KARACHI: The Aga Khan Fund for Economic Development (AKFED), which is the overseas sponsor of Habib Bank Ltd, is going to use its accumulated dividends worth Rs3.5 billion to buy additional shares of the country’s largest lender from the stock market, a regulatory filing said on Tuesday.

The announcement is first of its kind by any corporate entity with overseas sponsors given that the laws governing the repatriation of dividends didn’t allow it until recently.

Pakistan is facing a dollar shortage, which has led the authorities to impose official and semi-official restrictions on the outflow of foreign exchange. As a result, multinationals haven’t been able to repatriate their profits in the form of dividends to their overseas headquarters.

Pending repatriations amount to roughly $1.5bn, according to Amir Paracha, president of the Overseas Investors Chamber of Commerce and Industry (OICCI).

Lucky Cement announces buyback

Both inflation and the rupee’s depreciation against the dollar are eating into the accumulated — but yet to be repatriated — dividends of multinationals. These companies couldn’t reinvest their dividends even into a profit-generating bank account — let alone in the stock market — and repatriate the same along with additional returns.

“The OICCI team met the governor of the State Bank of Pakistan (SBP) last Friday to discuss this issue. The governor told us the SBP is going to allow foreign companies to invest their dividends in government securities and the stock market,” said Mr Paracha while speaking to Dawn on Tuesday at the office of Unilever Pakistan Ltd, where he serves as CEO.

The regulatory filing by Habib Bank, which came on the first working day after the OICCI team’s meeting with the SBP governor, said the purchase of shares will be “in accordance with applicable regulatory approvals”. The notice didn’t specify the purchase period.

The share price of Habib Bank rose 7.49 per cent, maximum allowed in a day, to Rs77.94 apiece on Tuesday. At the going rate, the foreign sponsor should be able to purchase 45.3 million shares, constituting about 3.1pc of the bank’s total shareholding. AKFED already owns 51pc shareholding in Habib Bank.

The SBP hasn’t formally notify any change in the regulation. Its spokesperson didn’t immediately respond to a request for comment.

Meanwhile, Lucky Cement Ltd announced on Tuesday it’d buy back 23.8m of its shares in a second buyback from June 2 to Nov 20 using the firm’s distributable profits.

At the going rate of Rs431.25 apiece, the exercise will cost the cement maker roughly Rs10.2bn.

The firm completed its first buyback of 10m shares at Rs4.35bn in March.

The practice of listed firms buying back their shares is becoming increasingly popular in Pakistan. The total number of shares goes down once a company conducts a share buyback for cancellation. As a result, its break-up value and profit per outstanding share go up. However, some analysts oppose the practice on the pretext that the exercise deprives the stock exchange of valuable shares.

Speaking to Dawn, Lucky Cement Chief Financial Officer Atif Kaludi said the buyback will benefit shareholders because it increases the net worth of each share in percentage terms and, resultantly, its eventual value.

“I don’t think buybacks are bad for the stock market. Cash flows from companies to investors who can either reinvest it in the stock market or use that liquidity for any other purpose. The economy needs cash right now, and we’re doing exactly that,” he said.

Published in Dawn, May 3rd, 2023