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Illustration by Abro

The Securities and Exchange Commission of Pakistan issued a notification on Wednesday, which has the potential of bringing about a revolutionary change in transparency of unlisted corporate sector.

It is perhaps for the first time, that the regulator has ventured in this arena of the unlisted corporate Pakistan.

The notification says, “The SECP is pleased to direct that all non-listed companies having paid-up capital of Rs200m and above shall maintain a functional website with effect from Jan 1, 2013”. The regulator lists matters which the website ought to disclose. Some of those include: profile of board of directors; vision, mission and details of permissible business activities and credit rating (if any). But the most significant of them all perhaps is the disclosure of profile of the board and annual reports of companies for the last two years.

At present, a total of 573 companies are listed on the country’s main bourse, the Karachi Stock Exchange. That is scarcely one per cent of all 60,000 or more entities registered with the SECP.

However, Ali Azeem Ikram, Director Enforcement at SECP explained that the directive was not for all 60,000 registered firms, but only for those with paid-up capital of over Rs200 million. He leafed through the pages and came up with a figure of 650 companies which were capitalised at Rs200 million or more.

The unlisted companies were already required to submit their audited accounts with the regulator and companies with as little as Rs3 million in capital were required to get their accounts audited, though not necessary by a chartered accountant.

Many people at the market saw the move as significant, since the financial figures of large unlisted corporates in such sectors as oil and gas, chemicals, construction, engineering, electronics, automobiles, fast moving consumer goods, pharmaceuticals, banks, insurance, telecom and food sector could come under the public gaze.

“Since most major companies hold capital in excess of Rs200 million, their revenue, profits that they earn and taxes they pay would now come to light”, said one observer. Another said that even giant state-owned enterprises (SOEs) unless they go for listing, could keep their affairs under cover. Essentially being state properties, the public had the right to know their financial strength or weaknesses.

Yet, there were detractors. A head of a large private enterprise, when asked for his opinion, was sarcastic. “Let the regulator first settle the issues and problems prevalent in the companies already listed”, he said and asked: “Do all of them maintain their websites, or going further can anyone say with absolute certainty how many of them are in operation”? He contended that he was in the knowledge of listed companies that only existed in names.

“I know a lot of textile companies that still quote on the stock exchanges, though their sponsors have long since disappeared selling company’s stocks, plant and machinery and even the land”, he said.

The senior economist at Standard Chartered Bank, Sayem Ali observed that it was a good move on the part of regulator and in the interest of transparency. He said that the value chain would be known. “If individuals should declare their assets and taxes why not the unlisted companies?” he said. But he thought that the move should have originated from the office of FBR — the tax authority, rather than the chief corporate regulator.

In its notification, SECP stated that it was issuing the notice “In exercise of the powers conferred by Section 506 (B) of the Companies Ordinance, 1984. Scrolling down the Ordinance, it was found that Section 506 (b) states: “In addition to the powers conferred by any other section, the federal government may, by notification in the official Gazette, make rules, generally to carry out the purposes of the Ordinance”.

But the section goes on to add: “Provided that before making any such rule, the draft thereof shall be published by the federal government in the official Gazette for eliciting public opinion thereon within a period of not less than fourteen days from the date of publication”.

A former regulator, who asked not to be named, said that pushing non-listed companies to open up for public view the accounts, ownership, workings, plans and progress, of their private entities did not come under the domain of the chief corporate regulator. He said that such a law could scarcely be implemented or monitored and a forced measure could disturb the equilibrium.

“It is obvious that most private companies do not go public in order to keep the secrets of their business to themselves”, he said. Opening up their accounts to the public view, would jeopardise competition; it would be a blow to privacy and could trigger a chain of hostile take-overs if corporate raiders were to learn the pattern of share ownership in such unlisted companies.

Another corporate sector expert said that though well intentioned, the idea was impracticable. Hundreds of companies that would come under the domain of the law would resist it tooth and nail.

They could also be forced to find a way around the law, by dividing a single company with capital of Rs200 million or more into several smaller units.

And finally there was the fear that foreign companies which discreetly operate in numerous sectors such as oil and gas exploration and cellular, would prefer to wind up their businesses rather than let their privacy be compromised.


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