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INTRODUCTION
Internship is the final compulsory component of Master of Business Administration
programme. It is required to be undertaken individually by involvement in the workoperation of any concerned organization. Basically internship is a practical application of
the knowledge obtained in the area of specialization of the MBA and every student is
required to study and analytically review the concerned aspect of the organization and
also to report whether the theoretical concepts are being applied or not. Being a student
of MBA with the major in Finance, I have selected the Securities and Exchange
Commission of Pakistan for the purposes of internship.
Securities and Exchange Commission of Pakistan is a newly established body corporate
and it enjoys full operational, administrative and financial autonomy. The regulatory
scope of the Commission is the securities market, administration of company law and
regulation of some non-banking financial companies, in view of the strong inter-linkage
among the three areas.
In addition to regulating the above areas, the Commission is also responsible for
regulating leasing companies. Leasing companies have been on the scene for almost a
period of fifteen years now. Leasing was started as a result of the government decision to
eliminate interest or Riba from all financial transactions. As such, leasing (Ijara) was
accepted as one of the permissible mode of financing. Leasing is an important source of
medium to long term financing, and the leasing sector was set up to develop a vital role in
the capital formation of the country. Presently 33 leasing companies are registered under
the Companies Ordinance, 1984 and with the exception of one, all are listed on the stock
exchanges.
In the Internship Report in the Chapter 1, complete introduction of the organization with
specific reference of its functional profile have been given. As most of us know that
Government of Pakistan has established this organization to provide a regulatory
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environment, which is conducive to sustainable growth and long-term viability of the
corporate sector.
In Chapter 2, keeping in view the area of my interest, responsibilities of the Specialized
Companies Division of the Commission are discussed. This Division is responsible for
regulation of Leasing, Mutual Funds, Modaraba companies and other specialized
companies (except insurance companies). Its regulatory functions include licensing of
these institutions under the relevant laws and rules, monitoring the performance and
examination and analysis of financial statements.
In Chapter 3, an industry analysis of the Leasing Industry has been made and also tried
to provide all aggregate indicators for the last five years of the sector with its trends of
key ratios. An overall inference is also part of it.
In Chapter 4, three leading leasing companies have also been analysed with reference to
their history, performance, balance sheet and income statement. Their last five years
financial data and significant ratios are also given.
At the end, some recommendations for improvement of the leasing sector as well as forthe Securities and Exchange Commission of Pakistan have also been included in this
report.
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1. ORGANIZATION OF SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
The establishment of Securities and Exchange Commission of Pakistan with effect from
1st January, 1999 is an important milestone in the evolution of the regulatory framework
for the capital market in Pakistan. Since 1981, the capital market and the corporate sector
were being regulated by the Corporate Law Authority, a department of the Ministry of
Finance, which had been set up to administer all the corporate laws in the country. The
status of the Authority as a department of the Government circumscribed its effectiveness
as it lacked administrative and financial autonomy to recruit professionally qualified staff
and to develop necessary infrastructures. The rapid expansion of the market during early1990s highlighted the need for establishment of an independent regulatory body with full
operational and administrative autonomy. The process of restructuring the Authority into
an autonomous Commission was started in 1997 under the Capital Market Development
Programme of Asian Development Bank. A number of models of regulatory bodies, set
up in the recent past in other countries of the region, were studied and after careful
consideration, it was decided that:
the proposed Commission should be named Securities and ExchangeCommission of Pakistan and it should enjoy full operational,administrative and financial autonomy;
the regulatory scope of the Commission should cover securities market,administration of company law and regulation of some non-bankingfinancial companies, in view of the strong inter-linkages among the threeareas; and
the Commission should associate outside professionals and key policy
makers with its policy formulation process.
The policy decisions regarding the constitution and the structure of the Commission were
incorporated in the Securities and Exchange Commission of Pakistan Act, 1997 (the Act),
which was passed by Parliament and promulgated in December 1997.
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On 1st January 1999, Mr. Shamim Ahmad Khan, the then Chairman, Corporate Law
Authority, was appointed as the first chairman of the Commission. Four commissioners
were also appointed out of whom, the following three joined the Commission:
Mr. Abdul Rehman Qureshi Mr. Tariq Iqbal Khan Mr. Zafar-ul-Haq Hijazi
Subsequent to the resignation of Mr. Shamim Ahmad Khan in January 2000, Mr. Khalid
A. Mirza (a senior official of the International Finance Corporation (IFC), posted as
Chief of IFCs Regional Mission in Bangkok, Thailand) was appointed as Chairman of
the Commission. He took over on 31st March 2000.
Although the Commission became operational on 1st January 1999, it could not enjoy
financial autonomy during the remaining part of the financial year. Till 30th June 1999,
the Commission could only use the budgetary allocations, which had been made for the
Authority in the budget of the Federal Government for the fiscal year 1998-99.
Transformation of a government department into an autonomous body established under
a statute required considerable groundwork. During the calendar year 1999, foundations
of the new regulatory body were laid through a number of measures:
A Corporate Plan was prepared with the assistance of ADB consultantswhich covered organizational structure, reporting relationships andfunctional profiles; information system strategy; plans to up-gradefacilities like premises, equipment etc; skills development and financialplans.
Based on the Corporate Plan, the work of the Commission was distributedamong its six Divisions, powers of the Commission were delegated to theindividual Commissioners and Appellate Benches as envisaged in the Actwere constituted.
A Service Manual, determining the terms and conditions of theCommissions employees, was prepared.
Accounting and financial procedures were prepared and put into operation.
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Steps were taken to generate public awareness about the establishment ofthe Commission through seminars, the media, and circulars. A website(http//www.secp.gov.pk) was established that disseminates informationregarding all-important developments and policy decisions of the
Commission.
New office premises at Islamabad (NIC Building, Blue Area) andadditional space for the regional office at Karachi (5th Floor of SLICBuilding No.2, Wallace Road) were arranged.
1.1 SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT,
1997
The Commission is governed by the Securities and Exchange Commission of Pakistan
Act, 1997 which encompasses the constitution of the Commission, appointment and
terms and conditions of the Chairman and Commissioners, functions and powers of the
Commission and financial arrangements. The main provisions of the Act are given
below:
SUMMARY OF MAIN PROVISIONS OFSECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT, 1997
The Commission would be a body corporate and a legal person.
The Commission would comprise of such number of commissioners including achairman as may be fixed by the Federal Government but minimum andmaximum number of commissioners shall be five and seven respectively. Thetenure of the chairman will be three years while that of the commissionersshall be two or three years to be determined through random ballot to facilitatecontinuity of the Commission. The incumbents would be eligible for a secondterm.
The Commission would administer the following laws:
The Securities and Exchange Ordinance, 1969;
The Companies Ordinance, 1984;
The Modaraba Companies and Modaraba (Floatation andControl) Ordinance, 1980;
The Insurance Act, 1938 (since replaced by the InsuranceOrdinance, 2000);
The Companies Legal Advisers Act, 1974; and
The Securities and Exchange Commission of Pakistan Act,1997.
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All the powers of the Authority and the Federal Government (except powerfor rules making) under the above laws are exercised by the Commission.
The Government can assign administration of any other law to theCommission.
Terms and conditions of the employees shall be determined by the Commissionwith the approval of the Policy Board.
The main functions of the Commission in respect of securities market are:
regulation of securities market;
regulation and supervision of the activities of capital marketinstitutions like central depository and stock exchanges clearinghouses;
registering and regulating work of stock brokers, sub-brokers, trustees,bankers to the issue, registrars to the issue, under-writers, portfoliomanagers and investment advisers;
regulation of collective investment schemes (Unit Trusts and MutualFunds); and
regulating substantial acquisition of shares and mergers and takeoverof companies.
