BUT for the last three trading days this past week, shares at the Pakistan stock market have been sinking by the day. In three weeks, the KSE-100 Index has bled by 3,500 points, losing nine per cent market value of stocks, presenting the worst three-week performance in over 40 months.

Since their peak in May 2017, stock prices have melted by over 30pc. Market players and analysts can pin the blame on a host of factors, but the main drivers are foreign selling and a thick blanket of ‘uncertainty’ on the political and economic front.

The economy is still in deep trouble with a deteriorating balance of payment positions and the national kitty going dry. Prime Minister Imran Khan and his economic team sit, pondering on whether to go or not to go to the International Monetary Fund (IMF) for a costly bailout package.

What have the regulators, market players and companies done to calm the market and create confidence in investors’ minds? The simple answer is — nothing

Apart from exogenous factors, what have the regulators, market players and companies done to calm the market and create confidence in investors’ minds? The simple answer is — nothing.

Consider first the regulators. The apex regulator, Securities and Exchange Commission of Pakistan (SECP) is in disarray. Earlier this month, the prime minister approved the removal of Shaukat Hussain as chairman SECP on representation of the Ministry of Finance, that he was illegally given three promotions in a period of four months. Mr Hussain tendered his resignation last Thursday.

Second, the law stipulates five commissioners at the SECP: currently three seats are unoccupied with just two — Tahir Mahmood and Shauzab Ali — in place. Under such confusion, the apex regulator needs first to regulate itself.

At the offices of the front line regulator—the Pakistan Stock Exchange (PSX) — there is scarcely a concern shown. The Chinese majority shareholders and their appointed Managing Director and Deputy Managing Director — both foreigners — speak little, if at all on market conditions and efforts to put a floor under the fall.

Stock brokers are gunning for the State Life Insurance Company Limited (SLIC) to come to the rescue and bailout the market. “SLIC has a huge surplus of funds and, unlike mutual funds, has no fear of unit holders’ run for redemption,” said one market player.

A senior official of SLIC who asked not to be named said that he was aware that a long time back such a market bail out was undertaken by the Pakistan Industrial Credit and Investment Corporation (PICIC) and the National Investment Trust (NIT). “But SLIC cannot afford to squander its money in an unprofitable and risky job of buying stocks to bail out the market — it just isn’t our job,” he concluded.

Some market players suggest what sounds like a workable solution: cash-rich corporations ought to be coerced or offered incentives to exercise their right to buy-out ‘treasury shares’.

The Companies Ordinance contains a provision that seeks to allow listed companies to purchase their own shares and hold them as ‘treasury stock’.Under the ‘treasury shares’ provision, a listed company may buy its shares from the market and retain them in its treasury “if it believes that the shares were being traded in the market below their par value”.

Treasury shares do not have the right to cash dividends. The concept of treasury shares is not home grown but exists in various international jurisdictions such as Malaysia, Singapore, the US and the UK.

At the height of the bull run it would have been too expensive for corporations to repurchase their high-priced shares. But after a year and half of hammering, even blue chips are available at hugely discounted prices.

“If the company was to buy its own shares, it would be for its own good as doing so could be an effective tool to improve the company’s earnings-per-share,” said a fund manager, adding that the move would support the price of company’s share and stabilise the entire market.

Since shares held in the treasury of a company are not entitled to the right to vote and dividends, it was believed that big corporations with heaps of spare cash will line up for ‘treasury stock’. But that was not to be. In all the years since the rule was first drafted only two companies of little consequence have come forward to exercise the option.

So what holds back cash-rich corporations in Pakistan from seizing the opportunity to collect their over-sold shares from the market? The writer put the question to Hasnain Moochhala, the chief financial officer of Engro Corporation — the conglomerate known to command an eye-popping Rs66bn in cash, the highest stock pile of ready money held by any listed company.

Mr Moochhala said there were several reasons for his company not to exercise the option. One that the conglomerate was in the throes of expansions and diversification that required cash and it could ill afford to tie up the money in treasury stocks. “We are working to secure the future of the group for the next 10 to 15 years.”

Second, there was no track record of purchase of treasury stock by a major Pakistani corporate, and finally, the tax implications on such an initiative are not quite clear.

A market pundit added that for many other cash rich companies, there was also the question of cost of funding. “If companies earn more by parking their surplus cash in other profitable avenues where they can save more by not paying dividends on repurchased shares, why then must they get into the hassle of buy-backs,” he queried.

Published in Dawn, The Business and Finance Weekly, October 22nd, 2018