KARACHI, Oct 1: The government might decide to pay dividend out of the profit of Rs26.60 earned by the Pakistan Telecommunication Limited (PTCL) for the year ended June 30, 2005 to small shareholders, knowledgeable sources told Dawn on Saturday.

But some other corporate experts argued that the Board might instead wait till the end of October when it would be in a position to declare a healthier interim dividend along with the first quarter (July-Sept) results.

The meeting of the Board of Directors of PTCL held on Sept 28 had sprung a surprise for the shareholders, not mainly due to a drop in earnings by 9 per cent to Rs26.60 or Rs5.22 per share, but more so for omission of a final cash dividend. All of the market was expecting a final payout between Rs3 to Rs3.50 per share. In a statement issued that day, PTCL had stated that the telecom had “not declared a final cash dividend on the advice of the Privatization Commission (PC)”.

Disappointed investors, many of whom survive on yearly dividends from corporates, had demanded to know where the PTCL sell-off transaction stood. The PC responded that with mutual consent it had been decided to grant extension to Etisalat (Emirates Telecommunication Company) — the purchaser of 26 per cent equity and 58 per cent voting rights in PTCL — until October 28 to complete the transaction and takeover the telecom. That stand was confirmed by a Dubai-based newspaper which reported Etisalat as categorically denying rumours that it was pulling out of PTCL deal and stating that it was hopeful of resolving issues soon. The paper quoted Mohammad Hassan Omran, chairman and CEO as saying: “No decision has been taken to pull out because we have already signed a contract with PTCL”.

The parties having managed to assuage investors’ fears regarding eventual completion of Pakistan’s largest privatization deal, there were signs that the PTCL Board may yet decide to pay a dividend. Some of the corporate sector experts observed that it was possible for the BoD to review its non payout decision in another meeting two weeks before the date of shareholders’ meeting which is due to be held on Oct 31. Sources close to the PC said that the issue might be discussed with the “high level team” from Etisalat that the PC said earlier was to arrive in Pakistan in the coming days to “finalize the PTCL privatization”.

The omission of final dividend for the year 2004-05 was a biggest setback to the government itself for it held 88 per cent (pre privatization) holding in PTCL. Dividend from PTCL was the major source of revenue for the government; last year it had contributed Rs22.5 billion in dividend and the contribution in 2004-05 at Rs3.50 per share would have amounted to Rs15.7 billion. The government currently was in dire need of funds to improve the fiscal deficit which had widened owing to provision of huge oil subsidy. Other state-controlled entities such as Oil and Gas Development Company (OGDC) and Sui Northern Gas Pipelines (SNGPL) had chipped in their share of dividend in the government coffers.

But just in case Etisalat did not agree to a payout for 2004-05 on total equity, since a Rs3.50 per share final dividend on aggregate 5.1 billion PTCL outstanding shares would exhaust Rs17.85 billion, sources said, there was another possibility. That of paying out final dividend or first interim cash dividend only to the 12 per cent minority shareholders in PTCL. That would work out to 0.612 billion shares, which at Rs3.50 would require appropriation of only Rs2.1 billion either out of the 2004-05 PTCL’s profit of Rs26.60 billion or the first quarter profit of the on-going year.

Market experts said that numerous precedents existed where companies that had not earned enough profit or were deep in deficit, distributed dividends out of latest profit, only to the small shareholders with sponsors’ opting to waive their share in the payout.