CapitalMarkets

12
Table 12.1: EQUITY MARKET DEVELOPMENT (KSE) 200910(asofMarch31) % MarketcapitalizationtoGDP Paidupcapitalasa%ageofGDP StockMarketturnovertopaidupcapital 19.7 6.0 3.7

Atotalof650companieswerelistedontheKarachiStockExchange(KSE)asofendMarch2010,with PaidupcapitalofRs.894.2billion.AggregatemarketcapitalizationasatendMarch,stoodatRs.2,890 billion (US$ 35 billion). Market capitalization to GDP is currently just under 20%, which is low by comparisonwithmanycountriesinPakistanspeerreferencegroup. July to March FY10, the period under review, saw a recovery phase in the countrys premier capital market. Thebenchmark KSE100indexrose33%, in linewiththebroadrecoveryinglobalequitymarkets. From its recent trough in January 2009, attained in the aftermath of the floor imposition at the KSE in late2008,theKSE100indexisup107%.Aninfluxof foreignportfolioinvestmentduringtheJulytoMarch FY10period,withinflowscrossingUS$440millionat their peak, have powered the index, but volumes tradedremainafractionoftheperiodpriorto2008. Alargepartofthedryingupofliquidityinthemarket istheabsenceofleveragedproducts. 12.1GlobalEquityMarkets Fiscalyear200910startedwithhopeofrecoveryfromtheglobalfinancialcrisis.Therecoveryafterthe financialcrisiswasfragileatitsonsetwithsignsthattheworldsmarketswouldrecoup,butthesewere weakandvulnerable.Centralbanksreactedquicklywithexceptionallylargeinterestratecutsaswellas unconventionalmeasurestoinjectliquidityandsustaincredit.Theglobaleconomyexpandedforsome timebutitseffectonemploymenthasnotyetbeenseen. Thevulnerabilityoftheglobaleconomicrecoveryaswellasofthebullruninworldfinancialmarketshas beenunderscoredbytheonsetoftheGreekdebtcrisis.Globalcommoditiesandequitieshaveseena sharpselloffsince early May. US marketsplummetedon6th May2010withtheDow JonesIndustrial Averagefallingnearly1,000points,inwhathasbeendubbedtheflashcrash.Marketsremainwobbly despitethesizeoftheemergencypackageputtogetherbytheEurozonecountriesforGreece. Table12.2showstheperformanceoftheglobalandregionalmarketssinceMay2009,asmeasuredby theMSCIBarraPriceIndexwhichmeasuresthepriceperformanceofmarkets.Itmeasuresthesumof thefreefloatweightedmarketcapitalizationpricereturnsofallitsconstituentsonagivenday.
171

NumberoflistedcompaniesatKSEasa 1.2 %ageoftotalregisteredcompanies. Source:EAWing,KSE,SECP

EconomicSurvey200910 Table12.2:PERFORMANCEOFEMERGINGMARKETS MSCIIndex EM(EMERGINGMARKETS) EMASIA EMEASTERNEUROPE EMEUROPE EMEUROPE&MIDDLEEAST EMFAREAST EMLATINAMERICA (InUSD) 28thMay2009 %agechange 761.744 20.39 315.214 18.82 160.998 17.83 348.236 22.14 295.175 22.49 274.201 17.80 3,000.08 22.67 Source:www.MSCIBarra.com

28thMay2010 917.047 374.527 189.71 425.326 361.569 323.02 3,680.22

12.2PerformanceofKSE Mainlyonthebackofforeignbuying,theKSE100indexhasrisen74percentsinceitstroughinJanuary 2009.Evenaftertherecentselloffinequities,theKSE100indexhasgained33%sincethestartoffiscal year200910.Foreignportfolioinvestment(FPI)intheKSEhasrisensharplyforJulytoMarch200910. AccordingtoNationalClearingCompanyofPakistanLimited(NCCPL)data,thecumulativenetinflowof foreignportfolioinvestmentincreasedbyUS$431million. The other positives during 200910 to which equity investors have responded have included the restoration of macroeconomic stability following the balance of payments crisis of 2008; the IMF program (signed in November 2008) having remained on track for over a year; the upgrading of PakistanssovereignratingbyStandardandPoors,andtherevision,tostable,ofPakistansoutlookby Moodys,bothinAugust2009;andthesemblanceofagrowthrecoveryintheeconomy,forlargescale manufacturinginparticular,despitethechallenges. Onthebackofthenetbuyingbyoffshoreinvestors,theKSE100indexcrossedthe10,000markon12th March2010afteraperiodof18months.
Table12.3:ProfileofKarachiStockExchange NumberofListedCompanies NewCompaniesListed FundMobilized(Rsbillion) ListedCapital(Rsbillion) TurnoverofShares(billion) AverageDailyTurnoverofShares(million) AggregateMarketCapitalization(Rsbillion)

