KARACHI, Aug 8: Since January this year, the Karachi Stock Exchange has suspended more than 20 companies, which many investors see as a bailout of delinquent companies.
Sixteen of those companies were suspended in the first week of August.
The first few to be pushed aside this month included: Natover Lease and Refinance; Natover (Pref); Business and Industrial Insurance; Sahrish Textile; Adil Textile and Interasia Leasing Company.
On Aug 5, the KSE issued a notice stating: “Since the following companies have, so far, not removed the cause of suspension of trading in their shares, the management of the KSE in the interest of trade and public and in exercise of the powers vested under Listing Regulation No 5(2)(iii) read with Section 9(7) of the Securities & Exchange Ordinance, 1969, has decided that trading in the share of these companies shall be kept suspended for a further period of 60 days from Aug 8 or until such time as the cause of suspension is removed”.
The companies included First Tawakkal Modaraba; Kohinoor Looms; Tawakkal Garment Industries; Zahur Textile Mills; Tawakkal Polyester Industries; Mian Mohammed Sugar Mills; Tawakkal Limited; Standard Insurance Company; Ayaz Textile Mills; Mohib Exports; Data Agro; Muslim Ghee Mills; Ittefaq Textile Mills; Harnai Woollen Mills and Bela Engineers Limited.
Later on Aug 7, trading in stock of Sindh Alkalis was also put on the hold.
The companies are initially suspended for 60 days, but it has been observed that the term continues to get extended over and over again.
Some investors complain that the exit route for delinquent companies runs the familiar course: placing them on the defaulters counter, suspension and delisting.
Small shareholders lament the loss of their investment in such companies. But the KSE has continued to justify such suspensions and delisting as entirely in ‘public interest’.
Companies are picked up from those languishing on the ‘defaulters’ counter’ for violations under section 32 (1) of the listing regulations,” says a bourse official.
A host of reasons are cited for their delisting. “Many of them have not responded to KSE notices; some are under liquidation, while many others simply do not even exist,” said a KSE official. Although he did admit that small investors who had taken stake in those companies could go to lose money — unless they get something on liquidation— it was the new unsuspecting investors that the stock exchange had sought to protect.
“If such companies remain listed, new investors not knowing their current status could dabble in those stocks and eventually find themselves trapped,” the KSE official said.
Naming and shaming by placing companies on ‘defaulters’ counter’ by the KSE, which started many years back, has done some good to force delinquent managements to fall in line. Persuading chronic loss-making companies to buy-back shares has resulted in yielding well-brokered repurchase prices of dead stock for small shareholders.
Instead of suspension and de-listing of companies without paying a paisa to small shareholders, investors ask that the market regulators should compensate at least the initial investment of shareholders through the sale proceeds of whatever assets of those companies that could be confiscated, like land, machinery, etc.
“If there is no law to intrude into property of those companies, a law needs to be made,” said an irate shareholder who invested in a textile mill on the promise of bright future and ended up in the dark allay. But given the current state of the stock market, the regulators already have too many problems on their head without worrying about the dead and the dying companies.