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The Gazette of Pakistan
ISLAMABAD, MONDAY, SEPTEMBER 25, 2000
PART II
Statutory Notifications (S.R.O.)
GOVERNMENT OF PAKISTAN
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
NOTIFICATION
Islamabad, the 25th September, 2000

S.R.O. 663(I)/2000.-- In exercise of the powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII) of 1984), read with Finance Division’s Notification No. S.R.O. 698 (I)/86, dated July 2, 1986, the Securities and Exchange Commission of Pakistan hereby makes the following rules, the same having been published previously as required by the said section, namely:--

THE LEASING COMPANIES (ESTABLISHMENT AND REGULATION) RULES, 2000

1. Short title and commencement-- (1) These rules may be called the Leasing Companies (Establishment and Regulation) Rules, 2000.

(2) They shall come into force at once.

2. Definitions.-- (1) In these Rules, unless there is anything repugnant in the subject or context,--
(a) "Certificate of investment" means a certificate of investment issued by a leasing company under these rules;

(b) "Commission" means the Securities and Exchange Commission of Pakistan established under Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997);

(c) "company" means a company incorporated under the Companies Ordinance 1984 (XLVII of 1984);

(d) "documents" include vouchers, bills, promissory notes, securities for leases, advances and claims by or against the company and other documents supporting entries in the books of the leasing company;

(e) "equity" includes paid up share capital, free reserves, unappropriated profits and subordinated loans excluding deferred tax reserves and treasury stocks;

(f) "Form" means the Form annexed to the rules;

(h) "Government securities" include such types of Pakistani rupee and foreign currency obligations of the Federal Government or of a Corporation wholly owned or controlled, by the Federal Government or Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the Official Gazette, declare to the extent determined from time to time, to be Government securities;

(i) "leasing company" means a company engaged wholly in the business of leasing or which invests in such business at any one time an amount equivalent to at least seventy per cent of its assets:
Provided that cash and bank balances and investment in government securities shall be excluded to calculate investment in leasing business for purpose of this definition;

(j) "lease key money" means lease security deposit;

(k) "major shareholder" means any person holding five per cent or more of the paid-up share capital;

(l) "NBFI" means a Non-Bank Financial Institution and includes a DFI, Modaraba, Leasing Company, Housing Finance Company, Investment Bank, Discount House and Venture Capital Company;

(m) "Ordinance" means the Companies Ordinance, 1984 (XLVII of 1984);

(n) "person" includes an individual, a Hindu undivided family, a firm, an association or body of individuals whether incorporated or not, a company and every other juridical person;

(o) "records" includes ledgers day books, cash books and all other manuals or magnetic records used in the business of the leaving company; and

(p) "small entrepreneurs" mean individuals, firms and companies having fixed assets excluding land and building of the value of not more than twenty million rupees and facilities allowed to the software exporters or software houses and information technology companies;

(2) The words and expression used in these rules but not defined shall have the same meanings as are assigned to them in the Companies Ordinance, 1984 (XLVLL of 1984).

3. Eligibility conditions for the establishment of a leasing company.-- A leasing company may be established if each of its sponsors, proposed directors, chief executive and chairman of the Board of Directors fulfills the following terms and conditions, namely:-
(a) he has not been associated with any illegal banking business, deposit taking or financing dealings;

(b) he and companies in which he is a director or major shareholder, have no over-due loans or installments outstanding towards banks or NBFIs;

(c) neither he nor the companies in which he is a director or major shareholder has defaulted in the payment of taxes as on the date of application;

(d) he has not been sponsor, director or chief executive of a defaulting cooperative finance, society or finance company;

(e) he has never been convicted of fraud or breach of trust or of an offense involving moral turpitude or removed from service for misconduct;

(f) he has neither been adjudged as insolvent nor suspended payment of his debts nor has compounded with his creditors; and

(g) except for a nominee director, his net-worth as per wealth statements submitted with the tax authorities is not less than twice the amount to be subscribed by him personally;

4. Permission to form a leasing company.-- (1) A person desirous of forming a leasing company shall make an application to the Commission as set out in Form-1 providing information, as given in Annexure thereto, along with all the relevant documents and receipt evidencing the payment of non-refundable processing fee amounting to one hundred thousand rupees.

