New Delhi, Nov 26 The trend of major firms delisting from Pakistan Stock Exchange is eroding price discovery and competitive pressures in the country, a report has said.
Pakistan removed tax advantages to listed stocks and if tax rates remain high, more large companies may eventually consider leaving the stock market, a report from The Star said.
In the 1980s, Pakistan offered a five per cent tax advantage to firms that listed on the stock exchange which drew dozens of family-owned textile mills and others to the Pakistan Stock Exchange (PSX), the report cited Ali Farid Khwaja, CEO of Oxford Frontier Capital and Co-founder and Chairman of KTrade as saying.
"Once the tax break went away, many firms had little interest in public shareholders. They quietly bought back shares, shrank the free float and continued operating like private family businesses," he said.
In Pakistan, most listed companies are tightly held, with sponsors owning 90-95 per cent of shares, unlike global markets where 10-20 per cent is often sufficient.
Shield Corporation’s recent decision to delist from PSX followed moves by companies such as Gillette and Philip Morris, underscoring the trend.
Some delist simply because public ownership is insignificant. Philip Morris delisted because its free float was five per cent, small enough to make the listing meaningless while still inviting regulatory scrutiny.
Being listed in the stock exchange limits the ability to operate in the “grey zones” common in Pakistan’s largely undocumented economy and can make competition harder when non-listed peers are less constrained, the report said.
Multinationals often prefer to book profits in lower-tax jurisdictions, which is complicated once listed as shareholders question intercompany transactions, import pricing, margins and royalties.
Meanwhile, International Monetary Fund's (IMF) new 186-page report has again highlighted an uncomfortable reality: Pakistan’s economic troubles are mainly the result of internal weaknesses, not outside pressure.
The report says corruption, weak institutions, and powerful vested interests have pushed the country to the edge of economic collapse, according to Pakistan Observer website.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor