Seven joint venture investment companies (JVICs) are operating in public sector under bilateral arrangements between Pakistan and the respective foreign countries. The government is considering divesting its shareholding in these companies through initial public offerings (IPOs) at the stock markets.

The representatives of the JVICs, during a meeting in the ministry of finance on December 10, generally favoured the idea. At the same time, they voiced their concerns on re-evaluation of the feasibility of offloading of shares, ‘future regulatory framework,’ key objectives, strategic focus and business plan etc. of the JVICs after their listing on the stock exchanges. All these matters are to be worked out with the ministry of finance and the Privatisation Commission.

The seven operating JVICs set up on 50:50 ownership, comprise: (i) Pak Libya Holding Company Limited (PLHC); (ii) Pak Kuwait Investment Company (Pvt.) Limited (PKIC); (iii) Saudi Pak Industrial & Agriculture Company (Pvt.) Limited (SAPICO); (iv) Pak Oman Investment Company Limited (POIC); (v) Pak-Brunei Investment Company Limited (PBIC); Pak-Iran Joint Investment Company (PIJIC) and Pak-China Investment Company Limited (PCICL).

The matter of off-loading of shares held by the government has perhaps surfaced as the initial life of joint ventures arrangements of the three well-established JVICs may have been completed or about to be completed shortly. The renewal of the earlier arrangements (or changes thereof) is expected to be decided after careful review of the JVICs, categorised as development financial institutions.The shareholding of the JVICs is held directly by the governments or one of the organs of the joint venture partners. The Board of Directors of the JVICs is constituted of officers drawn from various ministries. The day-to-day management of each joint venture is in the hands of officers representing the joint venture partners.

The overall good performance of the four JVICs reflects the level of commitment of all these representatives.

Of the seven JVICs, only four are in full commercial operation. On overall basis, the operations of these JVICs have been profitable with some fluctuations. PKIC has the largest total assets at Rs28 billion followed by SAPICO at Rs24 billion. SAPICO leads the way with loan portfolio at Rs8 billion followed by POIC at Rs6 billion while PKIC is number three. Investment wise, PKIC and SAPICO occupy the first two positions while PLHC ranks third at Rs8 billion and POIC is the fourth at Rs4 billion.

Surprisingly, as regards deposits, PLHC and POIC occupy the first two positions while PKIC and SAPICO are at the bottom. The differences in the ranking of four JVICs with respect to loans and advances, investments and deposits is perhaps due to the basic investment philosophy, organisational structure and management style adopted by each JVIC.

The four JVICs were rated A1+ in June this year for the short-term by PACRA and JCR-VIS. For long-term, PKIC has the highest rating at AAA. POIC and SAPICO were assigned AA+ long-term rating while PLHC was given AA-. The ratings reflect the relative strength of these institutions.

Besides playing important role as DFIs, the four JVICs have diversified and enhanced economic activity in the country by promoting a number of new companies.

PKIC appears to have taken the lead by promoting the following companies: (i) Meezan Bank Limited, the first Islamic bank in the country (ii) Pak-Kuwait Takaful Insurance Company Limited, the first Islamic insurance company (iii) Al-Meezan Investment Management Limited, an advisory company, which has floated a close-end fund of Rs250 million and an open-end fund in the name of Meezan Islamic Fund, (iv) Plexus: A joint venture between PKIC and Meezan Bank, under the technical collaboration with World Site of Canada aims to target the local and international IT market for its services, (v) Faysal Management Services (Private) Limited, which had set up Fayzan Manufacturing Modaraba on behalf of ICI Pakistan Limited.

SAPICO: Its affiliates include (i) Saudi Pak Leasing Company Limited, acquired in 1997 the Standard Chartered Mercantile Leasing Company Limited and later renamed it; (ii) Saudi Pak Commercial Bank Limited, acquired in 2001 the Prudential Commercial Bank Limited and later renamed it; (iii) Saudi Pak Insurance Company Limited, set up in 2005; and (iv) Saudi Pak Real Estate Limited set up in 2006 (waiting to start formal operations). In 1992 SAPICO completed construction of Saudi Pak Tower, a landmark in Islamabad. SAPICO has established regional offices in Karachi, Lahore and at Riyadh, Saudi Arabia.

PLHC: The first of the seven JVICs was incorporated in Pakistan as a private limited company on October 14, 1978. The objectives of the company mainly comprise the promotion of economic growth of Pakistan through industrial development, undertaking other feasible business and establishing and acquiring companies to conduct various businesses as may be decided from time to time. Like other JVICs, PLHC did participate in developing different companies as subsidiaries but the results were not as promising as that of PKIC or SAPICO.

Moreover, due perhaps to sanctions on Libya for a number of years, PLHC operations during the period were rather at low key. Now that the sanctions have been lifted, the company is poised to assume full operations in all areas under its mandate.

According to a recent report, PLHC has received an additional capital of Rs1,600 million, including foreign direct investment equivalent of $13.124 million from its Libyan shareholders, thereby meeting the SBP’s minimum capital requirements up to December 31, 2009.

POIC: It has been growing through investment in subsidiaries and within about five years of its creation it has established Pak Oman Microfinance Bank Limited and Pak Oman Asset Management Company Limited. POIC, being mandated to act as a vehicle to facilitate a two- way business flow between the two sponsoring countries, already has a fully functional Muscat Office and is now fully geared to make a tangible contribution to economic development by supporting the industrial, agricultural and service sectors.

The three new JVICs have been set up but are not yet fully operational.

Pak Brunei Investment Company Limited was established on November 22, 2007. It is a joint venture between the government of Pakistan and Brunei Investment Agency, a new partnership of endless opportunities with innovative financial ideas.

PCICL was launched on December 17, 2007. The President of Pakistan in his message on this occasion said, “The launch of Pak China Investment Company is another milestone in economic relations as the company shall play the role of a catalyst in further promoting project co-operation particularly in the private sector.”

As regards PIJIC, it is still in the process of completing preliminary formalities essential for opening its doors for full-fledged investment operations. This process presumably will take a few months.

In light of the above facts, the divesture may be relevant only to the three mature JVICs namely PKIC, SAPICO and PLHC. There may be different ways for reducing public ownership and inducting of private sector. This may be decided on case-to-case basis in consultation with the respective foreign countries. The basic objectives should be that the JVICs should continue enhancing investment and bilateral trade. As regards the young POIC and the three new JVICs, these may be allowed to complete the first term of the bilateral joint venture arrangements without any change in status.