200506 658 14 41.4 496 79.5 348.5 2,801.2

200607 658 16 49.7 631.1 54 262.5 4,019.4

200708 652 7 62.9 706.4 63.3 238.2 3,777.7

200809

200910 (JulMar) 651 650 8 5 44.9 98.7 781.8 894.1 28.2 33.1 115.6 179.9 2,143.2 2,890.0 Source:KSE

ImportantMeasuresTakenatKSEin2009 IntroductionofcorporateBondsAutomatedTradingSystem. DataVendingandLaunchofMobileKSEAutomatedTradingSystem(mKats) Implementation of internationally accepted industry classification Benchmark a jointly developed. ClassificationsystemlaunchedbyFTSEGroupandDowJonesIndex. 172

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RiskManagement. IntroductionofClientLevelMarginingRegime. RestructuringofNetCapitalBalancerequirement. PresettlementmechanisminReady&DeliverableFutureContractMarket. IntroductionofExposureDropoutFacilityduringTradingHours. IntroductionofClientwisecashdepositsallocationagainstexposuremarginandlosses. ChangeinPenaltyrequirementonNetCapitalBalanceCertificate. 12.3ForeignInvestment After massive outflows in 2H 2008, foreign portfolio investment made a strong comeback in 200910. The net portfolio investment during July 2009March 2010 stood at $431.93 million in Pakistan, accordingtoNCCPL. Asaresult,fromanaverageof9percentin2009theshareofoverseasinvestmentintotalvolumesat thelocalboursesincreasedto15percentinMarch2010.Duringtheperiod,benchmarkKSE100Index hasgained38per cent (33percentin US$ terms). However,since theendofApril,sellingbyforeign investorshasreappeared,inlinewiththeretrenchmentwitnessedinglobalfinancialmarketsfollowing theeruptionoftheGreekdebtissue.
Table12.4:FOREIGNPORTFOLIOINVESTMENT(FPI) 14thMay2009 INVESTOR MARKETTYPE USDOLLAR FOREIGN REGULAR 15,179 INDIVIDUAL TOTAL 15,179 FOREIGN REGULAR 590,063 CORPORATES TOTAL 590,063 OVERSEAS REGULAR 3,273 PAKISTANI TOTAL GRANDTOTAL 3,273 608,515 Source:NCCPL 14th May2010 MARKETTYPE REGULAR TOTAL FOREIGN CORPORATES OVERSEAS PAKISTANI OVERSEAS PAKISTANI REGULAR TOTAL REGULAR FUTURE CONTRACT TOTAL GRANDTOTAL

INVESTOR FOREIGN INDIVIDUAL

USDOLLAR 695 695 1,497,463 1,497,463 42,412 (8,511) 33,900 1,532,058 Source:NCCPL

12.4CorporateProfitability Corporate profitability has declined dramatically since 2006 (Fig 12.1). After tax profits for the companieslistedontheKSEhaveshrunk77%between2006and2009.Incomparisonto2008,profits aftertaxdeclined67%in2009,reflectingtheimpactofadifficultoperatingenvironment.Adisturbed law and order situation in the country, a balance of payments crisis, and the resultant Rupee depreciation of over 20%, and the energy crisis have all combined to diminish profits. The inter corporatedebtissueintheenergysectorhashittheotherwisemostprofitablelistedsectorparticularly hard. 173

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Since corporate profitability has a large bearing on future investment decisions, the sharp contraction in profits of listed companies over the past few years can partly explain the subdued investment responsesince2008. Profitability is concentrated in a few large companies in the Energy, Telecoms and Banking sector(seeFig12.2).Concentrationhasaneffectof distortion on the profit calculations. Comparing the lossaswellasprofitmakingcompaniesin2008and 2009 it can be observed that the decline in profit making companies was 54 (17%) while 21 (9.1%) morecompaniesreportedlosses. Fig12.2:ProfitsbySectorin2009
Textile Sugar Misc. Paper Chemicals Trans&comm Auto&Allied Cable&Elect Banks&Fis Cement Engineering Fuel&Energy 10 0 10

Fig12.1:Corporateprofitability(200510)
400 350 300 Rs.billion 250 200 150 100 50 0 2005 2006 2007 2008 2009

Source:KSE

100%

20

30

40 Source:KSE

50

Table12.5:CompaniesListedonKSEandtheirBeforeTaxProfits ProfitBefore No.of Taxation S. Companies Sector (Rsbillion) No. 2008 2009 2008 2009 Cotton&other 1 209 208 7.88 6.5 Textiles Chemical& 2 34 34 10.03 14.82 Pharmas 3 Engineering 13 13 2.19 1.12 4 Auto&Allied 25 25 9.09 4.7 Cables&Electric 5 9 9 3.30 2.74 Goods 6 Sugar&Allied 37 37 0.45 2.95 7 Paper&Board 10 10 0.35 4.6 8 Cement 21 21 4.29 6.96 9 Fuel&Energy 27 27 182.32 117.48

