ISLAMABAD, April 4: The Securities and Exchange Commission of Pakistan has cancelled licences of two leasing companies — National Asset Leasing Corporation Limited (NALC) and Dadabhoy Leasing Company Limited (DLCL) — for their failure to fulfil the requirement of minimum paid-up capital for all leasing companies to Rs200 million by the prescribed date.

The commission had raised the minimum requirement in order to strengthen the financial position of the leasing companies and improve their prospects of resource mobilization for under-capitalized companies by an amendment in the Leasing Rules in 1997, an official source told Dawn here on Thursday.

Due to mushroom growth of leasing companies, it had been observed that many companies were doing very little business because of limited financial resources at their command. By raising the paid-up capital requirement, the source explained, the SECP wanted to encourage consolidation in the leasing sector by way of merger of companies with limited capital resources.

It was, therefore, decided to direct the minimum requirement from Rs100 million to Rs200 million. For this purpose, the leasing companies were advised to fulfil the requirement within a time span of two years, that is, by October 31, 1999. Subsequently, this deadline was extended to June 30, 2001.

Thanks to close monitoring of the sector, the SECP found that NALC and DLCL had not complied with the directive as required under rule 7(3) of the Leasing Companies (Establishment & Regulation) Rules 2000. The commission issued show-cause notices in this regard with a view to giving the respective managements an opportunity to explain their position.

In response to the notice, the management of NALC presented a plan to increase the capital base to the requisite level. The commission, however, found it to be unviable.

While the management of DLCL did not even acknowledge the receipt of the show-cause notice. In order to provide a final opportunity of being heard, the show-cause notice was published in two national dailies. The management of DLCL again did not bother to respond to the notice.

The SECP, in a notification issued on Thursday, announced the cancellation of licences of the two companies to operate as leasing companies with effect from April 4, 2002.