| Citicorp Investment Bank (Pakistan) Limited |
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| Annual
Report 1998 |
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| Contents |
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| Company
Information |
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| Notice
of Meeting |
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| Directors'
Report and Operational Review |
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| Auditors'
Report |
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| Balance
Sheet |
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| Profit
and Loss Account |
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| Statement
of Changes in Financial Position |
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| Notes
to the Accounts |
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| Pattern
of Shareholding |
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| Company
Information |
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| Board
of Directors |
Shehzad Naqvi - Chairman |
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|
Muhammad Azimuddin -
Managing Director & |
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|
Chief Executive |
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|
Nadeem S. Hussain |
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|
James Bullock |
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|
Akbar Adul Aziz |
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|
Javed Kureishi |
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|
Razi-ur-Rahman Khan |
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| Auditors |
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Messrs Ford, Rhodes,
Robson, Morrow |
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Chartered Accountants |
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| Bankers |
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Citibank, N.A. |
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| Registrars |
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Noble Computer Services
(Private) Ltd. |
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|
Al-Manzoor Building, |
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Dr. Ziauddin Ahmed Road, |
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Karachi. |
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| Registered
Office |
94 West, Blue Area, |
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Jinnah Avenue, Islamabad. |
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| Branch
Office |
Ground Floor, A WT Plaza |
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I.I. Chundrigar Road,
Karachi-74200. |
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| Notice
of Sixth Annual General Meeting |
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| NOTICE
IS HEREBY GIVEN THAT the sixth Annual General Meeting of Citicorp Investment |
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| Bank
(Pakistan) Limited (The "Company") will be held at its Registered
Office, 94 West, Jinnah |
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| Avenue,
Blue Area, Islamabad on Tuesday, March 2, 1999 at 12:00 noon to transact the
following |
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| ordinary
and special business: |
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| A
Ordinary Business |
|
|
| l.
To confirm the minutes of the last Annual General Meeting. |
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| 2.
To receive and consider the Accounts of the Company for the year ended
December 31, 1998 |
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| together
with the Directors' Operational Review and Auditors' Report thereon. |
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| 3.
To appoint auditors and fix their remuneration, Messrs Ford, Rhodes, Robson,
Morrow, |
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| Chartered
Accountants, retire and offer themselves for re-appointment. |
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| 4.
To consider any other business with the permission of the Chair. |
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| B
Special Business |
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| 4.
To consider, and if thought fit, to pass with or without modification/s the
following resolutions as |
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| Special
Resolution: |
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| "Resolved
that the name of the Company be changed to "Jehangir Siddiqui Invesment
Bank |
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| Limited". |
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| Further
Resolved that the above change in the name of the Company shall be subject to
approval |
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| of
the Registrar of Joint Stock Companies, Islamabad (the
"Registrar"). |
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| Further
Resolved that consequent upon the above change, the name of the Company,
wherever |
|
| appearing
in the Memorandum and Articles of Association, be changed to read as
"Jehangir |
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| Siddiqui
Investment Bank Limited". |
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| Further
Resolved that Chief Executive be and is hereby authorized to file necessary
statutory |
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| returns/application
with the Registrar under his signatures, for this purpose and obtain |
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| confirmation
of change in the name of the Company, for and on behalf of the Company. |
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| Further
Resolved that the aforesaid resolution to change the name of the Company to
"Jehangir |
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| Siddiqui
Investment Bank Limited" shall automatically stand abrogated and
rescinded in the |
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| event,
for whatever reason, the sale of Citibank Overseas Investment Corporation's
shareholding |
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| to
Jehangir Siddqui and Company Limited is not finally consummated, as certified
by the |
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| company's
Chief Executive in writing. |
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|
By order of the Board |
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| Karachi |
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| February
1st, 1999 |
|
Irfan ul Haq |
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| Notes: |
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| 1.
The Share Transfer Books will be closed from February 25, 1999 to March 2,
1999 both days |
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| inclusive. |
|
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| 2.
A member entitled to attend and vote at the Meeting is entitled to appoint a
proxy to attend and |
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| vote
instead of him. |
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| 3.
The instrument appointing a proxy must be received at the Registered Office
not later than |
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| forty-eight
hours before the time appointed for the Meeting. A member shall not be
entitled to |
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| appoint
more than one proxy. |
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| If
a member appoints more than one proxy and more instruments of proxy than one
are deposited |
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| by
a member with the Company all such instruments of proxy shall be rendered
invalid. |
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| 4.
