last year, the First Grindlays Modaraba had earned profit of Rs172m, which measured to more than a quarter of the aggregate earnings of Rs 650m of the entire modaraba sector. The 16 per cent growth of profit over the earlier year, was attributed by the Modaraba “mainly to recoveries of Rs19m from customers provided for in earlier years, timely reduction in borrowing costs and additional disbursements during the year.” The Modaraba had also boasted having hit several milestones last year: Record disbursements, aggregating to Rs 1.2 billion; record profit of Rs 172m; highest cash dividend at 40 per cent and the financial strength rating of A2 by PACRA—representing the strongest rating in the sector.

Operating income for the first-quarter ended September 30, 2002 amounted to Rs 274.6m, up 10 per cent over operating income of Rs 250.2m in the corresponding period last year. “Other income” contributions amounted to Rs2.4m in the period under review, down from Rs4.1m in the same time of 2001. Profit before charging modaraba company’s management fee stood at Rs44.1m for the three months of the current year and Rs41.0m in the same time of 2001. At ten per cent of the profit, before charge of such fees, the Modaraba company’s management fee worked out at Rs4.4m and Rs4.1m.

The director review for the first-quarter mentioned that the Modaraba had been able to increase profit by 8 per cent “mainly due to increased portfolio and reduction in borrowing costs as compared to the corresponding quarter last year”. Leasing rates were said to be coming under increasing pressure. Portfolio of leased/musharika assets at September 30, 2002 stood at Rs2.3 billion, up from Rs2 billion at the same date last year. Leased assets written during the quarter under review amounted to Rs243m, reflecting a substantial increase from Rs 137m during the same period last year.

Paid-up capital of the Modaraba amounted to Rs374.2m; unappropriated profit was Rs61.9m and reserves were: statutory Rs164m; capital Rs135m. Total equity, which at Sept 30 stood at Rs735.1m, produced the break-up value of Rs19.64 for each certificate of Rs10.

For its share in the leasing business, modarabas are quite clearly in teething competition with leasing companies and investment and commercial banks. The last two are possibly at an advantage due to lower costs, while Modarabas also have the additional obligation of being Sharia compliant.

Looking forward, the directors observed that business environment remained extremely competitive. Macroeconomic indicators pointed towards improving economic fundamentals and the board hoped that it would increase local and foreign investor confidence. The Modaraba was hopeful of continuity of economic reforms.