(2) The Commission may, if it is satisfied that the persons seeking permission to form the leasing company has fulfilled the terms and conditions specified in rule 3, permit by an order in writing such person to establish a leasing company.

(3) The permission granted under sub-rule (2) shall be valid for a period of six months unless extended for a maximum period of three months under special circumstances, on the application of the promoters made before the expiry of, said six months.

5. Conditions for grant of licence.-- A leasing company shall not be granted licence unless it fulfills the following conditions, namely;-

(a) it is incorporated as a public limited company under the Ordinance;

(b) it has a minimum paid-up share capital of two hundred million rupees;

(c) it has allotted at least fifteen per cent of the paid-up share capital to the promoters;

(d) its promoters and directors have given undertaking that they shall not dispose of their shares for a minimum period of three years from the date of commencement of business except with the prior approval of the Commission;

(e) appoints its chief executive who does not hold such office in any bank or Non-Bank Financial institution or insurance company or investment company;

(f) it has given an undertaking that no change in the Memorandum of Association and in the directors shall be made without prior authorization of the Commission and that all conditions of rule 3 shall be complied with; and

(g) it has given undertaking that the conditions of operation set out in these rules or specified by special order of Commission shall be duly complied.

6. Commencement of leasing operations.-- (1) A leasing company shall commence business and its operations only after it has been issued a licence under these rules.

(2) A leasing company shall make an application for obtaining a licence in.

(3) The licence to carry on business as a leasing company shall be granted by the Commission as set out in Form-III.

(4) Without prejudice to the terms and conditions set out in rule 7, the Commission may while granting licence, or subsequently, impose any other condition as it may deem necessary.

7. Terms and conditions of operation.-- A leasing company shall operate in accordance with the following conditions, namely:-

(1) It shall--

(i) invest its assets in leasing business as provided in clause (i) of rule 2;

(ii) appoint as its chief executive and at least one of the directors having senior management level experience in financial sector preferably in leasing sector for at least five years;

(iii) appoint its chief accounting officer who is a chartered accountant or a Cost and Management Accountant or a person having Master’s Degree in Commerce or Business Administration with finance specialization and experience of at least five years of accounting in a responsible position;

(iv) disclose all facilities exceeding thirty per cent of its equity in its accounts;

(v) maintain accounts of leasing operations having regard to the International Accounting Standards notified under sub-section (3) of section 234 of the Ordinance and technical releases issued by Institute of Chartered Accountants of Pakistan;

(vi) create reserve fund to which shall be credited--

(a) an amount not less than twenty per cent of its after tax profits till such time the reserve fund equals the amount of the paid up capital; and

(b) thereafter, a sum not less than five per cent of its after tax profits:

Explanation.-- Issuance of bonus shares shall only be made from the reserve available after appropriation created under clause (b) and since bonus shares will increase the paid up capital, the leasing company shall transfer further amounts to the reserves in order to comply with condition of clause (a);

(vii) ensure, while granting any facilities, that total facilities availed by any borrower or lessee from Non-Bank Financial Institutions and Banks does not exceed ten times of the equity of the borrower or lessee and obtain copy of accounts relating to the business of each of its borrower/lessee for analysis and record in the following manner, namely:-

Explanation:- Surplus arising on revaluation of assets determined in accordance with International Accounting Standards by a firm of may be considered for the purpose of calculating the exposure limit under this rule. The surplus on revaluation of assets so determined is required to be reflected in the balance sheet of the borrower or lessee.

(viii) ensure, while granting any facility exceeding one million rupees, that--
(a) current asset to current liabilities ratio of the borrower/lessee doe not fall below 1:1 or any ratio as prescribed from time to time, however, this condition may be relaxed in case of facilities upto two million rupees by recording reasons its of:

Provided that current maturities of long term debt not yet due for payment may be excluded from the current liabilities for the purpose of calculating this ratio;

(b) long term debt equity does not exceed 60 : 40 or any other ratio as prescribed; and

(c) due weightage is given to credit report relating to the borrower or lease and his group obtained for Credit Information Bureau of the State Bank of Pakistan. If the credit reports indicate default, the further facilities shall be extended only after recording reasons to do so;

Explanation.-- "Group" means a set of business companies or concerns under joint control or associated together or subsidiaries of a holding company; and

(d) lessee is registered tax payer and has paid its utility bills.

