KARACHI, Aug 27: First Equity Modaraba has purchased membership cards at the three stock exchanges and would be the first among 36 modarabas in the country, to venture into the stock brokerage business.

Adil A. Ghaffar, chief executive of First Equity, would not be drawn into disclosing the price paid for the brokers’ licences, but said that the modaraba had bought over the membership of Crescent Brokerage House Limited.

Market sources say that the value of the membership card at the Karachi Stock Exchange is currently around Rs27.5 million. With 200 members, KSE is the oldest and the largest among the three bourses in the country. The members licences at the smaller and latter entrants, Lahore Stock Exchange and Islamabad Stock Exchange bear the price tags of Rs7 million and Rs5 million, respectively.

CEO Adil Ghaffar said that the Modaraba had purchased offices from Crescent Investment Bank at the KSE. So did First Equity Modaraba have all that cash flow for acquisitions? “We are flush with liquidity,” claims Adil. He stated that the Modaraba had invested almost one-half of all the available funds— around Rs200 million in short-term finance i.e Morabaha/ Musharika and about Rs90 million had been put into listed stocks.

At the end of last reporting period: December 31, 2001, the Modaraba held Rs418 million in total assets. For the half year to end-December 2001, First Equity had made net profit of Rs26.9 million, equivalent to earning per share of Rs1.03 on 16.2 million outstanding modaraba certificates. CEO Adil said that the Modaraba would come up with full year to end-June 2002 results in the first or second week of September, when an annual review meeting of the stockholders would be convened. At the last count, 7,100 certificate holders held 49 per cent equity in First Equity Modaraba. Some two dozen financial institutions were the other major stakeholders commanding nearly a quarter of the capital.

Last year, First Equity had distributed cash dividend at 15 per cent and ranked fourth top payer after First Imrooz, which disbursed dividend at 46 per cent; First Grindlays at 33 per cent and First Habib at 22.50 per cent. The market price of the 10-rupee certificate in First Equity, nonetheless, trades at discount of 23 per cent.

But that is the unexplainable phenomenon over all of the sector. Although as many as 19 modarabas had declared cash dividends for the year 2001, in the range of 1.5 to 46 per cent, only four of the 36 modarabas are currently quoted at prices higher than their par value—First Grindlays, First Imrooz, First Habib Bank and Fayzan Manufacturing Modaraba.

CEO of First Equity gave new insight into the reasons for depressed prices of the Modaraba stocks. He said that one of the reasons was that the foreign investors showed scant interest in the Modaraba sector that undertook only the Islamic mode of business and investment. And secondly, the sponsors needed no more than 10 per cent equity to remain in control of the Modaraba. The managements of modaraba—unlike other companies— could not be taken over by the hostile acquisition of market float. For change, approval of the registrar of modarabas was mandatory, who would give consent only on serious grounds.

“Managements, therefore had no inclination to dabble in the modaraba stocks, which in most companies is a major reason for price flareups,” he contended.