KARACHI: BRR Guardian Modaraba — which is the country’s oldest Modaraba set up in 1983 — will get delisted from the Pakistan Stock Exchange (PSX) on Friday as a result of its merger with BRR Guardian Ltd.

Trading in the shares of BRR Guardian, which was incorporated for the sole purpose of executing the merger, will start on the main board of the PSX on the same day (Aug 4), the exchange notified investors on Wednesday.

Modarabas are collective investment schemes just like mutual funds. Investors give funds to Modaraba management companies against certificates (or shares) and earn proportionate returns.

But unlike mutual funds that invest mainly in stocks and debt instruments, Modarabas are supposed to invest directly in small and medium-sized businesses that are unlikely to receive bank financing for various reasons.

Trading in shares of BRR Guardian Ltd to begin on Friday

Speaking to Dawn on Wednesday, BRR Guardian CEO Ayaz Dawood said the reason for doing away with the Modaraba structure is the unfavourable changes in the tax laws.

Modarabas had their income exempted from tax if they distributed 90 per cent of their earnings among certificate holders, an exemption that the government withdrew two years ago.

“We’re the first Modaraba to convert into a company. Many others are going to follow suit,” he said.

A swap ratio of 1:1 under the Scheme of Arrangement for the merger sanctioned by the Sindh High Court means certificate holders of BRR Guardian Modaraba have been allotted one share of BRR Guardian (the company) against every single certificate of the delisted Islamic investment scheme.

The opening price of the company’s share will be Rs11.50, which was the last closing rate of BRR Guardian Modaraba.

Modarabas raise funds from the public in the form of certificates, which are then listed on the exchange for secondary trading. However, certificate holders don’t get voting rights unlike shareholders of regular companies.

As the certificate holders of BRR Guardian Modaraba have been allotted shares in the new entity in equal numbers, they’ll get the right to vote at the company’s annual general meetings.

The company operates as a real estate development entity, which develops mainly commercial buildings in Karachi, Lahore and Islamabad. It currently owns 26 properties that it rents out to “blue-chip companies” and earns a steady stream of rental income for its shareholders, said Mr Dawood.

The company is operating “conservatively” for now because of rising steel and energy prices. It may consider raising fresh funds for new real estate projects through a rights issue if it comes across a good investment opportunity, the CEO said.

Published in Dawn, August 3rd, 2023