A Securities and Exchange Policy Board shall be constituted, which shall consistof seven members out of whom three would be from private sector while fourwould be ex-officio namely; Secretary, Finance Division, Secretary, Law andJustice Division, Chairman of the Commission and a Deputy Governor of theState Bank. The tenure of the private sector members of the Policy Board shallbe four years. The main functions of the Board are:
to advise the Federal Government on all matters relating to
securities market, regulation of companies and corporate sectorand protection of interest of investors, measures to encourage selfregulation by the stock exchanges and non bank financialinstitutions and measures to promote securities market;
to approve the budget of the Commission; and
to oversee the performance of the Commission to the extent thatpurposes of the Act are achieved;
The Commission shall administer and control a Fund consisting of all sumsreceived from Federal Government, grants and sums raised by the Commissionand fees, penalties and other charges levied by the Commission.
The Fund shall be expended for the purposes of meeting lawful expenditure ofthe Commission.
The Commission is required to prepare an Annual Report on the activities ofthe Commission to be released to the public and to be submitted to the FederalGovernment and the Parliament.
The accounts of the Commission are to be audited by two auditors; one to beappointed by the Federal Government and the other by the Commission.
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The Commission has been vested with sufficient powers to carry outinvestigation and inspection and call for any information relevant to its scopeof work.
An Appellate Bench is to be constituted by the Commission to hear appeals inrespect of an order passed by a Commissioner.
The decision of the Government to assign regulation of the insurance industry to the
Commission was taken after its establishment.
1.2 ADMINISTRATIVE STRUCTURE OF THE COMMISSION
In accordance with the approved Corporate Plan, the Commission has been organizedinto the following six Divisions:-
Securities Division; Enforcement Division; Specialized Companies Division; Company Law Administration Division; Insurance Division; and Support Services Division
1.3 FUNCTIONAL PROFILE OF THE DIVISIONS
Securities Division is responsible for all activities related to the securitiesmarket functions, including licensing and coordination, regulation ofsecondary market, public offerings, market intermediaries and marketsurveillance.
Enforcement and Monitoring Division is responsible for review of accounts oflisted companies, investigation and compliance of relevant laws andregulations by the management and prosecution (except in relation tospecialized companies, including insurance companies).
Specialized Companies Division is responsible for regulation of MutualFunds, Modaraba companies, Leasing and other specialized companies(except insurance companies). Its functions include licensing, regulatorycompliance and enforcement of all applicable laws
Company Law Administration Division is charged with the responsibility ofincorporating all companies and enforcing Companies Ordinance and other
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statutes and regulations in all (listed/unlisted/private) companies. TheDivision is also responsible for supervision of the field offices in various citiesworking as company registration offices.
Insurance Division is responsible for regulating the insurance sector. It would
exercise powers of the Commission under the law, and will administer the lawof insurance, covering licensing and supervision of insurers and otherregulated entities under that law.
Support Services Division is responsible for provision of efficient supportservices to the entire Commission. It would also attend to legal matterspertaining to various statutes, managing the funds and maintaining accounts,development and administration of human resources and introducingautomation systems through information technology. It is envisaged that theregional offices shall have their own dedicated support services units, whichwould implement the policies and procedures prescribed by the Support
Services Division at the head office.
Each of the above six Divisions have been divided into Wings for administrative
purposes, which are mentioned below:
Securities Division
Licensing and Coordination;
Secondary Market Regulation;
Public Offering; and
Surveillance
Enforcement Division
Accounts
Investigation
Compliance and Prosecution
Specialized Companies Division
Modaraba Companies and Modarabas
Leasing Companies
All Other Specialized Companies and Mutual Funds.
Company Law Administration Division
Coordination and Liaisoning
Regulation and Compliance
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Enforcement, Investigation and Prosecution
Licensing, Approvals and Appeals
Insurance Division
Actuarial Services Life Insurance Prudential Supervision
Non-life Insurance Prudential Supervision
Market Conduct Supervision
Enforcement and Prosecution
Support Services Division
Finance and Accounts
Administration
Legal
Human Resource
Information Technology.
The Commission is a collegiate body having collective responsibility. Chairman of the
Commission is its Chief Executive Officer and is responsible for the working of the
whole Commission while the Commissioners would assist him in over-all supervision.
Each Executive Director while heading a Division, or one or more Wings of a Division,
would be directly responsible to the Commission. The Wings have further been divided
function-wise into Sections to be headed by a Joint Director accountable to the respective
Director.
1.4 SECURITIES AND EXCHANGE POLICY BOARD
While ensuring full autonomy of the Commission, the Act provides for establishment of a
Securities and Exchange Policy Board (the Policy Board). The main objective of the
Policy Board is to provide guidance to the Commission in all matters relating to its
functions and to formulate policies in consultation with the Commission. The Policy
Board is also responsible for advising the Government on any matter falling within the
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purview of the Act and other Corporate Laws; and also to express its opinion on policy
matters referred to by the Government or the Commission.
The Act provides that the Federal Government shall appoint a Policy Board consisting of
seven members out of whom four would be ex-officio while three would represent the
private sector. The ex-officio members are: (i) Secretary, Finance Division; (ii)
Secretary, Law and Justice Division; (iii) Chairman of the Commission; and (iv) a
Deputy Governor of the State Bank of Pakistan. Following a recent amendment in the
Act, the size of the Policy Board has been increased to nine members, including the
Secretary, Commerce Division, as another ex-officio member. The term of an ex-officio
member is the period of incumbency of his/her official position whereas the term of a
private sector member is for a fixed period of four years. The first Policy Board was
constituted as under:
1. Mr. M. Khalil Mian (Chairman)2. Mr. Bashir Ahmed3. Mr. Khurshid Marker4. Ex-officio Secretary, Finance Division;5. Ex-officio Secretary, Law Division;6. Ex-officio Chairman of the Commission; and7. Mr. Mukhtar Nabi Qureshi, Deputy Governor of the State Bank of Pakistan.
On the resignation of Mr. M. Khalil Mian, the Government appointed Mr. Khalid A.
Mirza, Chairman of the Commission as Chairman of the Policy Board on 29th June 2000.
1.5 FINANCIAL ARRANGEMENTS
Since Commission is financially autonomous, a Fund has been established for meeting
the financial requirements of the Commission. The Fund is administered and controlled
by the Commission and consists of the following:-
such sums as the Federal Government may grant from time to time;
grants of money and sums borrowed or raised by the Commission for thepurposes of meeting any of its obligations or discharging any of its duties; and
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taxes, fees, penalties or other charges levied under this Act, the Ordinance, theSecurities and Exchange Ordinance, 1969 (XVII of 1969), the ModarabaCompanies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXIof 1980), Law of Insurance and under any other law that is for the time being
administered by the Commission.
All expenditure of the Commission, including the following items, is charged to the
Fund:-
Any expenditure lawfully incurred by the Commission, including theremuneration of Commissioners and employees, including provident fundcontributions, superannuating allowances or gratuities and legal fees and costand other fees and costs.
Any other expenses, costs or expenditure properly incurred or accepted by theCommission in the performance of its functions or the exercise of its powersunder this Act.
Purchasing or hiring equipment, machinery and any other materials, acquiringland and erecting buildings, and carrying out any other work and undertakingsin the performance of its functions or the exercise of its powers under this Act.