(ix) provide facilities at lease five per cent of its fund based facilities to all entrepreneurs.

(x) acquire and maintain membership of Leasing Association of Pakistan (LAP) and follow the code of conduct prescribed by the said Association.

(xi) follow guidelines issued to safeguard leasing company against their involvement in money laundering activities and other unlawful trades, it shall add to or reinforce the following precautions, a leasing company may have been taking in this regard; namely:-

(a) leasing company shall make reasonable efforts to determine the true identity of the customer before extending their services and particular care shall be taken to identify ownership of all accounts and those using safe custody facilities, effective procedures shall be instituted for obtaining identification from new customers and an explicit policy shall be devised to ensure that significant business transactions are not conducted with customers who fail to provide evidence of their identity;

(b) leasing company shall ensure, that business is conducted in conformity with high ethical standards and that rules and regulations are adhered to. It is accepted that leasing company normally does not have effective means of knowing whether a transaction stems form or forms part of wrongful activity. Similarly, in an International context, it may be difficult to ensure that cross border transactions on behalf of customers are in compliance with the regulations of another country. Nevertheless, leasing company shall not set out to offer services or provide active assistance in transactions which in their opinion are associated with money derived from illegal activities; and

(c) leasing company shall establish specific procedures for ascertaining customer status and his sources of earning or monitoring of accounts on a regular basis for checking identities and bonafides of remitters and beneficiaries, for retaining internal record of transactions for future reference. The transactions, which are not of character with the normal operation of the account involving high deposits, withdrawals and transfers, shall be viewed with suspicion and property investigated.

(xii) keep the information upto date provided in annexures to Form I and II by communicating changes and modification therein within fourteen days of such change or modifications.

(xiii) provide return on deposits which may be different for different volumes of deposits provided uniformity is observed with each category but deposits etc of listed companies, recognized charitable trusts and statutory bodies shall, however, be exempt.

(2) It shall not---

(i) make exposure to a single group for more than twenty per cent of the net investment in leasing finance, however, in arriving at exposure per person under this rule, the following shall be excluded, namely:-

(a) ninety per cent of certificates of deposit and certificates of investments of the lessee under lien with the leasing company;

(b) face value of FIBs lodged by the lessee as collateral; and

(c) Pak rupee equivalent of the face value of Special US Dollar Bonds converted at official rate, lodged by the lessee as collateral.

(ii) allow facilities to any of its directors or to individuals, firms or companies in which it or any of its director is interested as partner, director or guarantor, as the case may be, its chief executive and its major shareholders, including their spouses, parents and children or to firms and companies in which they are interested as partners, directors or major shareholders of that concern without the approval by the directors of that leasing company:

Provided that the director interested in seeking such approval shall not take part in the proceedings of the approval of the facility;

(iii) allow unsecured facilities or facilities secured only by guarantees except the facilities provided against bank guarantees, the end use of which will be verified by the leasing company to be productive:

Provided that the bank providing guarantee shall have rating grade not lower than BBB:

(iv) grant unsecured facilities to or allow facilities on the guarantees of its chief executive, directors and major shareholders including their spouses, parents, and children or to firms and companies in which they are interested in partners, directors or major shareholders of that concern;

(v) appoint or elect more than twenty-five percent of its directors from the same family, including spouse, dependent lineal ascendants and descendants and dependent brothers and sisters;

(vi) undertake the business of real estate or provide funds to the construction companies, builders and developers and companies dealing in real estate:

Provided that a leasing company may lease machinery, equipment and vehicles to the construction companies;

(vii) old, deal or trade in real estate except for use of leasing company itself;

(viii) engage in leasing operations pertaining to:--

(a) open hand;

(b) buildings, other than factory building and office building located within or outside the factory premises to be used exclusively as such by a lessee, subject to a maximum of one hundred and twenty square feet per employee and residential undertaking and warehouses; and

(c) furniture or furnishing of any type:-

Provided that the company may lease hard furniture excluding carpets and curtains upto five per cent of its portfolio;

(ix) fix the period of lease for less than three years in the case of any lease agreement except in case of computers and other equipment used in information technology;

(x) remove any of its records or documents relating to its business from Pakistan to a place outside Pakistan without the prior permission of the Commission;

(xi) allow facilities for speculative purpose;

(xii) make change in its chief executive and board of directors excluding director nominated by creditors and sponsoring financial institutions without prior approval of the Commission; and

(xiii) make investment in un-quoted shares of any company without the approval of the Commission.