Dividend Paying Companies 2008 2009 37 20 6 11 4 11 4 2 17 34 19 6 12 4 15 3 3 13

ProfitMaking Companies 2008 69 26 8 18 6 21 6 6 18 2009 61 22 6 13 4 25 5 12 17

LossMaking Companies 2008 96 6 2 4 1 15 3 15 8 2009 94 10 2 8 3 10 4 9 9

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Table12.5:CompaniesListedonKSEandtheirBeforeTaxProfits ProfitBefore No.of Taxation S. Companies Sector (Rsbillion) No. 2008 2009 2008 2009 10 11 12 Transport&Comm. Bank&Fin. Institutions Miscellaneous Total 14 169 85 653 15 169 88 656 44.69 90.06 44.64 301.32 4.69 55.66 46.09 255.3

Dividend Paying Companies 2008 2009 4 78 37 231 6 40 31 186

ProfitMaking Companies 2008 5 90 50 323 2009 8 55 41 269

LossMaking Companies 2008 6 55 19 230 2009 4 71 27 251 Source:KSE

12.5PrimaryMobilizationatTheKSE As shown in Table 12.6, banks have historically played a much larger role in primary mobilization in Pakistanascomparedtothecapitalmarkets,withtheexceptionoftheprevioustwoyears.Therisein creditdisbursedbybanksismorepronouncedfrom200203onwardsduetobankingsectorreforms,in conjunctionwithanumberofotherfactors.Someoftheseinclude: Listing requirements and cost of issuance has been fairly significant, making borrowing from banksacheaperoption. Companies prefer to avoid the regulatory burden and greater disclosure associated with listing. Fearoflossofmanagementcontrol
Table12.6:PrimaryMobilization Newcapital Year raised/issued (Rs.Inbillion) 200405 123.7 200506 71.1 200607 119.2 200708 105.4 200809 101.4 200910* 252.8 *JulMar

Bankcredit disbursed (Rs.Inbillion) 437.8 401.7 365.7 408.4 18.9 147.2

Newcapital raisedas a%ageofGDP 1.9 0.9 1.3 1.0 0.8 1.7

Bankcredit disbursedas a%ageofGDP 6.7 5.2 4.2 3.9 0.14 1.0 Sources:SBP,EAwing.

12.6IslamabadStockExchange(ISE) Atpresentthereare118membersofISEoutofwhich104arecorporatebodiesincludingcommercial and investment banks, Development finance institutions (DFIs) and brokerage houses. The other 18 Members are individual persons. The average daily turnover has now crossed the figure of 1 million shares.TheISE10indexbeganthefiscalyearat1715.53pointsandendedthethirdquarterat2442.39 points. 175

EconomicSurvey200910 Table12.7:ProfileofIslamabadStockExchange NumberofListedCompanies NewCompaniesListed FundMobilized(Rs.billion) ListedCapital(Rs.billion) TurnoverofShares(billion) ISEIndex AggregateMarketCapitalization(Rsbillion) :Notavailable

200506 240 6 5.2 374.5 0.4 2,633.9 2,101.6

200607 246 12 30.7 488.6 0.2 2,716 3,060.6

200708 248 7 24.6 551 0.6 2,749.6 2,872.4

200809 261 15 24.8 608.6 0.3 1,713 1,705.1

200910 (JulMar) 242 1 61.6 0.20 2,330 Source:ISE

12.7LahoreStockExchange(LSE) TheLSE25index,whichwas2143.27pointsinJune2008,increasedto3201.2pointsinMarch2009.The market capitalization of the LSE has reduced from Rs. 1953.087 billion till March 2009 to Rs.2746.325billion till March2010. Twonew companiesandtwoopenendedfundswerelistedwith theLSEduringJulyMarch200809,ascomparedto5newcompaniesand11openendedfundsinthe fiscalyear200910.TotalpaidupcapitalwiththeLSEincreasedfromRs.721.064billionin200809to Rs. 827.482 billion in March 2009. The average daily turnover of shares on the exchange during July March200910was2.51billion.Itwas8.16theyearbefore.
Table12.8:ProfileofLahoreStockExchange NumberofListedCompanies NewCompaniesListed FundMobilized(Rsbillion) ListedCapital(Rsbillion) TurnoverofShares(billion) LSEIndex AggregateMarketCapitalization(Rsbillion)

