For all the hue and cry by foreign investors in the industrial sector, successive governments have continued to claim that Pakistan has kept the investment policies for foreigners as liberal as they can be.

Foreign investors are permitted to hold 100 per cent of the equity in industrial projects without any permission from the government; official sanction is not required for setting up any industry (field of activity), location and size, except in some sensitive cases.

And the country places no restrictions on the full repatriation of investment, profits and dividends, which recorded a healthy growth of 54 per cent during the first quarter of the current fiscal year (July-September 2013).

According to the State Bank of Pakistan, foreign investors repatriated an amount of $201.9 million on account of profit and dividends during July-September 2013, against $131 million in the corresponding period last year; an increase of $70.8 million year-on-year (YoY).

Most multinational companies are doing roaring business in Pakistan. The higher repatriation of profit and dividends during July-September 2013 reflects the growth in corporate earnings.

Zubair Ghulam Hussain, head of equity sales and research at Foundation Securities, says that the just-closed September 2013 earnings season “has buckled the trend of sub-par earnings performance in the past two quarters”. The better-than-expected earnings were generally of sound quality and were concentrated in five high profile sectors.

Cumulatively, corporate earnings grew 24 per cent YoY and 27 per cent quarter-on-quarter (QoQ), despite a general slowdown in economic activity.

Foreign companies got a fair share of the earnings growth in the first quarter of the current fiscal year. Data gathered by this scribe from a sample of listed companies in various sectors, with principal stake of foreign shareholders, proves the point.

Abbott Laboratories’ profit for 3Q2013 (July-September) amounted to Rs615 million, up from Rs490 million in the same time last year; the company disbursed an interim cash dividend of 30 per cent.

The Standard Chartered Bank in Pakistan earned a profit of Rs7.360 billion in July-September 2013; up from Rs4.498 billion in the same time last year; the bank paid an interim cash dividend of 10 per cent.

Pakistan Oilfields Limited earned Rs3.607 billion in the quarter, up from Rs2.566 billion QoQ; the company paid a fabulous cash dividend of 450 per cent for the full year 2013. And Pak Suzuki Motor Company returned a profit amounting to Rs371 million for the quarter under review, jumping out of a loss of Rs193 million in the same period last year.

While some people scoff at the huge profits and dividends repatriated by foreign majority stakeholders in large multinational companies to their parents abroad, former chairman of the Securities and Exchange Commission of Pakistan and the Competition Commission of Pakistan, Khalid Mirza, says it is only fair that in a free-market economy, all investors, including foreigners, should have the right to free movement of their share of profit and dividends.

According to the SBP data, the repatriation in 1QFY14 reflects continuity of repatriations in FY13, when big multinational companies sent back $1.078 billion worth of corporate earnings to their parent countries during July-June 2012-13, against $1.061 billion in the year before.

Khurram Schehzad, head of research at Arif Habib Corporation, says that the increase in the outflow of profit and dividends suggests that the economy is improving and industrial activity is gradually picking up pace. He noted that the repatriation of profit involved both components of foreign investment: foreign direct investment (FDI) and foreign portfolio investment (FPI).

However, the major outflow during the quarter under review was seen in FDI, with about 86 per cent of the cumulative repatriated amount sent from profit earned on FDI. During the quarter, foreign investors sent around $174.6 million aboard on account of return on FDI, compared to $114.8 million repatriated in the first quarter of the previous fiscal year, representing a higher take-home income of $59.8 million.

In 1QFY14, the repatriated amount on FPI stood at $27.3 million, representing a sizeable increase from $16.4 million in transfers in the corresponding period of the last fiscal year.

A cursory glance reveals that around 13 sectors out of 36 saw increases in the repatriation of profit and dividends. The major outflow was recorded from the power sector, from where foreign investors repatriated $58 million in the first quarter of FY14. It was followed by the financial sector, which witnessed overseas transfers of $48.3 million on account of profit and dividends.

Yet, foreign investors in some of the sectors have been at a loss. During the quarter, foreign majority equity holders in several sectors did not earn enough to send returns from investment back home. These included tobacco, sugar, paper and pulp, leather, rubber, petroleum refining, mining, cosmetics, ceramics, electronics, tourism, information technology and social services sectors.

“The repatriation of profit and dividends by foreigners is directly linked with earnings by companies — no profit, no dividend; no dividend, no repatriation,” says a veteran at the stock market.

He asserted that on the corporate earnings front, the sectors that posted huge improvement in earnings were able to disburse handsome dividends to shareholders, and the foreign investors repatriated their share of profit.

The earnings of the exploration and production (E&P) sector — the largest listed sub-sector, with a market capitalisation of $15.1 billion (30 per cent of the total market capitalisation) rose substantially in 1QFY14.

Pakistan’s listed oil and gas explorers saw their earnings surge by 26 per cent over 1QFY13 YoY, as revenues grew 17 per cent, while higher non-core income further enhanced the bottom line. And the sector’s earnings rose by a phenomenal 93 per cent from the previous quarter ended June 2013 (QoQ).

The three major listed E&P companies — Oil and Gas Development Company Limited, Pakistan Petroleum Limited and Pakistan Oilfields Limited — posted cumulative earnings of Rs50 billion in1QFY14.

But the most spectacular phenomenon was seen in Pakistan’s largest industry — textiles — where scores of listed companies, after years of hibernation, stirred to life and posted an impressive growth of 40 per cent in profitability in 1QFY14, amounting to Rs9.1 billion.

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