Repaying any financial accommodation received or moneys borrowed underthis Act and the profit, return, mark-up or interest due thereon (howsoevercalled).
Generally, any expenses for carrying into effect the provisions of this Act.
The Commission is required to prepare and submit its budget to the Policy Board within
ninety days of its establishment and thereafter not later than thirty days before the expiry
of each financial year. The Commission is required to keep proper accounts and at the
end of each financial year prepare a statement of accounts, which shall include a balance
sheet, and an account of income and expenditure. The Commission is also required to get
its accounts audited by auditors appointed with the approval of the Federal Government.
The Federal Government may if it deems fit; also require the accounts of the Commission
for any financial year audited by the Auditor General of Pakistan. The Policy Board is
required to send, within one hundred and twenty days after the end of each financial year,
together with the annual report of the Commission, a copy of the statement of accounts of
the Commission certified by the auditors and a copy of the auditors' report to the Federal
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Government which shall cause them to be published in the official Gazette and submit to
Parliament within two months of their receipt. The accounts of the Commission have
been jointly audited by two firms of Chartered Accountants and submitted to the
Government. A copy of the audited annual accounts for the period ended June 30, 3000
is annexed.
1.6 ADMINISTRATION, HUMAN RESOURCE DEVELOPMENT AND
SUPPORT SERVICES
Support Services Division (SSD) is responsible for provision of efficient support services
to the entire Commission including:
Matters relating to finance and accounts;
Handling of all legal matters relating to corporate laws being administered by theCommission, dealing with court cases, and providing legal advice to theCommission;
Development of human resource, training of employees and appropriaterecruitment rules for the induction of staff;
Administrative matters relating to the security of the Commissions property,handling of the upkeep of the office premises and all other managerial issues; and
Computerization, automation of the system and all matters relating to informationtechnology.
SSD has been organized into five Wings, namely:-
Finance and Accounts Administration Legal Human Resource Information Technology
The Commission has been endeavouring for the establishment of its organizational set up
and framing of rules, regulations and procedures. SSD has been able to undertake the
following assignments which were necessary for the operationalization of the
Commission:-
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A separate Finance and Accounts Wing was established on 1st July 1999, the datewhen the Commission became autonomous in terms of financing.
A standing operating procedure with regard to expenditure, revenue, imprest,
accounting system for CROs and procurement of fixed assets was prepared.
A formal Financial and Accounting Manual was prepared with the help ofconsultants appointed by ADB. The pay roll of the employees was computerizedwhich worked successfully during the period.
Accounting records were maintained according to the prescribed procedure.
Habib Bank was nominated as a banker of the Commission and 18 collectionaccounts and 9 checking accounting were opened with its branches at variousstations.
Internal audit was introduced and a separate Pre-audit Department wasestablished.
Consequent upon the above arrangements, Finance and Accounts Wing was able to
reconcile its receipts and get its accounts audited within the statutory period.
SSD is at present engaged in revamping the system for administration of human resource,
establishment of a separate legal department as well as a department of informationtechnology.
1.7 STAFFING
Section 43 of the Act empowers the Commission to determine suitability of officers and
staff working in the Authority for appointment in the Commission. Such employees were
not granted any right or lien to appointment on any post in the Commission. Pursuant to
these statutory provisions, the Commission carried out an exercise to determine the
suitability of the employees of the Authority and after careful consideration decided to
release 21 officers working in BS-17 to BS-21 and 59 other staff members. On the basis
of the qualifications and experience prescribed under the Corporate Plan, the Commission
has so far inducted 39 new officers upgrading the professional expertise of the
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Commission and improving its ability to discharge its responsibilities. Total existing
strength of officers and employees and organizational chart of the Commission are
annexed.
1.8 COMPUTERIZATION
Computerization was originally introduced in the organization (then the Authority) in
early 1992, with the objective of facilitating name search of companies and to keep a
database of companies incorporated under the Companies Ordinance, 1984. Over the
years, the need was felt to expand and enhance the programme in order to improve
operational capability and also to keep pace with similar organizations in the region.
Presently, the company database system is being used in the Commission at its
Headquarters and in the CROs. The database contains some basic information about all
registered companies. The existing system, however, is not efficient and up-to-date and
CROs are not electronically linked to headquarters. Record creation for new companies
is centralized at the head office, whereas subsequent changes to the company records are
done at their respective CROs and then replicated at all branches.
A database containing annual and half-yearly accounts of public-listed companies is
being maintained at headquarters. This database system is being used to generate various
reports such as non-payment of dividends by listed companies. At present, there are about
761 listed companies, and the database contains accounting data of these companies for
the last two years.
The Commission is cognizant of the present problems faced by it in its monitoring
procedures, the inherent delay in manual handling of all matters, problems faced by the
public in getting quick and timely service from the Commission and the lack of an
electronic communication system with the stock exchanges and CROs. The Commission
is taking steps to address such problems through a carefully designed automation
programme.
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It is also proposed to provide on a fast track basis, certain basic functions, such as:-
Availability of new names.
Registration of new companies.
Registration of mortgages/charges.
Inspection of documents.
Copies of documents.
Filing of documents
These reforms are expected to bring marked improvements both in the quality and speed
of service to the corporate sector.
Software is being developed to enable monitoring of the three stock exchanges on real
time basis. Unusual features in trading would be picked up and examined for timely
corrective measures.
The Commissions Headquarters and CROs are being connected through WAN.
Databases are being developed for use by all regional offices. Updating of data would befacilitated by a properly designed communication system. Internal correspondence and
circulars would also be handled electronically by way of e-mails and intranet facilities.
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2. REGULATION OF SPECIALIZED COMPANIES
In addition to regulating the Securities Market and administering the Companies
Ordinance, 1984, the Commission is also responsible for regulating leasing companies
Modarabas and credit rating agencies. These functions are being carried out under the
following laws and rules:-
Leasing Companies (Establishment and Regulation) Rules, 1996 framed
under section 506 of the Companies Ordinance, 1984 alongwith NBFIs
Prudential Regulations issued by the State Bank of Pakistan.
Investment Companies and Investment Advisers Rules, 1971 which
regulate closed-end mutual funds.
Asset Management Companies Rules, 1995 which regulate open-end
mutual funds.
Modaraba Companies and Modaraba (Floatation and Control) Ordinance,
1980 and Modaraba Companies and Modaraba Rules, 1981.
Credit Rating Companies Rules, 1995.
This responsibility has been entrusted to the Specialized Companies Division (SCD.
Registrars are responsible for regulation of leasing companies and Modarabas. In
addition to regulatory functions, the Commission also takes the initiative to develop such
specialized institutions. Regulatory functions include licensing of these institutions under
the relevant laws and rules, monitoring the performance, and examination and analysis of
financial statements. Registrars (Leasing) and Registrar (Modaraba) pay special attention
to profitability and liquidity of the institutions. They also ensure that the managements of
the institutions follow prudent commercial practices and conform to the Prudential
Regulations issued by SBP. Registrar (Modaraba) also enjoys powers, which are vested
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with the Registrar of Companies including filing of documents, maintenance of records,
registration of mortgages and providing facility to the public for inspection of records.
2.1 LEASING COMPANIES
As a result of amendments in the Banking Companies Ordinance, 1962 effected in 1997,
regulation of leasing companies was assigned to Corporate Law Authority. The
Commission is now carrying out this function.