200506 518 7 24.5 469.5 15 4,379.3 2,693.3

200607 520 10 38.8 594.6 8.2 4,849.9 3,859.8

200708 514 2 29.7 664.5 6.5 3,868.8 3,514.2

200809 511 9 32.8 728.3 2.7 2,132.3 2,018.2

200910 (JulMar) 509 5 42.3 827.4 2.5 3,201.20 2,746.3 Source:LSE

The total funds mobilized during JulyMarch 200910 in the three stock exchanges (KSE, LSE & ISE) amounted to Rs. 252.78 billion, The total turnover of shares in the three stock exchanges during the periodwas36.65billion. 12.8DebtCapitalMarkets Thedebtcapitalmarketsconsistsoftheprimaryissuanceandsecondarytradingofallbondsandfixed income securities issued by the Government and private sector, as well as, for the purposes of this discussion,instrumentsofNationalSavings. 12.81PakistanInvestmentBonds(PIBs) Pakistan Investment Bonds (PIBs) form a big chunk of Government securities. They provide the governmentwithlongtermmaturitydebt.SBPheldfiveauctionsofPIBsinFY07,seveninFY08andfour in FY09. The PIB portfolio was expanded in FY09 with the inclusion of a 7 years paper while rises in 176

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discountratescausedrevisionofcouponrates. Within the Permanent debt, PIB retained its dominant share. The breakup of domestic debt servicing data reveals that interest payments on the permanentdebtincreasedsignificantlyduringJulJan FY10 compared to same period last year. This increasewaslargelyduetointerestpaymentson10 yearPIBs,inlinewithitsincreasingshareinthetotal outstandingstockofPIBs.
Table 12.9: PIB CouponRatesforFY10(Dec 09) Previous Current Tenor couponRate CouponRate (at30Jun09) 3Years 11.25% 11.25% 5Years 11.50% 11.50% 7Years 11.75% 11.75% 10Years 12.00% 12.00% 15Years 12.50% 12.50% 20Years 13.00% 13.00% 30Years 13.75% 13.75% Source:SBP

The government raised Rs 8.67 billion through auction of Pakistan Investment Bonds (PIBs) on March17,2010increasingtheyieldon10yearPIBto 12.75 percent from 12.53 percent. It raised Rs 6.06 billionthroughthesaleof10yearbond,Rs1.28billionthroughthreeyearbond,Rs.1.09billionthrough fiveyearbondandRs240millionthroughsevenyearbond.Forthethree,fiveandsevenyearbonds, thecutoffyieldswereraisedto12.49percentfrom12.30percent,12.59percentfrom12.40percent and12.70percentfrom12.50percent,respectively.
Table12.10:InterestRateStructure,FY200809 Tenors 3Years 5Years 7Years 10Years 31stDec'08 (%) 13.70 10.80 14.34 14.55 31stApr'09 (%) 12.94 12.95 13.14 13.24 Variance (H2FY09) bps 76 215 120 131 3Sep09 % 12.29 12.36 12.45 12.5 11Nov09 % 12.26 12.40 12.42 12.44 Variance (H1FY10) bps 0.03 0.04 0.03 0.06 Source:SBP

FromJanuarytoJune09Sukukbondsworth19,275Rs.millionwereissuedwhilefromJulytoDecember 09thefigurewas22,076Rs.millionmakingthetotalRs.million41,351.
Table12.11:3YearIjaraSukukAuctionsResultForFY10 Date Jul08Jun09(201208) Jul08Jun09(040309) JulDec09(05102009) Total Target 10 10 10 40 Offered Amount 7.35 21.43 30.38 59 Accepted Amount 6.00 15.33 14.4 42 Cutoff Margin +75bps +0bps 5bps (Rs.billions) Varianceof Acceptance againstTarget 4.00 +5.33 4.40 2 Source:SBP

Bankstendedtonegotiatehigherratesongovernmentguaranteeddebtinthewakeoflowliquidityin the system, in addition to concern about concentration of exposure. Hence, the first issuance of the TermFinanceCertificate(TFC)inMarch2009waspricedatKIBORplus1.75percent,whilethesecond issuanceinSeptember2009wasatKIBORplus2percent.Similarly,theratesforfinancingcommodity 177

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operations were around KIBOR plus 2.5 to 2.75 percent. 12.82NationalSavingsScheme(NSS)

NationalSavingsOrganisationisthebiggestnonbank borrowing institution for the government, with over six million account holders investing more than Rs. 1,500billion.SpecialSavingsCertificatesandSpecial Savings Accounts remained the attractive instruments for the investor despite the higher interestrateofferedbyBahboodSavingCertificatesandPensionersBenefitAccount,.

Table12.12:FloatationofTFCs,July09 March 10 (Rs.billions) Issue NameofCompany Listedat Size AlliedBankLtd. KSE 3.00 AskariBankLtd. LSE 3.00 EngroChemicalPakistan KSE 2.50 Ltd. Total 8.50 Source:SECP

