October 28, 2007	Sunday	Shawwal 15, 1428

KARACHI, Oct 27: The Securities and Exchange Commission of Pakistan (SECP) announced on Wednesday that the apex regulator had registered 1,135 companies during the quarter July-September 2007, which took the total number of registered companies in the country to a staggering 50,125.

A couple of years ago, registered companies were well under 10,000. “The transformation from ‘seth culture’ in running businesses to more open registered firms bodes well for the country”, says a third generation Oxford-educated child of one of the famous 22 families of the 1960s. The story is nonetheless, half as glossy.

The penchant to keep control of corporates by individuals persists; public shareholders are still considered to be all but nuisance. Most registered companies comprise private companies, single member companies and public unlisted companies.

The number of publicly listed companies on the stock exchange has scarcely managed to escalate. At the moment just about 656 companies are quoted on the Karachi Stock Exchange with listed capital of Rs651 million. Due to mergers, de-listings and suspensions, the number of listed companies on the exchanges has actually diminished from 700 some years ago.

As the private sector listings have been slow, too much cash is seen to be chasing too few shares at the market. On any given day, volumes are almost always generated in as many shares as can be counted on the finger tips of one hand: A couple of banks, a few cement companies and depending upon the price of crude, one or two energy stocks.

The KSE Annual Report 2007 released during the week, showed that 16 new companies sought listing during the year ended June 30, 2007, with no more than 12 companies offering equity that set out to raise Rs6.3 billion including premium. That included OGDC’s second issue, which accounted for 38 per cent of the total issue size. The new listings last year were 14.

Aside from earlier available cheaper bank credit, the other reasons for lackadaisical interest of sponsors in entering the stock market have been explained by the KSE directors in the annual report: “This is mainly due to lack of tax incentives for listed companies and the stringent requirements of corporate governance”.

Analyst Tahir Ashraf admitted that the small number of IPOs in spite of the tremendous growth of the stock market in the last five years was odd. During 2007, India emerged as the 8th largest IPO market in the world attracting $7.23 billion (Rs300 billion) in net proceeds through 78 public issues.

It might be a little unfair to compare with all things Indian. Bombay Stock Exchange was born more than 100 years before the KSE. Around 4,800 companies are listed on it with market capitalisation of Rs40.7 trillion ($999 billion). That puts into shade the Rs4.5 trillion market capitalisation and less than 400 active companies on the KSE.

That nonetheless offers little justification for growing number of registered companies and a shrinking IPO market in Pakistan. Stock traders say that to satiate the appetite for more stocks and rein in the extreme volatility in few actively traded scrips, there is a need for new offerings: both from the public and private sectors.

The government must take the lead in offerings of just a part from its almost wholly-controlled giant companies. The public offering of shares in Habib Bank Limited has gone very well. The stock sold at Rs235 is now trading at around Rs270, which must have ‘enriched’ hundreds of small investors.