2.2 MONITORING AND REGULATION
Registrar (Leasing) in SCD monitors and regulates leasing companies in terms of the
Leasing Companies (Establishment and Regulation) Rules, 1996 framed under section
506 of the Companies Ordinance, 1984. Under these Rules, leasing companies require
permission of the Commission for change of chief executive and directors, for opening
new branches and for issuance of COIs. Advertisements are also required to be approved
by the Commission. In addition to compliance with the requirements stipulated in the
Leasing Rules, the Registrar (Leasing) also ensures that the requirements of NBFIs Rules
issued by the State Bank of Pakistan as well as requirements of IAS-12 and 17 are duly
observed. SCD monitors periodical reports received from leasing companies, which
provide information on:
Liquidity position. Equity and liabilities Equity and contingent liabilities. Distribution of deposits/COIs by maturity. Source of borrowings and maturity.
Analysis of advances.
2.3 REGULATORY ISSUES
New leasing companies are required to have minimum capital of Rs. 200 millionunder the Leasing Companies (Establishment and Regulation) Rules, 1996.However, at present, only nine companies have paid up capital in excess of Rs.
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200 million. Although existing companies were directed to raise their capital uptoRs. 200 million but 24 leasing companies have yet to raise their capital upto therequired amount. These companies have attributed their default to marketconditions, which did not encourage issuance of right shares.
The Commission has notified for public opinion new rules to be called LeasingCompanies (Establishment and Regulation) Rules, in substitution of the existingRules with the aim of providing a comprehensive regulatory framework for thelease finance sector. The new Rules combine both the establishment of leasingcompanies as well as prudential regulations for the conduct of leasing business.
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3. INDUSTRY ANALYSIS
At first glance, the term industry may seem self-explanatory. After all, everyone is
familiar with the auto industry, the drug industry, and the electric utility industry.
Analysts and investors need methods with which to classify industries. One well-known
and widely used system is the Standard Industrial Classification (SIC) system based
on Census data and developed to classify it on the basis of what they produce.
3.1 OTHER INDUSTRY CLASSIFICATIONS
The SIC system of industry classification is probably the most consistent system
available, and possibly the easiest to use. However, it is not the only industry, designation
in actual use. Standard & Poor's Corporation, at the end of 1982, provide weekly stock
indexes on approximately 100 industry groupings (or parts of industries) Many of these
series go back 30 or 40 years.
3.2 ANALYSING INDUSTRIES
Industries are analysed through the study of a wide range of data, including sales,
earnings, dividends, capital structure, product lines, regulations, innovations, and so on.
Such analysis requires considerable expertise and is usually performed by industry
analysts employed by brokerage firms and other institutional investors.
3.3 INDUSTRIES IN PAKISTAN
In Pakistan, the capital market classifies the industries on the basis of what the companies
are produced. In the following table the total number of industries including their
companies and their performance is shown.
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NUMBER OF INDUSTRIES INCLUDING THEIR COMPANIES AND THEIR
PERFORMANCE
S.No.
Sector 1996 1997 1998 1999 2000
No.of
Cos.
Div.
paid
No.of
Cos.
Div.pai
d
No.of
Cos.
Div.
paid
No.of
Cos.
Div.
paid
No.of
Cos.
Div.paid
1. Mutual Fund39
2339
2439
2239
19
3921
2. Modarabas52
2152
2048
1347
26
4724
3. Leasingcompanies
3018
3219
3220
3220
3221
4. Inv./Sec.Cos/Banks
3915
3918
3915
3920
4025
5. Insurance39
1539
1739
1639
17
3913
6. Textile Spinning 153
34 152
39 149
34 146
51
14480
7. Textile Weaving 28 2 27 7 27 7 26 9 26 78. Textile
Composite51
1153
1653
1654
17
5429
9. Woollen 9 2 8 3 8 1 8 2 7 210. Synthetic &
Rayon27
727
927
926
12
268
11. Jute 8 0 8 1 8 3 8 3 7 212. Sugar & Allied
Ind.38
2138
1838
838
21
3821
13. Cement 20 7 21 3 20 1 20 4 20 614. Tobacco 7 3 6 2 6 2 6 2 6 215. Fuel & Energy
2814
2719
2820
2820
2720
16. Engineering 16 3 16 5 16 5 16 4 16 4
17. Auto & AlliedEngg.
25 11 25 11 25 10 25 11
25 9
18. Cables &Elect.Goods
165
164
155
15 4 155
19. Transport &Comm.
73
72
72
7 2 84
20. Chemical &Pharm.
4127
4125
4123
3923
3923
21. Paper & Boards 15 9 15 7 15 8 15 8 15 722. Vanaspati &
Allied19
019
119
119 0 19
1
23. Construction 4 0 4 0 4 0 4 0 4 224. Leather &
Tanneries8
58
68
48 6 8
6
25. Food & AlliedInd.
22 10 21 10 22 12 22 13
22 13
26. Glass &Ceramics
114
112
112
10 4 105
27. Miscellaneous30
1430
1029
929
12
2912
Total: 782
284 781
298
773
268
765
330
762372
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FIVE YEARS TURNOUT OF COMPANIES WHO HAVE PAID DIVIDEND
36% 38% 35%43% 49%
0
200
400
600
800
1000
1996 1997 1998 1999 2000
Years
No.ofCompanies
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3.4 LEASING INDUSTRY
LEASING SECTOR IN PAKISTAN
Sr.
No.
NAME OF LEASING Shareholders equity
Rs. in million
1 Asian Leasing Corporation Limited 92.48
2 Askari Leasing Limited 638.85
3 Atlas Lease Limited 316.87
4 Capital Assets Leasing Corporation Limited 98.56
5 Crescent Leasing Corporation Limited 338.50
6 Dawood Leasing Company Limited 306.73
7 English Leasing Limited 136.67
8 First Leasing Corporation Limited 297.35
9 Ghandhara Leasing Company Limited 91.7910 Grays Leasing Limited 134.90
11 Ibrahim Leasing Limited 141.86
12 Inter Asia Leasing Company Limited 81.74
13 International Multi Leasing Corporation Limited 85.97
14 Lease Pak Limited 101.00
15 Mercantile Leasing Company Limited 115.23
16 National Asset Leasing Corporation Limited 74.39
17 National Development Leasing Corporation Limited 1240.48
18 Natover Lease and Refinance Limited 43.60
19 Network Leasing Corporation Limited 113.34
20 ORIX Leasing Pakistan Limited 926.2921 Pacific Leasing Company Limited 147.96
22 Pak Apex Leasing Company Limited 120.17
23 Pak Gulf Leasing Company Limited 107.56
24 Pakistan Industrial Leasing Corporation Limited 581.22
25 Pakistan Industrial and Commercial Leasing Limited 229.94
26 Paramount Leasing Limited 294.86
27 Saudi Pak Leasing Company Limited 353.04
28 Security Leasing Corporation Limited 121.53
29 Sigma Leasing Corporation Limited 121.00
30 Trust Leasing Corporation Limited 367.54
31 Union Leasing Limited 288.28
32 Universal Leasing Corporiation Limited 76.20
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Leasing companies have been on the scene for almost a period of fifteen years now.
Leasing was started as a result of the government decision to eliminate interest or Riba
from all financial transactions. As such, leasing (Ijara) was accepted as one of the
permissible mode of financing. Leasing is an important source of medium to long term
financing, and the leasing sector was set up to develop a vital role in the capital formation
of the country. Presently 33 leasing companies are registered under the Companies
Ordinance, 1984 and with the exception of one, all are listed on the stock exchanges.
