950812

Panni outlines main points

CLA making law to

protect stock

market investors

NISAR AHMED SHEIKH

ISLAMABAD: The Corporate Law Authority is determined to protect investing public's interest and would enact regulation to meet this end.

This was stated by the CLA member, Securities, Javed Panni, at the concluding session of the five-day workshop on "Investing in Shares".

In his keynot address at the workshop, he highlighted the role being played by the CLA in regulating and development of the country's three stock exchanges, and said that the new measures being considered by CLA would provide further safeguards to investors.

Elaborating some of the new regulatory steps, he said that it will no longer be mandatory for companies to go public regardless of the size of their capital. Previously, it was mandatory for companies with a paid-up capital above one hundred million rupees to issue capital to the public. In this connection new regulations for public listed companies are currently in the formulation stage at the Corporate Law Authority.

He said that separate rules will be framed for fully equity-based companies versus those which have a loan component in their capital structure. In case of the fully equity-based companies, which solicit foreign equity, the total capital must be more than Rs 200 million. Further, the 100 percent equity-based project companies like Dhan Fibre, Lucky Cement, Ibrahim Fibres were allowed to raise foreign equity only to the extent of arranging funding for imported machinery. It was in line with this policy that Dhan Fibres was allowed to issue foreign equity worth Rs 1.47 billion which covered just the cost of imported machinery. Similarly, Lucky Cement was allowed Rs 1.98 billion foreign equity for purchasing imported machinery, out of a total of Rs four billion being the total cost of the project. Ibrahim Fibres, a Rs three billion project, was allowed Rs 1.7 billion foreign equity floatation against a total imported machinery need of Rs two billion.

Panni informed the participants that now no company is under compulsion to go public irrespective of its size of capital. It will be now at the option of the management to decide whether it wants any public participation or not.

So far as disinvestment is concerned, Panni said, sponsors wanting to disinvest their holdings are free to charge premium subject to certain parameters to be fixed by the CLA which will satisfy itself whether foreign placement has been made at the same premium amount. In case foreigners are offered equity on better terms than the general public, the CLA will ensure that there is no disparity.

RIGHT SHARES

He said that CLA's permission will no longer be required for the issuance of right shares. However, no right shares issue will be permissible within one year of the last issue. The rate of premium will depend on free reserves per share of the company. This would mean that auditing firms will now have to play a much more responsible role in determination of correct premium amount. Further, the companies will have to mention in the notice sent to the shareholders a five-year projection of the use of the right issue funds. Once a right issue has been announced, it will be necessary for the companies to fix the book closure date within a period of 45 days.

In case of a bonus issue simultaneous to a right issue, companies will have to clearly state whether bonus issues are eligible for right issue.

CLEARANCE SYSTEM

About the operations of the stock exchanges, Panni said that though the stock exchanges are following self-regulation regime, the T+3 revolving sysstem of clearance and settlement for companies which issue capital of up to Rs 100 million has been introduced to provide protection to the investors in order to minimize the possibility of (fraudulent) manipulation.

In this regard, he said, TeleCard, TriPack and Pakistan General Insurance will be the first companies on whom the new settlement system will be applied for the first time.

He said no stock broker will be permitted to take possession of more than 75,000 shares per settlement. The result of this system will be closely monitored, he added, and said that the stock exchanges will soon have outside directors from various professions like investment bankers, lawyers, accountants etc on their boards. This will greatly strengthen their professional capabilities, he added.

About CLA's role in capital market development, Javed Panni said that CLA's emphasis on corporization of brokerage house business will improve the professional excellence of the stock exchanges.

OTHER STEPS

Some of the other steps highlighted by him in this regard included (1) the coming into operation of the credit rating agency, (2) central depository being operational by June 1996, and (3) computerized trading at all the exchanges.

He further stated that the CLA has placed emphasis on the setting up of investment advisory services firms. Their number now stands at 49 and they are playing a critical fole in the development of capital market.

RULES FOR VENTURE COMPANIES

He said that rules have been framed for the establishment of venture capital fund companies for the first time in Pakistan. A joint venture between MCB, KMPG Marwick, Nomura and Japan and Al-Towfeek Investment Fund, having a paid-up capital of Rs 1.5 billion, will be the first fund management company in the country.

At the conclusion of the workshop, President, Islamabad Stock Exchange, Tariq Iqbal Khan, distributed certificates among the successful participants. The workshop was arranged by 'Professional Securities Management', a corporate member of Islamabad Stock Exchange, and Saudi-Pak.

The Professional Securities Management has been arranging seminar and training programmes on a regular basis in order to increase awareness about the capital market. It has also signed a MoU with the newly-formed 'Centre for Capital Market Studies' to carry out highly advanced international certification courses in Pakistan. Such courses will greatly enhance the knowledge of stock market professionals, thus improving their working.