June 15, 2003	Sunday	Rabi-us-Sani 14, 1424

KARACHI, June 14: Every year, the private limited firms swell while the number of listed companies gets reduced. The code of corporate governance is applicable to fewer and fewer quoted companies. The sway of modern corporate culture is shrinking to a narrowing territory.

In the year 2002, the number of private firms went up by nearly 1,100. The listed companies dropped by 30 and the process is continuing.

The number of companies quoted at the Karachi Stock Exchange (KSE) is falling, either because of voluntary or compulsory delisting or mergers.

And the budget for 2003-04 indicates that the policy-makers are not keen that private limited companies should opt for listing on the stock exchanges to increase the number of quoted companies and impart depth to a volatile capital market.

The KSE demand for tax rebate to encourage listing of new companies has been turned down. Instead the tax rate on private companies is to be brought down to 35 per cent, the same level at which the listed companies are taxed. The rate is being cut by two per cent on an annual basis. The discrimination that encouraged private firms to go public is being removed. Policy makers want all companies to float corporate bonds, primarily subscribed by commercial banks.

Moin M. Fudda, KSE managing director, says it is less costly to borrow from banks at historical low interest rates than raise equity/debts from stock market. Some firms look at the code of corporate governance as a hassle including publication of quarterly accounts and prefer delisting.

The stock market is buoyant and awash with liquidity with the inflow of home remittances and export earnings. Too much money is chasing too few scrips. Prices are up and the opportunity is there. But the companies are not attracted to come to the market. And to quote Moin M. Fudda, there is no tax incentives.

In year 2000, as many as 1,183 companies were registered under the Companies Ordinance 1984. In the Karachi Stock Exchange, only four new companies were listed.

The registered comprised 28 non-listed public companies, 1,093 private firms, 39 foreign companies, 18 associations not for profit and four trade organizations.

Pakistan has 2,903 public limited companies, (limited by shares) 39,791 private limited companies, 647 foreign companies, 441 limited by guarantee and not for profit associations and six companies with unlimited liability.

At the end of 2002, the KSE had 717 companies, 30 less than previous year. In 1998, there were 773 firms.

Reportedly, the Securities and Exchange Commission of Pakistan (SECP) has initiated proceedings for liquidation of 22 listed companies for failing to hold annual general meetings and present annual accounts. On a positive note, a 5-10pc shares of four state units are proposed to be offered for public subscription but three of these firms are already listed.

The development of corporate culture is often indicated by number, size and management skills of listed companies. The private firms are generally owned by family members and friends. Industrial ownership becomes broad-based when shares of listed companies are offered to the general public for subscription. Under the code of corporate governance, listed companies are expected to be professionally managed.

In the absence of depth in the market, the number of actively traded scrips is very limited and the prices suffer from volatility. Despite the claim that the KSE is one of the world’s best performing markets, foreign investment is marginal. Not even one per cent of the country’s population has stakes in the market. The stock exchange is no longer a barometer of the national economy.