3.5 INDUSTRYS AGGREGATE INDICATORS
In the following sections contain brief description of the overall size of the leasing sectorin Pakistan and its performance over the last five years.
The trend of industrys aggregate indicators for the last five years are given below:
Industry's aggregate indicators Rs. In million
1995 1996 1997 1998 1999 2000
No. of companies 27 30 33 33 32 32Paid up capital 2,766 3898 4234 4352 4566 4762
Retained earnings 1904 2746 3234 3359 3305 3441
Investment in lease finance 9404 21892 25164 28111 29039 30281
Investments 1484 1768 2590 2724 2664 3162
Borrowings 7780 18432 21603 23173 23765 25740
Revenues 2522 4090 5046 5315 5528 5704
Net profit 517 922 906 610 451 573
Financial charges 1058 2758 3006 3293 3634 3709
Operating expenditure 390 926 959 1198 1294 1368
Taxation 92 165 155 293 149 151
Cash Dividend 60 537 399 340 371 409
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3.6 INFERENCE
The number of companies and the paid up capital are the industries input parameters
whereas revenues, profits, financial charges and investments are the output parameters
indicating the extent of the benefits provided by the industry.
The paid up capital has increased from Rs. 3.8 billion in 1996 to Rs. 4.7 billion in 2000,
showing an increase of 24% over the five years. Amongst the output parameters
investment in lease finance increased increased from Rs. 21 billion in 1996 to Rs. 30
billion in 2000, maintaining its increase trend in the five year period and showing an
overall increase of 43%.
28
29
30
31
32
33
1996 1997 1998 1999 2000
No. of Companies
0
1000
2000
3000
4000
5000
1996 1997 1998 1999 2000
Paid up capital
0
10000
20000
30000
40000
1996 1997 1998 1999 2000
Investment in Lease
Finance
Net profit was showing a decreasing trend from 1996 to 1999. It has now increased in
the year 2000 showing increase from Rs. 451 million to Rs. 573 million in 2000 an
improvement of 20% in the year above.
Revenues
4090
50465315
5528 5704
0
1000
2000
3000
4000
5000
6000
1996 1997 1998 1999 2000
Net profit
922 906
610
451
573
0
100
200
300400
500
600
700
800
900
1000
1996 1997 1998 1999 2000
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The revenues have grown from Rs. 4 billion in 1996 to Rs. 5.8 billion in 2000 which
indicates an increase of 45% in the five years period.
The above figures indicate that the leasing industry showed some what better results in
2000 as compared to 1999 as the net profit showed an increasing trend for the first time
in the five years period and the total investment in lease finance grew by Rs. 1.2 billion
as against 928 million in the previous years.
3.7 TRENDS OF KEY RATIOS
The following tables show the key ratios of the leasing industry
Trends of Key Ratios
1996 1997 1998 1999 2000
Earning per share (Rs.) 2.13 1.67 1.40 0.79 0.92
Return on equity (%) 13.99 11.88 7.91 5.73 6.58
Return on Investment (%) 3.33 2.81 1.79 1.25 1.36
Net profit margin (%) 22.56 17.69 11.48 8.16 9.31
Revenue per share (Rs.) 9.46 9.41 12.21 9.70 9.86
Financial charges/Total Expenses (%) 71.44 72.76 69.99 71.57 70.32
Debt Leverage (X) 3.20 3.23 3.42 3.60 3.84
Leasing and Financing/Net Worth (X) 3.40 3.43 3.59 3.57 3.84
Total Assets/Net Worth (X) 4.20 4.23 4.24 4.60 4.84
Current Ratio (X) 1.07 1.25 1.17 1.24 1.38
Financial charges/Total Revenue (%) - - - 65.73 63.78
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3.8 INFERENCE
Net profit margin (%)
22.56
17.69
11.48
8.169.31
0
5
10
15
20
25
1996 1997 1998 1999 2000
Return on equity (%)
13.99
11.88
7.91
5.736.58
0
2
4
6
8
10
12
14
16
1996 1997 1998 1999 2000
The key ratios of the leasing industry indicate that after a difficult year in 1999, the
industry has somewhat stabilized in 2000 as the two key ratios i.e., Net Profit
Margin and Return on Equity, after showing a decline trend up till 1999 have
shown a slight increase in 2000. Net Profit Margin increased from 8.16% to 9.3%
while return on investment grew from 1.25% to 1.36%. This stabilizing trend
indicates that the efforts of the leasing industry to increase lease investments and to
recover stuck up rentals have started to bear fruit.
Return on Investm ent (%)
3.33
2.81
1.79
1.25 1.36
0
0.5
1
1.5
2
2.5
3
3.5
1996 1997 1998 1999 2000
Earning per share (Rs.)
2.13
1.67
1.4
0.790.92
0
0.5
1
1.5
2
2.5
1996 1997 1998 1999 2000
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4. ANALYSIS OF THREE LEADING LEASING COMPANIES
4.1 ASKARI LEASING LIMITED - COMPANY INFORMATION
Askari Leasing Limited, a subsidiary of Army Welfare Trust, is focused on
underwriting quality lease business; with a twofold objective of ensuring safety of
capital and maximizing the shareholders return. The company is involved in the
business of auto financing and big corporate transactions to large local and
multination companies.
Board of Directors CommencedBusinesson
November 1993
Lt. Gen (R) Mohammad Afsar,Chairman
HeadOffice
5th & 6th Floor, AWT Plaza, The Mall,Rawalpindi
Brig (R) Ikram Ul Hassan,Director
Tel: 5511309-11, 111-111-345
Brig (R) Muhammad Ayub,Director
Fax 5565670
Brig (R) Gul Zaman Satti,Director
Offices at: Karachi, Lahore, Islamabad, Rawalpindi,Faisalabad
Mr. Khalid Sharwani, Director Staff Strength
70
Mr. Shujaat Ali Khan, Director Listed at: Karachi, Lahore and Islamabad StockExchanges
Mr. Javed Ahmed Noel, Director Auditors: Taseer Hadi Khalid & Co.,Dr. Amjad Waheed, Director (NITNominee)
LegalAdvisors
Walker Martineu Saleem
Mr. Taimur Afzal, CEO
4.2 PERFORMANCE HIGHLIGHTS
Besides maintaining the status of largest leasing company, it disbursed in excess ofRs. 3 billion during the year, which is the largest ever disbursement by any leasing
company in Pakistan.
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The major source of resource mobilization of the company is Certificates of
Investments (COIs) and as on June 30, 2000 total COIs were Rs. 4.7 billion ($80
million).
Pre-tax profit for the year 1999-2000 was Rs. 100 million. The companys
administrative expenses as a percentage of total assets are 0.9% which is the lowest
among the largest leasing companies. The company is rated A+ and A1 long and
short-term obligations by Pakistan Credit Rating Agency.