Mobilizationthroughprizebondssawasignificantimprovement.Thiswasmainlyduetothedecisionof thegovernmenttoincreasetheamountofprizesondifferentdenominationsinFeb2009.Theinterest paymentsonthematuredstockofDSCsstillconstituteamajorshareinthetotalinterestpaymentson unfundeddebt. Withinthepermanentdebt,amajordevelopmentwastheintroductionoffirstevertradableNational SavingBond(NSB)inJan2010.ThegovernmentwasabletoattractRs3.7billionthroughNSBduringJan 2010. The National Savings bonds (NSBs) are authorized by the Ministry of Finance and backed by a sovereignguaranteeofthegovernmentofPakistan.TheNationalSavingsBonds(NSBs)markaparadigm shiftofgovernmentborrowingsfromthebankingsectortothenonbankingsectorthelatterbeing relativelylessinflationary.TheNSBbondsarerelativelyofasmallsizeofRs.3.6billionatthestart,but they would extend the outreach of the stock exchanges as they would deepen the domestic debt market. National Savings Organisation already manages over Rs. 1 trillion of public money in various savingsschemes.ThecurrentyeartargetforfreshinvestmentissetatRs.240billion. DebtservicingcostbeingincurredagainstmaturedstockofDSCsformsmorethan50%ofthetotaldebt servicingcostontheunfundeddebt.Howeveritispertinenttonoteherethattheoutflowintheformof interest payments on DSC is declining overtime. Also the debt servicing cost of Behbood Saving Certificates (BSC) and Special Saving Certificates (SSC) increased significantly in the period under discussion, as the major amount raised against these certificates was issued at significantly higher interestratesduringFY09.
Table12.13:NetAccrualsinNationalSavingsSchemes DefenceSavingsCertificates SpecialSavingsCertificates(R) SavingsAccounts SpecialSavingsAccounts RegularIncomeCertificates PensionersBenefitAccounts BahboodSavingsCertificates NationalPrizeBonds PostalLifeInsurance GrandTotal 200405 8.7 83.3 2.9 1.9 40.7 17.7 60.7 9.4 10.3 39.4 200506 7.6 57.7 0.2 0.7 15.6 16.4 59.6 3.3 10.8 8.7 (Rs.billions) 200910 200607 200708 200809 JulyMar 5.8 4.3 (27.4) (35.07) 7.0 13.8 128.4 51.97 9.2 9.0 (10.9) (1.2) 6.5 5.5 21.6 29.75 17.0 0.3 40.1 33.93 11.5 18.7 22.2 14.16 47.2 38.8 78.5 45.10 9.0 8.3 14.6 27.32 67.6 89.5 267.1 165.96 Source:CentralDirectorateofNationalSavings

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TheNSSduringthefirsttenmonthsof200910attractedRs.166billioncomparedtoRs.267billionfor thewholeoflastyear.Nonbankfinance,especiallyfromNSS,madeitpossibletoarresttheborrowings fromthebankingsysteminFY10. 12.9InvestorBase 12.91Leasing Duetoacompetitiveoperatingenvironmentandliquidityproblems,leasingcompanieshaveundergone significanttransformationinthelastfewyears.Mostvisiblearestructuralchangesintheleasingsector on account of mergers and amalgamations. During the period JulyDecember, 2009, AlZamin Leasing Corporation Ltd. was merged with and into Invest Capital Investment Bank Ltd. and ORIX Investment BankLimitedwasmergedwithandintoORIXLeasingPakistanLimited..DuringtheperiodJuly,2009 March,2010,onehousingcompanywasacquiredbyanothergroupandthreeleasingcompanieswere mergedwithotherentities.Despiteconsolidations/mergers,therearestillsignificantchallengesforthe leasingsector. AsonMarch31,2010therearenine(9)activelicensedleasingcompanies.Themajorfinancialindicators ofthesectoraresummarizedasunder: TotalAssets (Rs.inmillion): TotalEquity (Rs.inmillion): TotalDeposits (Rs.inmillion): 12.92InvestmentBanks 40,266 5,316 3,187

InvestmentBankshavenotbeenabletomakeanysignificantcontributionasprimarilytheyfocusedon theanalogousfinancialservicesasofferedbytheconventionalbankingsector.InvestmentBankswere not able to compete owing to their limited access to resource mobilization coupled with low capitalizationandlimitedbranchnetworkwhencomparedtothecommercialbanksofferingthesimilar services.Investmentbanksarebeingencouragedforamoreviableandsustainablebusinessmodelto betiltedmoretowardsofferingofnonfundedi.e.feeandcommissionbased,financialservices AsonMarch31,2010thereareeight(8)activelicensedinvestmentbanks. Themajorfinancialindicatorsofthesectoraresummarizedasunder: TotalAssets (Rs.inmillion): TotalEquity (Rs.inmillion): TotalDeposits (Rs.inmillion): 12.93MODARABAS 31,499.97 3,358.37 27,616.27

During the last two decades, notwithstanding the challenges of already deeply entrenched interest basedfinancingsystemandresourcemobilizationconstraints,thesectorhasperformedreasonablywell and shown a steady growth in the past few years. There is a decrease in the assets of the Modaraba sector from Rs. 26,626 million as on 30.6.2009 to Rs. 24,397 million as on 31.12.2009. Similarly, investmentsinthelistedsecuritieshasalsoshownamarginaldeclinefromRs.2,616milliontoRs.1,854 millionfromthecorrespondingperiod.However,thereisaslightincreaseintheequityfromRs.11,334 million (30.6.2009) to Rs. 11,556 million (31.12.2009). It is expected that the financial indicators will 179

