KARACHI, Sept 9: Chest puffed out with pride, the spokesman for the Securities and Exchange Commission of Pakistan announces at the end of every month the number of new companies that have sought registration.

In August, 217 new entities, including single-member companies; non-profit associations; companies limited by guarantee and a foreign company, were announced to have enrolled at the companies' registrar counters.

All that raised the total number of registered companies to a staggering figure of 56,568.

But the problem is their disenchantment with the stock market listing.

The number of companies that sit on the KSE is a dismal 651. Ignoring the bulk of those that are dead, dieing or languishing on the “defaulters' counter,” the comparison suggests that only one in 86 registered companies have dared enter the stock market.

In the eight months period this year, fewer than five companies made Initial Public Offerings (IPOs) to raise Rs3.5 billion from the stock market. Investors initially greeted them with warm response, but the enthusiasm soon died down, leaving nearly four of the five IPOs currently trading at 22 to 60 per cent discount.

No new company has ventured into the equity market in the five months since April.

Farhan Mahmood, analyst at Topline Securities, reckons that with the local bourses reflecting dull trading mood, evident in the nine-year low daily volume of shares traded and the looming uncertainties over the economic costs of the floods, even eager corporates may be putting listing plans on the hold.

Responsible officials at many companies talking privately suggest that registered private companies are loathe to enter the market and raise cheaper funds, due to a host of reasons which range from genuine to bizarre. The pull back of tax incentive available many years ago poured cold water over companies' interest to seek listing; the latest Finance Bill allows a one time 10 per cent tax rebate on IPOs and is therefore scarcely alluring.

“Listed companies have to comply with formalities that involve cumbersome paperwork,” says an official at a cellular company that has opted to stay out.

He mentions that corporates that go public are constantly under the eye of the regulator for compliance with the code of corporate governance.

“Even a passing remark about company performance attracts notice from the KSE, threatening censor on grounds of leaking out 'material information',” says a chief financial officer of a long listed company.

In order to avoid the hassle, several big corporates on the bourse, have chosen to seek de-listing, after paying heavy buy-back price to shareholders. And finally the major hurdle in companies' entry into the stock market: The “Seth culture,” peculiar to the sub-continent where family business is thought to be safest with the all-family board. An alien prying in its affairs is a constant threat, whether regulator or shareholder. Small shareholder rowdism at every member meeting is also a pain in the neck.

Stock gurus say that the void in listing of new companies could be filled by the government, if it were to divest part of its holding in huge corporates under its control.

The Privatisation Commission, once warmly involved in the process of sale of state-owned units, still exists, but is cold as cucumber.

The government, nonetheless, could seize the opportunity to make money by floating some more shares in stocks that sell like hot cakes with the foreign investors. No better example of it than the Oil & Gas Development Company (OGDC). Wrote Mohammad Sohail, investment strategist at Topline in a recent report: “Out of $350m foreign investment seen in Pakistan equity market in 2010 to date, more than $100m has been invested in Pakistan's largest energy explorer, OGDC.”

Sohail points out that only about 150m of 630m shares, available in free float, is with the local investors while the rest-- more than 480m shares or 76 per cent of the float, is concentrated in the hands of a few foreign funds.

“And not to forget that a Re one change in the share price of the oil & gas giant, impacts Index by 17 points, due its weightage of nearly 24 per cent in the KSE-100 index,” says the analyst. Nearly a quarter of total market capitalisation owes itself to OGDC's market value of $6.9bn.

Many investors and analysts subscribe to the view that at currently over-priced OGDC stock, an offloading of another 10 per cent of the state-held stake would do the government good, which is fumbling for cash to close the burgeoning gap in fiscal deficit. Larger free-float could find the biggest foreign enthusiast in OGDC, Mark Mobius of Templeton Fund, scratching his head. And here also is the safety value.

An expanded free-float of the heavy-weight OGDC could insulate the stock market from a flash crash, in case foreigners lost love for the stock and decided to dump it as they did one time in the past.