4.3 BALANCE SHEET
30th June 1996 1997 1998 1999 2000
Reporting Periods (Months) 12 12 12 12 12
EQUITY Rs. in million
Issued, subs. & Paid upcapital
200.00 200.00 240.00 240.00 324.00
Reserves & RetainedEarning
149.74 269.81 254.00 288.00 314.85
Total equity 349.74 469.81 494.00 528.00 638.85
LIABILITIESDeferred liabilities 31.29 74.67 20.00 - -Long Term Loan 8.33 12.50 253.00 83.00 224.58Certificates of Investment 1044.3
31822.40 1494.00 2202.00 3693.00
Lease Key Money 200.50 283.88 317.00 0.435 572.58Short-term loan and runningfinance
285.94 595.39 699.00 443.00 322.33
Short-term COIs 683.60 558.75 1467.00 1365.00 864.12Other current liabilities 135.21 201.02 284.00 458.00 705.80
Total Current Liabilities 1104.75
1355.16 2450.00 2266.00 1892.00
Total Liabilities 2738.94
4018.42 5147.00 5618.00 7221.21
ASSETSTangible Fixed assets 6.51 14.82 21.00 22.00 35.17Net Investment in LeaseFinance
1424.14
2195.17 3786.00 4118.00 3360.00
Long term investment 5.00 5.00 5.00 5.00 5.00Other long term assets 0.50 6.39 10.00 10.00 9.29Current portion of leasefinance
491.34 710.30 1222.00 1216.00 1866.93
Short term finance 73.34 467.51 0.00 25.00 35.91Investments 233.18 362.30 881.00 878.00 1098.00Other current assets 325.35 198.22 252.00 309.00 468.35Cash and Bank Balance 179.58 58.71 191.00 407.00 341.06
Total Current assets 1302.79
1797.04 2546.00 2810.00 3810.83
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Total Assets 2738.94
4018.42 5147.00 5618.00 7221.21
4.4 SIGNIFICANT
RATIOSNet Working capital (Rs.) 198.04 441.87 97.00 544.00 1918.56Current ratio (X) 1.18 1.33 1.04 1.33 2.00Payable/Receivable &
Loans (X)
1.72 0.98 0.00 - 1.96
Total Assets/Net worth
(X)
7.83 8.55 8.38 10.63 11.00
Debt Leverage (X) 6.83 7.55 9.42 7.42 9.00Break-up value (Rs.) 17.49 23.49 25.58 22.00 19.72
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4.5 INCOME STATEMENT
30th June 1996 1997 1998 1999 2000Reporting Periods (Months) 12 12 12 12 12
INCOME Rs. in million
Lease income 312.58 511.13 594.00 638.00 767.04Mark-up income 52.93 102.98 122.00 159.00 107.01Capital Gain on Investment 00.00 00.00 00.00 - 36.13Non-Interest Income 13.42 13.40 0.00 - -Other income 0.35 3.47 0.40 0.69 0.82
Total Income 379.28 630.98 716.40 798.00 911.01
EXPENSESOperating expenses 22.97 31.90 40.70 49.00 67.12Financial expenses 236.49 420.44 530.00 665.00 794.48Prov. For Pot. LeaseLosses/Loan
17.22 43.38 45.30 12.00 30.61
Prov. For Dimn. In value ofInvestment
2.36 0.18 0.00 0.54 (0.11)
Profit before taxation 100.24 135.08 100.00 71.00 100.55Taxation 4.50 15.00 28.00 8.50 9.10
Net Profit 95.74 120.08 72.00 62.00 91.45
APPROPRIATIONDividend 40.00 0.00 20.00 48.00 64.80Reserve for Bonus Shares 0.00 40.00 0.00 - -Statutory Reserve 19.15 24.02 0.00 12.5 18.29Other Reserves 36.00 56.00 19.00 121.00 23.00
4.6 SIGNIFICANT
RATIOSRevenue per Share (Rs.) 18.96 31.55 30.00 33.25 28.00Financial Charges/Total
exp. (%)
84.11 82.32 86.00 91.50 89.00
Net profit margin (%) 25.24 19.03 14.00 7.76 10.00Earning per share (Rs.) 4.79 6.00 4.54 2.60 2.82Earning per face value
(%)
47.90 60.00 00.00 25.80 28.23
Return on Investment
(%)
3.50 2.99 2.64 1.61 1.27
Return on equity (%) 27.37 25.56 20.75 11.70 16.00Dividend per share (%) 2.00 0.00 2.00 2.00 2.00Stock Dividend (%) 0.00 20.00 0.00 - -
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4.7 NATIONAL DEVELOPMENT LEASING CORPORATION LIMITED
-COMPANY INFORMATION
National Development Leasing Corporation Limited is the pioneering and a major
player of the leasing sector in Pakistan. The Corporation was established in 1984as a joint venture between National Development Finance Corporation, Asian
Development Bank, International Finance Corporation and local sponsors.
National Leasing Started business with an equity base of Rs. 20 million which has
over the last 16 years grown to a figure exceeding Rs. 1.2 billion.
Board of Directors Commenced Businesson
June 02, 1984
Mr. Mohammad Salim, Chairman Head Office 10th Floor, NIC Building, Abbasi ShaheedRoad, Karachi
Mr. Mubashir a. Akhtar, CEO Tel: 5660671Mr. Mohammad Naseem,Director
Fax 5680454
Mr. S.M. Saleem, Director Offices at: Karachi, Lahore, Islamabad, FaisalabadMr. Mohammad Sharif, Director Staff
Strength100
Mr. Zahid Haleem Sheikh,Director
Listed at: Karachi, Lahore and Islamabad StockExchanges
Mr. Farrukh Hussain Sheikh,Director
Auditors: Ford, Rhodes, Robson, Morrow.
Ms. Etrat H. Rizci, Director LegalAdvisors
Mohsin Tayyabally & Co.
4.8 PERFORMANCE HIGHLIGHTS
Profit before taxation of the Corporation was Rs. 95 million during the year 2000
as compared to Rs. 120 million in the previous year. Total income earned during
the year dropped from Rs. 698 million to Rs. 633 million depicting a fall of 10.3%.
The reduction in lease revenue is mainly due to decline in disbursements in
previous years. Cost of borrowings decreased to Rs. 399 million from Rs. 447
million in the previous year, due to availability of comparatively cheaper funds and
efficient handling of short-term borrowings. Administrative and operating
expenses were Rs. 99 million as against Rs. 87 million in 1999, which mainly
reflects the incidence of inflation. The Corporation made provisions of Rs. 57
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million against potential lease losses as compared to Rs. 29 million provided last
year. Provision for diminution of investment witnessed a reversal of Rs. 17
million as against increase of Rs. 16 million in 1999, due to appreciation in the
market value of the portfolio.