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improveonthebettermentinthefinancialandeconomicconditionsofthecountry. The approval and certification by the Religious Board for twelve new Islamic financing agreements would eliminate disparity and bring Modarabas at a same level with other financial institutions for resourcemobilization. The assets of the Modaraba sector stood at Rs. 24,516 million as on 31,03,2010 as compared to Rs.24,397 million as on 31,12,2009. Similarly, investment in the listed securities was 1,497 million. MoreovertheequitywasRs.10,779millionason31,03,2010. AsonMarch31st2010,therewere41,registeredModarabaCompaniesand26Modarabasinexistence. 6 Modarabas are in the process of winding up. The major financial indicators of the sector are summarizedasunder: TotalAssets Totalliabilities TotalEquity (Rs.Inmillion) (Rs.Inmillion) (Rs.Inmillion) 24.51 13.32 10.77

12.94RealEstateInvestmentTrusts(REITs) Pakistan has witnessed a property boom in the last decade and the launching of REITs as a new investment product will: (i) provide retail investors the opportunity to share the dividends from the robust realestate sector; (ii) facilitate professional developers in undertaking megaconstruction projects without the traditional liquidity issues that property development companies are confronted with;and(iii)maximizetheefficiencyofpropertyutilizationbycreatinganequilibriumbetweendemand and supply of property on the one hand and provide more efficiently managed shared use rental propertiesontheother. InMarch2009,theCommissiongrantedtwopermissionstoincorporateREITManagementCompanies (RMC)inPakistanwhowouldlaunchREITschemesafterobtainingtheprerequisiteapprovalsfromthe Commission. 12.95PrivateEquity&VentureCapitalFund(PE&VCF) PrivateEquityandVentureCapitalFund(PE&VCF)isaunlistedclosedendunittrustfundopenonlyto highnetworthindividualsandinstitutions,duetoitsintrinsicnatureofbeingahighriskassetclass.In August2008,SecuritiesandExchangeCommissionofPakistanapprovedtheregulatoryframeworkfor registrationandregulationofPE&VCFundsinPakistan Unfortunately due to dismal law and order situation and general economic downturn, there has not beenmuchactivityinthisarea. 12.96VoluntaryPensionSystem Seven Pension Funds (four Islamic and three conventional) have been launched under the Voluntary PensionSystemRules,2005.WhiletheseedcapitalgeneratedwasRs.690million,theindustrystoodat Rs.1,004millionasonDecember31,2009,whiletheindustrywasatRs.1,068billionasonMarch31st, 2010.

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12.97MutualFunds MutualFundsmarchedontheroadtorecoveryduringtheperiodJulyDecember,2009withnetassets showing an increase of 42%, i.e. increasing from Rs. 182 billion in January, 2009 to Rs. 258 billion in December,2009.Thetotalnumberofmutualfundsstoodat116inDecember,2009comparedto95in January,2009substantiatinganuptrendintheindustrybothintermsofgrowthinnetassetsaswellas numberofmutualfundslaunched.Growthwasprimarilyevidencedinthecategoriesofmoneymarket, income,andcapitalprotectedfunds.Thisshift,however,wasanticipatedespeciallykeepinginviewthe factthatappetitetowardsriskhadsubduedintheaftermathofthecrisisthatentangledtheindustryin late2008,effectsofwhichcarriedforwardtillthefirsthalfof2009.Thenetassetsofthemutualfund industry amounted to Rs 253 billion, as on 28th February 2010* as compared to Rs. 258 billion in December,2009.Thetotalnumberofmutualfundsstoodat121asatMarch31,2010comparedto116 inDecember,2009substantiatingmarginalgrowthinthenumberofmutualfundslaunched. Despitetheunprecedentedfinancialturmoil,mutualfundindustryingeneralwithstoodthedownturn andsuccessfullymanagedmountingredemptionpressurebyrepayinginexcessofRs.90billiontothe investors.
Table12.14:SnapshotofkeyfinancialsasatMarch31,2010 LeasingCompanies InvestmentBanks TotalAssets 39,153 31,289 TotalLiabilities 34,091 27,101 TotalEquity 4,991 4,181 TotalDeposits 3,553 10,808 (Rs.million) Modarabas 23,016 13,069 9,171 4,151 Source:SECP