(3) The companies granted licence before the commencement of these Rules, shall raise the paid up capital to two hundred million rupees by 30th June, 2001.

8. Limits on exposure.-- (1) Liabilities, excluding contingent liabilities, of a leasing company shall not exceed seven times of its equity during first two years of its operations and ten times of the equity in the subsequent years.

(2) Contingent liabilities of a leasing company shall also not exceed seven times of its equity during the first two years of its operations and ten times of the equity in the subsequent years.

9. Margin against facilities.-- (1) Following minimum margins shall be maintained against various facilities and all guarantees will be backed by 100 per cent realizable securities:-

(a) in case of performance bonds, the condition of 100 per cent cover of realizable securities may be relaxed subject to minimum compulsory realizable security cover equivalent to 20 per cent of the amount of the performance bond;

(b) in case of guarantees issued against mobilization advance, the condition of 100 per cent cover of realizable securities may be relaxed subject to the following conditions namely:-

(i) guarantees issued should contain a clause that the mobilization advance shall be released by the beneficiary through the guarantor leasing company only; and

(ii) at the time of issuing such a guarantee the beneficiary should sign an agreement with the leasing companies that releases out of mobilization advance would be covered by realizable assets; and

(c) in case of bids bonds issued on behalf of domestic consultancy firms bidding for international contracts where the consultancy fees are to be received in foreign exchange, the requirement of 100 per cent cover by realizable securities may be waived off, and this relaxation would also be available to all suppliers of goods add services bidding against international tenders.

(2) No leasing company shall provide unsecured facilities to finance subscription towards floatation of share capital of public listed companies or allow facilities against is own share or shares of its associated undertaking and subsidiaries thereof or shares of companies not listed on the Stock Exchange and shares of listed companies obtained as collateral shall be subject to the following minimum margins, namely:-

(a) where the current market value does not exceed the preceding twelve months average market value, 20 per cent of the current market value;

(b) Where current market value exceeds the preceding twelve months’ average market value but does to exceed twice the preceding twelve months’ average market value, 40 per cent of the current market value; and

(c) Where the current market value exceeds twice the preceding twelve months’ average current market value, 50 per cent of the current market value:

Provided that no leasing company shall hold shares in any company as pledges or mortgagee, of an amount exceeding thirty per cent of its own equity or thirty per cent of the park-up capital of that company whichever is less.

(3) Certificates of deposit of banks with investment grade will be subject to a margin of 15 per cent and COIs/COMs. TFCs with investment grade rating but not lower than BBB will be subject to a margin of 25 per cent of face value or market value whichever is less.

(4) Facilities against pledge of trading stocks shall be subject to a margin of 25 per cent.

(5) Facilities against hypothecation shall be subject to a margin of 50 per cent.

10. Provisioning for non-performing assets.-- Every leasing company shall follow prudential guidelines in the matter of classification of its assets and provisioning there against as specified below:--

A. Short Term Facilities

FORM-I
[See rule 4 (1)]
APPLICATION FOR PERMISSION TO FORM A LEASING COMPANY

Dated, the_______________
To
The Securities and Exchange
Commission of Pakistan,
Islamabad.

DEAR SIR,

We hereby apply for grant of permission under rule 4 of the Leasing Companies (Establishment and Regulation) Rules, 2000, to form a leasing company under the name and style of___________________________

The information and documents as required in the Annexure to this form duly verified and signed by all promoters and proposed directors alongwith five spare copies of this application and an affidavit by them as to the correctness of the details, is submitted.

We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such changes/modifications.

A receipt of Rs.-- -------being the processing fee, deposited in_________

Verification by
Oath Commissioner,.


Yours faithfully.

ANNEXURE
[See rule 4 (1) and 7 (1) (xiii)]
INFORMATION TO BE SUPPLIED FOR OBTAINING PERMISSION TO FORM A LEASING COMPANY
AND SUBSEQUENT CHANGE IN DIRECTORSHIP AND CHIEF EXECUTIVE

1. Full name, former name if any, father’s or husband’s name, nationality, residential and business address, national tax number, present occupation of each sponsor, proposed director, proposed chief executive and proposed chairman of the Board. (Institutional sponsors shall mention their names and addressed only instead of giving all these particulars of their nominee directors).