4.9 BALANCE SHEET
30th June 1996 1997 1998 1999 2000Reporting Periods (Months) 12 12 12 12 12
EQUITY Rs. in million
Issued, subs. & Paid upcapital
359.42 359.42 377.40 377.40 377.40
Reserves & RetainedEarning
780.00 828.24 822.55 856.00 863.08
Total equity 1139.42
1187.66 1199.95 1233.40 1240.48
LIABILITIESDeferred liabilities 3.28 4.42 4.29 5.32 7.48Long Term Loan 738.15 1280.22 1304.53 1513.58 1274.70Certificates of Investment 221.53 139.96 105.81 174.92 180.33Lease Key Money 466.99 531.97 555.60 535.83 295.60Short-term loan and runningfinance
734.31 423.52 446.98 479.20 311.83
Short-term COIs 1533.92
1436.45 984.57 540.09 453.99
Other current liabilities 434.37 307.00 321.97 322.58 853.30Total Current Liabilities 2702.6
02485.69 2187.78 2001.96 1619.12
Total Liabilities 5271.97
5311.98 4923.70 4804.92 3377.23
ASSETSTangible Fixed assets 56.31 60.10 59.08 60.59 60.00Net Investment in LeaseFinance
2904.72
2427.19 2155.54 2183.44 2127.36
Long term investment 165.38 55.18 50.69 14.38 10.31Other long term assets 18.36 356.33 564.31 485.31 295.38Current portion of leasefinance
1066.28
1339.80 1494.77 1599.33 1721.13
Short term finance 293.61 248.85 59.35 21.01 53.90Investments 353.87 422.70 150.11 125.92 134.25Other current assets 277.13 320.26 316.48 210.50 128.57
Cash and Bank Balance 136.31 81.37 73.27 104.45 86.81Total Current assets 2127.2
02479.68 2215.99 2163.93 2124.66
Total Assets 5271.97
5311.98 4923.70 4804.92 4617.71
4.10 SIGNIFICANT
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RATIOSNet Working capital (Rs.) -
575.40
-6.01 28.21 161.97 505.55
Current ratio (X) 0.79 0.99 1.01 1.08 1.31Payable/Receivable &
Loans (X)
1.67 1.28 0.78 0.77 0.78
Total Assets/Net worth
(X)
4.63 4.47 4.10 3.90 3.72
Total Financing/Net
worth (X)
3.74 3.66 3.72 3.59 3.57
Debt Leverage (X) 3.63 3.47 2.83 2.63 2.54Break-up value (Rs.) 15.85 16.52 15.90 16.34 16.43
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4.11 INCOME STATEMENT
30th June 1996 1997 1998 1999 2000Reporting Periods (Months) 12 12 12 12 12
INCOME Rs. in million
Lease income 806.81 628.98 614.19 571.80 539.50Mark-up income 223.18 136.28 70.23 99.01 58.52Capital Gain on Investment 33.42 8.56 0.47 - 11.63Non-Interest Income 0.00 0.00 32.18 1.13 -Other income 51.63 11.12 22.38 26.06 22.86
Total Income 1115.04
784.94 739.45 698.00 632.51
EXPENSESOperating expenses 113.09 82.36 85.31 86.95 99.32Financial expenses 641.44 517.04 458.11 446.63 398.59Prov. For Potential Lease
Losses/Loan
34.50 55.47 110.76 28.64 56.83
Prov. For Dimn. In value ofInvestment
59.39 0.41 7.24 15.73 (17.37)
Profit before taxation 266.62 129.66 78.03 120.05 95.14Taxation 55.00 27.50 28.00 30.00 22.00
Net Profit 211.62 102.16 50.03 90.05 73.14
APPROPRIATIONDividend 107.83 53.91 37.74 56.61 66.04Reserve for Bonus Shares 0.00 17.98 0.00 - -Statutory Reserve 1058 5.11 2.50 4.50 3.66Other Reserves 90.00 28.00 10.00 29.00 4.00
4.12 SIGNIFICANT
RATIOSRevenue per Share (Rs.) 15.51 10.92 9.80 9.25 8.38Financial Charges/Total
exp. (%)
76.00 75.77 66.44 83.70 74.17
Net profit margin (%) 18.98 13.02 6.77 12.90 11.56Earning per share (Rs.) 2.94 1.42 0.66 1.19 0.97Earning per face value
(%)
58.80 28.40 13.26 23.86 19.40
Return on Investment
(%)
4.01 1.92 1.03 1.90 1.58
Return on equity (%) 18.57 8.60 4.17 7.30 5.89Dividend per share (%) 1.50 0.75 0.50 0.75 0.87Stock Dividend (%) 0.00 5.00 00.00 0.00 -
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4.13 ORIX LEASING PAKISTAN LIMITED - COMPANY INFORMATION
ORIX Leasing Pakistan Limited is a subsidiary of ORIX Corporation, the largest
leasing company in Japan and a leading diversified financial services provider
internationally. ORIX Corporation an asset base in excess of US$ 50 billion and
an international presence in 20 Countries.
The Company is mainly involved in leasing of industrial machinery, office
equipment, commercial vehicles and passenger cars. The Companys strength lies
in a large and diversified customer base with special emphasis on small to medium
size entities in all sectors. The companys Consumer Finance and Auto Lease
Departments cater to the needs of individuals for household appliances and saloon
cars. The companys operating lease division provides generators, communication
equipment and vehicles on short-term rentals.
Board of Directors CommencedBusinesson
January 1, 1987
Mr. Yoshihiko Miyauchi,Chairman
HeadOffice
Overseas Investors, Chamber of CommerceBuilding, Karachi
Mr. Shakirullah Durrani, ViceChairman
Tel: 111-242-424, 2426020
Mr. Takeshi Sato, Director Fax 2425897Masatoshi Yokota, Director Offices at: Karachi, Lahore, Islamabad, Sailkot, Faisalabad,
Peshawar, Hyderabad and Multan
Mr. MohammadMazharuddin, Director
StaffStrength
224
Mr. Shaheen Amin, Director Listed at: Karachi, Lahore and Islamabad Stock ExchangtesMr. Mohammad QamarulHaq, Director
Auditors: Sidat Hyder Qamar & Co.
Mr. Humayun Murad, CEO LegalAdvisors
Mansoor Ahmad Khan & Co.,
4.14 PERFORMANCE HIGHLIGHTS
ORIX Leasing achieved good growth during the year with new business volume at
Rs. 2.7 billion showing an improvement of 33% over the previous years volume.
The company provided financial assistance to 1,436 businesses. As at June 30,
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2000, the company had assets of Rs. 6.1 billion and net worth of Rs. 926.3 million.
For the year ended June 30, 2000 revenues rose to Rs. 980 million (1999: Rs. 905
million) and profit before tax increased to Rs. 156 million (1999: Rs. 150 million)
enabling the company to maintain cash dividend at 40%.
The Pakistan Credit Rating Agency maintained the companys credit rating at A1+
and AA- for short and long term debt respectively on the basis of accounts for the
year ended June 30, 2000. These are the highest credit ratings achieved by a
leasing company in Pakistan.