12.10CapitalMarketReforms Thefocusofthereformswastoimproveriskmanagementofthemarket. The concept of Concentration Margins was introduced, and amendments pertaining to the implementationof thesame inplace ofspecialmarginsonderivativeproducts,wereapprovedin the RegulationsgoverningRiskManagementoftheStockExchanges. Anotherimportantmeasurewasthephasewiseimplementationoftheclientlevelmarginingsystemat thestockexchangesandthe NCCPL.Thesaidsystemwouldassistineliminating chances ofmisuseof oneclientsmarginsagainstexposurerequirementsofotherclients. The Deliverable Futures Contract Market was relaunched in view of the market need for a derivative product. This relaunch was characterized by measures for revamped risk management of the said product. Also, the SECP is facilitating the stock exchanges in exploring avenues for introduction of Index based Market Halts, which is geared at reducing the risk associated with trading at the stock exchanges by progressivelyincreasingthecircuitbreakersonindividualscripstherebyallowingthesecuritiesawider rangeformovement,inlinewithinternationalbestpractices. 12.11DevelopmentalActivities TheSECP,intheearlierhalfoftheyear2009,hadconstitutednationallevelforumscomprisingofallthe 181

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prominentstakeholders.TheConsultativeGroupon CapitalMarketsisacting asanindependentthink tankforimportantpolicydecisionsinrelationtothedevelopmentofcapitalmarkets.Inthelaterhalfof the year, the Group submitted its report on Margin Financing, which was to serve as an alternate leverageproducttocaterforthefinancingappetiteofthemarketafterthediscontinuationofCFSMkII. Afinalconceptpaper,afterdetaileddeliberationswithallrelevantstakeholders,hasbeensubmittedby the SECP and the KSE and NCCPL have been advised to develop necessary systems and to formulate requisiteregulatoryframeworkforthesaidproduct.Thisproductwillbeavailableforbothproprietary tradeandclientsofbrokeragehouses.TheConsultativeGroupalsosubmitteditsrecommendationswith respect to a revised brokers regime encompassing the capital adequacy requirements and code of conductforthebrokers.Animportantfeatureofthesaidregimeisthelinkageitcreatesbetweenthe capitaladequacyrequirementsofabrokerandhisriskprofile.Thesaidregimeistobeimplementedina phasedmanner. In view of the above and the inprinciple approval earlier granted by the SECP to the NCCPL for the developmentofaSecuritiesLendingandBorrowingmechanism,theSECPiscurrentlyintheprocessof framingtheSecurities(MarginFinancing,SecuritiesLendingandBorrowingandPledging)Rules,inorder toprovideabroaderlegalframeworkfortheabovementionedconcepts.

182

TABLE 9.1 NUMBER OF LISTED COMPANIES, FUND MOBILISED AND TOTAL TURNOVER OF SHARES IN VARIOUS STOCK EXCHANGES
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 KARACHI STOCK EXCHANGE i) Total Listed Companies ii) New Companies Listed iii) Fund Mobilized (Rs billion) iv) Total Turnover of Shares (In billion) LAHORE STOCK EXCHANGE i) Total Listed Companies ii) New Companies Listed ii) Fund Mobilized (Rs billion) iv) Total Turnover of Shares (In billion) ISLAMABAD STOCK EXCHANGE i) Total Listed Companies ii) New Companies Listed ii) Fund Mobilized (Rs billion) iv) Total Turnover of Shares (In billion) 3.1 1.4 2.7 2.1 1.4 0.7 0.4 0.3 0.9 0.158 0.2 Source: SECP, KSE, LSE, ISE 0 0.8 3.7 11.5 2.6 27.6 5.2 30.7 28.1 24.8 61.7 0 281 5 267 3 260 1 251 8 232 5 240 2 246 7 247 3 240 4 242 1 1.6 7.8 18.3 28.2 19.9 17.5 15.0 8.3 5.4 1.5 2.7 0.4 2.5 14.2 4.1 3.1 42.1 24.5 38.8 28.1 35.3 92.4 2 614 3 581 3 561 2 647 18 524 5 518 6 520 8 514 2 512 2 511 5 48.1 29.2 29.1 53.1 97.0 88.3 104.7 68.8 56.9 17.1 33.7 0.4 3.6 15.2 23.8 4.2 54.0 41.4 49.7 49.2 42.3 98.7 762 1 747 4 712 4 702 2 668 16 659 15 658 14 658 12 652 5 652 8 650 5 Jul-Mar 2009-10

TABLE 9.2 NATIONAL SAVING SCHEMES (NET INVESTMENT)

(Rs. Million) Name of Scheme 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Jul-Mar 2009-10

1 Defence Savings Certificates 2 National Deposit Scheme 3 Khaas Deposit Scheme 4 Premium Savings Scheme 6 Special Savings Certificates (B) 7 Regular Income Certificates 8 Pensioners' Benefit Account 9 Savings Accounts 10 Special Savings Accounts 11 Bahbood Saving Certificates 12 Mahana Amdani Accounts 13 Prize Bonds 14 Postal Life Insurance 15 National Savings Bonds Grand Total

22,037.3 (6.3) (12.1) (203.3) 11,046.3 (329.8) 4,266.9 92.8 11,588.0 6,448.3 91,371.3

21,990.5 (5.7) (13.5) 84,899.1 (11.1) 10,170.0 1,638.1 5,135.0 129.5 26,840.1 7,367.7 143,215.8

