Despite being the most heavily incentivised sector, a large number of textile companies listed at Karachi Stock Exchange (KSE) have been on the default counter for years instead of giving dividends to ordinary shareholders at the country’s largest bourse.
The textile industry contributes around 65 percent in the country’s total exports and therefore underlines its incentivised status. State Bank data show that during the first half of the current fiscal year, July-December FY11, the banks’ and Development Financial Institutions (DFIs) had lent over Rs836.076 billion to the textile sector for the financing of various projects. Similarly, the cash-strapped government’s annual subsidies to the ever-lucrative sector also amount to billions of rupees. On May 20, the cash strapped Ministry of Textile Industry released to the central bank 40 percent of the total mark-up subsidy amounting to over Rs 2.2 billion to be paid to textile exporters under the Export Finance Mark-Up Rate Facility (EFMRF) and Mark up Rate Support for Textile Sector (MRSTS) against the long-term loans.
This amount constitutes the second installment of the two packages covering a six-month period from March 1 to August 31 last year. Such huge official support might be reaping fruits for the national kitty, the country’s exports are expected to hit a record high of $25 billion at this year’s end on June 30, but the same cannot be said for ordinary shareholders of the textile companies listed at KSE. According to KSE figures up to May 17, there are some 126 listed textile companies, showing a paid-up capital of over Rs 10.55 billion and are facing the ire of regulators for their failure to meet the equity market criteria.
Of the total of 126 firms, some 72 were on the default counter, 20 were part of the ‘non-compliant segment’, 30 were facing suspension in their shares and four were de-listed from the market.
The 72 companies were put on the KSE’s default counter for failing to declare dividend/bonus for five consecutive years from the date of last declaration, quoting below 50 percent of face value continuously for three years, failing to hold Annual General Meeting continuously for three years, having gone into liquidation either voluntarily or under court order, failing to pay Annual Listing Fee (to KSE, SECP, CDC, NCCPL) for two years and failing to join the Central Depositary Company after its securities had been declared eligible by the company.
Those 20 companies which were identified in the non-complaint segment, KSE data shows, had failed to comply with the bourse’s Listing Regulation 30(2) making it mandatory for the listed firm to declare dividend for at least five years. Of the 113 firms faced with a KSE trading ban in their shares, some 30 are from the textile sector, some having not bothered to remove the cause of the suspension of trade for almost a decade, since 2001.
The four companies which were de-listed during 2010-11 from the Karachi Stock Exchange include Shaheen Cotton Mills, Amazai Textile Mills, Itti Textiles and Hala Spinning Mills.
Market sources claim that many of the listed firms at KSE had started the malpractice of remaining on the default counter to skip paying dividends to the shareholders. “These companies take undue advantage of the local laws that enable them to avoid delisting for three years,” a small investor told Pakistan Today at KSE.