Disciplining listed public companies
THE regulators have started to tighten the noose around the neck of ‘ostensibly dishonest’ listed companies.
While releasing a list of 18 companies that the Karachi Stock Exchange said it had decided to ‘de-list’ last week, the bourse made unusual but the right move to identify major shareholders (sponsors) in those companies.
And more importantly, the exchange announced that no associate of a defaulter company would henceforth be allowed to float shares and list on the stock exchanges.
KSE director and chairman, company affairs committee of the bourse Mr Yasin Lakhani said that the exchange had decided to display names of all directors on the board of companies to be de-listed, except those of the government nominees, such as of NIT, SLIC, BOI etc.
He pointed out that the KSE was not vested with powers to take harsher measures; those lay with the apex regulator. Small shareholders with substantial cumulative holdings could also knock at the doors of the High Court to seek redress.
Mr Lakhani said that the bourse has tried to push sponsors of delisted companies to agree to a buy-back of shares from minority shareholders. But when they come for buy-back, it is seldom for the love of small shareholders, but to make a killing. Initially such sponsors get rid of minority shareholders by offering a small buy-back price, while getting hold of costly land and property.
Many veterans, however, say that unlike the past when the companies could vanish without paying a penny to small shareholders, the companies wishing to exit the bourse with dignity are now required to pay small shareholders value for their investment.
A buy-back price is brokered and paid to the small investors. Yet a senior member of the exchange made an interesting observation.
He said that a sugar company announced buy-back of the share that stood quoted at the market at only a few paisa, for as high as Rs18 per share. Yet the buy-back price was not acceptable to a small shareholder with only one share in the company, by virtue of the fact that at every annual general meeting, shareholders present were handed over package of two- kilo sugar costing well over Rs110, with extra perk of lunch or high-tea that went with the meeting!
But to deal with dishonest is always a difficult task. It was many years ago that the KSE thought of ‘punishing’ companies that do not comply with the bourse’s Listing Regulation 32(1).
The purpose was to bring to shame such companies. “Pasting of the names of companies on the defaulters’ board was thought to make them yield to the pressure and comply with all those regulations”, says a former director of the exchange. Did the trick work? In some cases it did but a majority of those companies couldn’t care less.
No one has gone from door to door of the ‘registered offices’ of those companies, but people in the knowledge of how unscrupulous corporate sponsors work, say that the majority of those companies have disappeared lock, stock and barrel.
M.Ghufran, DGM company affairs at the KSE says that the KSE has no powers to go beyond what they were already doing. He thought that it was for the government and the SECP to appoint ‘administrators’, to send inspectors or initiate takeover of those companies and go through the compulsory winding up process.
The capital market regulators have, this year, proceeded to speed up the ‘delisting’ of defaulter companies. Compared to just seven companies last year, more than 50 companies have already been ‘de-listed’ during the current year.
The quickening of the de-listing is understandable. Shares have rallied at the stock market, carrying the KSE-100 index considerably above the 14,000 level. And everyone who has anything to do with the stocks knows that beyond the 9,000 points, the market has been supported by what are referred to as ‘second and third-tier stocks’.
Almost two dozen companies have seen their stocks jump between 50 to 450 per cent in the last two months — from their previously frozen values. Is all that value-addition genuine or are unsuspecting small investors being trapped? Arguments run on both sides of the case.
But in the matter of last week’s KSE initiative, most investors believe it to be the right move of disclosing the names of directors of de-listed companies, as it would be punishing, not only for the scar that would be visible but also because those directors would face difficultly in striking credit deals with banks and other business partners.