2. Names and addresses of companies, firms and other organizations of which the aforesaid sponsors, proposed chief executive and proposed chairman are or have been directors, partners or office holders during the last ten years. Copies of annual accounts of such companies and firms for the last three years alongwith summary of their paid-up share capital free reserves, profit after tax and dividend payment to be provided.

3. Financial standing, educational as well as professional qualifications and experience of persons mentioned in paragraph 1 above, supported by documentary evidence.

4. Percentage of capital, each sponsor proposes to contribute in the proposed company.

5. Feasibility report of the proposed company.

6. Evidence of payment of income tax and wealth tax by the sponsors in individual capacity as well as by the companies, firms, etc, wherein they are or have been directors during the preceding five years.

7. Net-worth certificate of each sponsor supported by a duly authenticated copy of the latest wealth statement filed with the taxation department. In the case of sponsors/directors residing in countries where filing of wealth statement is not the requirement of law, a certificate of personal net-worth and general reputation issued by a bank of international repute shall be acceptable.

8. Names of the bankers of the sponsors alongwith their account numbers.

9. Draft of the Memorandum and Articles of Association.

10. Affidavit from each person mentioned in paragraph 1 above, stating that--

(i) he has not been associated with any illegal banking business, deposit taking or financial dealings:

(ii) he and companies in which he is a director or major shareholder have no over-due loans or installments outstanding towards banks or other financial institutions;

(iii) neither he nor companies in which he is a director or major shareholder has defaulted in paying taxes as on the date of application;

(iv) he has not been sponsor, director or chief executive of a defaulting cooperative finance society or finance company;

(v) he has never been convicted of fraud or breach of trust or of an offense involving moral turpitude or removed from service for misconduct;

(vi) he has neither been adjudged an insolvent nor has defaulted in making payments, to his creditors;

(vii) his net-worth is not less than twice the amount to be subscribed by him personally (not applicable to a nominee director).

FORM-II
[See rule 6(2) and 7 (I) (xiii)]
APPLICATION OBTAINING FOR LICENCE TO OPERATE AS A LEASING COMPANY

Dated, the-------

To,
The Securities and Exchange
Commission of Pakistan,
Islamabad.

DEAR SIR,
We hereby apply for grant of licence under rule 6 of the Leasing Companies (Establishment and Regulations) Rules, 2000, to operate as a leasing company.

2. We hereby furnish the following information:--

(a) Date of incorporated as a limited company.

(b) Authorized, subscribed and paid-up share capital of the company (sponsors’ equity indicated separately).

(c) Names and address of directors and number of share held by each of them.

(d) Directors’ interest, direct or indirect, in any other company (ies) with details of such interest.

(e) Details of persons or group controlling the company including major shareholders with number and value of shares held.

(f) Name(s) of holding, subsidiary and associated undertaking(s), if any.

(g) Details of qualified staff engaged.

(h) Reasons for selecting the proposed place of business with statistical data.

(i) Additional facts in support of this application.

3. Certified copies of the Memorandum and Articles of Association and Certificate of Incorporation are enclosed.

4. An affidavit as to the correctness of the above information by the chief executive and two director is also furnished herewith. We undertake to keep this information upto date by communicating changes or modifications therein within fourteen days of such change or modifications.

Yours faithfully.

Signature__________
(To be signed by all the directors)

FORM-III
[See rule 6 (3)]
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Islamabad, Dated the______________
Registration No.___________

LICENCE TO CARRY ON THE BUSINESS OF A LEASING COMPANY

The Securities and Exchange Commission of Pakistan having considered the application for grant of licence under rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000 by _______________and being satisfied that the said*_________________is eligible for the licence, hereby grants, in exercise of the powers conferred by sub-rule (3) of rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000, licence to*____________________subject to the condition stated herein below or as may be prescribed or imposed hereafter.

Signature of the Officer

*Name of the Company

[No. F.3 (5A)/Misc/LES/96 dated_________25th September, 2000.]

HIZBULLAH SIDDIQUI,
Joint Director

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