4.15 BALANCE SHEET
30th June 1996 1997 1998 1999 2000Reporting Periods (Months) 12 12 12 12 12
EQUITY Rs. in million
Issued, subs. & Paid upcapital
161.11 161.11 161.11 201.39 201.39
Reserves & RetainedEarning
524.76 588.08 659.75 669.38 724.90
Total equity 685.87 749.19 820.86 870.70 926.29
LIABILITIESDeferred liabilities 5.28 7.66 10.60 13.54 17.49Long Term Loan 1386.7
0
1948.10 1699.67 1983.88 1948.53
Certificates of Investment 7.79 6.94 7.38 11.53 223.68Long term deposits 394.11 505.55 576.22 679.38 911.38Current maturity of longterm loans
518.66 485.05 718.76 1057.56 974.94
Short-term loan and runningfinance
505.75 288.45 53.36 4.87 241.67
Short-term COIs 124.77 180.79 325.69 134.59 402.92Other current liabilities 371.65 384.43 378.00 472.10 464.25
Total Current Liabilities 1522.83
1338.72 1475.80 1669.12 2083.78
Total Liabilities 4002.58
4556.16 4590.53 5228.22 6111.15
ASSETSAssets in own use 36.73 42.38 39.33 34.45 59.30Operating lease assets 0.00 0.00 45.88 113.38 151.65Net Investment in LeaseFinance
1940.47
2493.90 2176.58 2371.44 2878.84
Long term investment 71.89 126.41 126.41 280.17 285.77Other long term assets 42.23 59.21 53.68 49.09 63.58Current portion of leasefinance
1717.43
1608.40 1854.34 2020.00 2285.31
Short term finance 14.58 14.59 14.50 14.50 24.55Investments 37.72 22.50 10.00 8.77 9.33
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Other current assets 67.57 63.68 58.66 177.24 240.16Cash and Bank Balance 73.96 125.09 211.15 159.18 112.66
Total Current assets 1911.26
1834.26 2148.64 2379.69 2672.01
Total Assets 4002.58
4556.16 4590.53 5228.22 6111.15
4.16 SIGNIFICANTRATIOS
Net Working capital (Rs.) 388.43 495.54 672.84 710.58 588.23Current ratio (X) 1.26 1.37 1.46 1.43 1.28Total Financing/Net
worth (X)
5.33 5.48 4.91 5.04 5.58
Total Assets/Net worth
(X)
5.84 6.08 5.59 6.00 6.60
Debt Leverage (X) 3.71 3.88 3.42 3.67 4.09Break-up value (Rs.) 42.57 46.50 50.95 43.24 46.00
4.17 INCOME STATEMENT
30th June 1996 1997 1998 1999 2000Reporting Periods (Months) 12 12 12 12 12
INCOME Rs. in million
Lease income 631.29 733.50 757.45 762.71 843.02Operating Lease Income - - 9.10 35.61 53.50Markup income 16.81 29.39 57.84 61.81 47.43Other fees and income 8.32 18.89 13.64 44.99 33.80Other income 0.56 0.45 1.05 0.00 2.25
Total Income 656.98 782.23 839.08 905.12 980.00
EXPENSESOperating expenses 95.50 115.60 140.08 171.64 221.92Financial expenses 362.48 474.36 536.99 551.14 562.26Prov. For Pot. LeaseLosses/Loan
32.47 35.17 28.12 31.88 39.72
Profit before taxation 166.53 157.10 133.89 150.46 156.10Taxation 8.00 25.00 30.00 20.00 20.00
Net Profit 148.53 132.10 103.89 130.46 130.10
APPROPRIATIONDividend 72.50 72.50 32.22 80.55 80.55Reserve for Bonus Shares 0.00 0.00 40.28 0.00 0.00Capital Reserve for deferred
tax
0.00 0.00 0.00 48.70 34.08
Other Reserves 75.00 65.00 30.00 7.00 7.00
4.18 SIGNIFICANT
RATIOSRevenue per Share (Rs.) 40.78 48.55 52.08 44.94 48.66Financial Charges/Total 73.91 75.88 76.15 73.03 68.24
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exp. (%)Net profit margin (%) 22.61 16.89 12.38 14.41 13.89Earning per share (Rs.) 9.22 8.20 5.16 6.48 6.76Return on Assets (%) 4.22 3.09 2.27 2.66 2.40Return on equity (%) 23.64 18.41 13.23 15.42 15.14Dividend per share (%) 4.50 4.50 2.00 4.00 4.00Stock Dividend (%) 0.00 0.00 25.00 0.00 0.00
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CONCLUSION
Securities and Exchange Commission of Pakistan
The establishment of Securities and Exchange Commission of Pakistan is, no
doubt, an important milestone in the evolution of the regulatory framework for the
capital market. It has been established keeping in view the dire needs of our
corporate sector under a capital market development programme of Asian
Development Bank.
The Commission is functioning under a well-defined organizational structure with
reporting relationships and functional profiles. It is planning to up-grade its
facilities like premises, equipment etc; skills development and financial plans.
Securities and Exchange Policy Board is also functioning well with the main
objective to provide guidance to the Commission in all matters relating to its
functions and to formulate policies in consultation with the Commission.
Commission is financial autonomous and its main source of income is fees,
penalties or other changes levied under the Act and the Ordinances being
administered by it.
During the year ended June 30, 2000 its income was Rs. 150.15 million and
expenditure was Rs. 67.17 million. Its surplus of income over expenditure was
Rs. 82.98 million that is a sign of sound financial position. (Balance Sheet and
income statement are annexed).
The Commission after its establishment has declared surplus 21 officers and 59
staff members pursuant to the statutory provisions to determine the suitability of
the employees and upgrading the professional expertise. Commission has also
inducted 39 new officers to improve its ability to discharge its responsibilities.
This change is also helpful to achieve its objectives.
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The Commission is facing problem in its monitoring procedures by the cause of
inherent delay in manual handling and public is facing problem in getting quick
and timely service. This is due to lack of an electronic communication system
with the stock exchanges and its Company Registration Offices. The Commission
is planning to solve this problems through a carefully designed automation
programme.
Leasing Industry
During the last few years, leasing has evolved as an important financing tool,
especially for the small and medium enterprises. With economic progress being
driven by small and medium enterprises sector growth, the leasing sector is
indeed playing an important role in the process of economic revival of the
country.
The figures of the leasing industry indicate some what better results in 2000 as
compared to 1999 as the net profit as the net profit showed an increasing trend for
the first time in the five years period and the total investment in lease finance
grew by Rs. 1.2 billion as against 928 million in the previous years.
The key ratios of the leasing industry indicate that after a difficult year in 1999,
the industry has somewhat stabilized in 2000 as the two key ratios i.e., Net Profit
Margin and Return on Equity, after showing a decline trend up till 1999 have
shown a slight increase in 2000. Net Profit Margin increased from 8.16% to 9.3%
while return on investment grew from 1.25% to 1.36%. This stabilizing trend
indicates that the efforts of the leasing industry to increase lease investments and
to recover stuck up rentals have started to bear fruit.
Payment of Dividend in the Leasing Sector is also showing an increasing trend as
in 1996 out of 30 companies, 18 companies had declared dividend (60%) and in
2000 out of 32 companies 21 companies have declared dividend (66%).
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RECOMMENDATIONS
Securities and Exchange Commission of Pakistan
Though the Securities and Exchange Commission of Pakistan, during its infancy,
is playing its statutory role efficiently but I have seen in the Commission a
number of complaints from the passive shareholders that the companies are
earning profits but not paying dividend and due to this reason minority
shareholders are not getting the fruits of their investment. Commission in the past
also started action against these types of companies. This action has increased the
number of dividend paying companies (1996 36% and 2000 49%). But I think
it is not sufficient, it should be increased and Commission should play itsstatutory role more efficiently to safeguard the interest of minority shareholders.
This is also one of the main causes of depressed securities market in the country.
In most of our corporate sector, the active shareholders are also management of
the companies and they enjoy the benefits in the form of their salaries and perks
from the companies. The Commission should rationalize the salaries and perks
with earning of the companies by implementing code of corporate governance.
Leasing Sector
As the leasing sector is performing well as compared to other sectors, investors
have better choices in it for investment purposes.
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ANNEXURES
Securities and Exchange Commission of Pakistan
Balance Sheet as at June 30, 2000
Fixed assets 7,993,706
Current assets
Advances, deposits, prepayments and other receivables 25,472,625
Cash and bank balances 114,830,134
140,302,759
Less current liabilities
Accrued and other liabilities 11,564,509
Net current assets 128,738,250
Net assets 136,731,956
Represented by:
The Fund
Grant received from the Government 50,000,000
Assets acquired from the dissolved CLA 1,316,511
Assets acquired from the re-appropriation of fund by the
Government 2,433,000
Surplus of income over expenditure 82,982,445
136,731,956
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Securities and Exchange Commission of PakistanIncome and Expenditure Account for the year ended June 30, 2000
Income
Fee and other recoveries 141,837,181
Income on bank deposits 8,315,862
150,153,043
Expenditure
Salaries, allowances and other benefits 42,218,352
Operating expenses 22,335,241
Assets acquired from the reappropriation of fund by the 2,414,363
Government 202,642
67,170,598
Surplus of income over expenditure transferred to the fund 82,982,445
150,153,043
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