3,238.3 (6.8) (23.4) (2.6) 13,209.3 (729.6) 2,894.1 22,691.0 120.9 22,841.9 8,668.7 10,612.0

(8,759.1) (1.3) (5.4) (4.6) 17,737.2 (2,891.4) (19,048.0) 60,654.6 85.9 9,357.0 10,335.2 (39,371.6)

(7,551.0) (2.5) (2.8) -

(6,976.8) (1.1) (5.6) 6,667.5 (0.1) 18,369.1 11,468.6 9,417.6 47,214.5 56.9 9,007.3 -

(4,317.4) (27,411.3) (35,076.5) 0.0 7.0 13,800.6 128,469.0 (0.2) 18,695.9 8,989.1 5,521.5 38,799.7 (25.0) 8,277.1 (8.5) 22,215.7 (10,899.2) 21,627.1 78,537.4 (50.0) 14,650.0 3,650.2 (273.5) 40,094.3 (2.7) (1.6) 51,975.7 (0.3) 33,935.7 14,163.4 (1,257.5) 29,753.3 45,104.7 (172.8) 27,324.2 0.2 (3.7) -

5 Special Savings Certificates (R) 36,443.2

(13,199.3) (83,311.9) (57,737.1) (0.6) 16,382.9 (709.6) 59,636.6 45.7 3,325.8 10,804.5 8,830.7

(14,923.9) (49,090.5) (40,663.0) (15,563.9)

(202.7) 12,825.7

71,305.5

89,460.8 267,220.7 169,396.7

Figures in Parenthesis represent negative signs R : Registered B : Bearer - : Not available

Source : Central Directorate of National Savings

TABLE 9.3 MARK UP RATE/PROFIT RATE ON DEBT INSTRUMENTS CURRENTLY AVAILABLE IN THE MARKET
S.No. Schemes Markup/Profit Rate Maturity Period Tax Status

1. Foreign Exchange Bearer Certificate (FEBC) a. If Certificate of Rs 1000 encashed before 1 year investor will get Rs 1000 (face value) b. If Certificate of Rs 1000 encashed after 1 year investor will get Rs 1145 Sale under this scheme has c. If Certificate of Rs 1000 encashed after 2 year investor will get Rs 1310 already been discontinued, from d. If Certificate of Rs 1000 encashed after 3 year investor will get Rs 1520 December 1999 however, on e. If Certificate of Rs 1000 encashed after 4 year investor will get Rs 1740 outstanding balance till maturity, f. If Certificate of Rs 1000 encashed after 5 year investor will get Rs 1990 rate will be applicable g. If Certificate of Rs 1000 encashed after 6 year investor will get Rs 2310 2. Foreign Currency Bearer Certificate (FCBC), 5 years 3. Special US$ Bonds a) 3 year maturity b) 5 year maturity c) 7 year maturity 4. Pakistan Investment Bonds Tenor 3-Year Maturity 5-Year Maturity 7-Year Maturity 10-Year Maturity 15-Year Maturity 20-Year Maturity 30-Year Maturity 5. Unfunded Debt Defence Saving Certificates National Deposits Schemes Scheme has already been discontinued w.e.f. February 1999. Only repayment is made The rates are effective form Sept. 1999. If bonds are encashed before one year no profit will be paid. Profit is payable @ LIBOR + 2.00% on bonds reinvested for 3 years on Special US$ Bonds redeemed against 3 and 7 years maturity. However, the facility of reinvestment has been discontinued since October 2002.

LIBOR+1.00% LIBOR+1.50% LIBOR+2.00%

Rate of Profit 11.25% p.a 11.50% p.a 11.75% p.a 12.00% p.a 12.50% p.a 13.00% p.a 13.75% p.a

Coupon rate are given for 30th August 2008 issue.

12.15% p.a (m) 13.00% p.a.

10 Years 7 Years 3 Years

Taxable for deposits exceeding Rs. 150,000 made on or after 01-07-2002 Taxable and discontinued Taxable for deposits exceeding Rs. 150,000 made on or after 01-07-2002 Taxable and discontinued Taxable Taxable and discontinued Taxable and discontinued Taxable for balances exceeding Rs. 150,000

Special Saving Certificates (R) 11.67% p.a for each of 1st five profit 11.60% p.a. for the last one porfit 12.00% p.a. Special Saving Certificates (B) 13.00% Regular Income Certificates 12.00% Khas Deposit Scheme 13.42% p.a. Mahana Amdani Accounts 10.41% p.a.(m) Saving Accounts 8.50% p.a. Bahbood Savings Certificate 14.16% p.a. Pensioners' Benefit Account 14.16% p.a. Prize Bonds 10.00% p.a. p.a : Per annum R : Registered B : Bearer m : on maturity

3 Years 5 Years 3 Years 7 Years Running Account 10 Years 10 Years

Source: State Bank of Pakistan and Central Directorate of National Savings