Shareholders are requested to immediately notify a change in address, if any. |
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| Statement
Under Section 160 (b) of the Companies Ordinance, 1984: |
|
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| This
statement sets out the material facts concerning special business to be
transacted at the Annual |
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| General
Meeting to be held on March 2, 1999: |
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| (a)
The change in the name of the Company has been proposed due to the following
reasons: |
|
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| (i)
The proposed sale of the shareholding of Citibank Overseas Investment
Corporation in the |
|
| Company
to Jehangir Siddiqui & Company Limited. |
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| (ii)
With the disinvestment of Citibank Overseas Investment Corporation's
shareholding, the |
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| continuity
of the Company's name would not be appropriate as it suggests patronage of |
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| Citibank
Overseas Investment Corporation. |
|
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| (iii)
To avail the benefits of proven credentials and goodwill of Jehangir
Siddqui's name. |
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| (iv)
The abrogation and rescission provided in the Special Resolution in respect
of the change |
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| of
name has been included with a view to protecting the existing name of the
Company in |
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| the
event the sale of shareholding of Citibank Overseas Investment Corporation to
Jehangir |
|
| Siddiqui
& Company Limited is not finally consummated. |
|
|
| (b)
None of the Directors have any special or other interest in the property or
profits of the Company |
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| other
than, where applicable, that as holders of ordinary shares in the capital of
the Company. |
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| Directors'
Report and Operational Review |
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| On
behalf of the Board of Directors of Citicorp Investment Bank (Pakistan)
Limited, I welcome you |
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| to
the Sixth Annual General Meeting and present the Annual Report for the year
ended December |
|
| 31st, 1998. |
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| The
report is being presented to you at a time when your company is in a state of
flux. The operating |
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| environment
is undergoing dramatic change, and, at the same time, change of majority
ownership |
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| and
management of your company is also on the cards, subject to regulatory
approval. |
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| You
may have seen the announcement last October of our majority shareholders
entering into |
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| negotiations
with Jehangir Siddiqui & Company Limited for the sale of their entire
shareholding. The |
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| early
disclosure forestalled any speculation in the share market protecting
shareholders from losses. |
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| I
am pleased to inform you that the Karachi Stock Exchange appreciated this
unprecedented early |
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| announcement
as having set a positive precedent for the market. |
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| You
will also note from the notice for the Annual General Meeting that the
agreement is proceeding, |
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| subject
to regulatory approval. Therefore, a special resolution is also being
presented for the change |
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| of
your company's name subject to the consummation of the sale. |
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| 1998
saw your company's operating environment go through a paradigm shift, which
had a significant |
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| negative
impact. No other sector has felt this downward impact as much as the
Financial Sector. Within |
|
| the
Financial Sector the Investment Banking Industry is particularly vulnerable
due to the restricted |
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| nature
of its operations. Amongst others, downgrading of sovereign risk rating from
B + to SD (Selective |
|
| Default)
in a matter of months have had the most far reaching impact on the financial
sector. |
|
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| These
developments have further compounded an already difficult operating
environment. You will |
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| recall
that in our report accompanying the accounts for the year ended December 31,
1997, as well |
|
| as
the half-year ended June 30, 1998, these issues were highlighted in detail.
For the sake of ready |
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| reference
these issues and their continuing impact on your company is given below: |
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| Reduction
of Legal Lending Limit |
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| The
limit was reduced from 30% of Total Assets to 20% of Equity. As advised we
were cushioned |
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| from
the full impact of this change in 1998 since the large deals were on the
books for the full |
|
| year. |
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| Restriction
on Foreign Currency Resource Mobilisation |
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| The
restrictions did not allow Investment Banks to compete effectively against
Commercial |
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| Banks
in mobilising foreign currency deposits. As anticipated, the foreign
investors did not |
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| rollover
the deposits which were returned in December and, it is unlikely that your
company will |
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| be
able to generate funds from international investors in the near future. |
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| Arbitrary
Tax Assessments |
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| Your
company continues to suffer from the arbitrary and uncalled for Tax payments
at the |
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| banking
company's rate instead of the rate applicable to listed companies. The full
impact is |
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| declared
in note 18. Your company has taken the matter up with the highest authorities
and |
|
| played
an increasingly active role in the Investment Banking Association to form an
industry |
|
| wide lobby. |
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|
| Service
Agreement with Citibank |
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| We
call your attention to article 4.10 of the prospectus, relevant parts of
which are reproduced |
|
| below
for ready reference-: |
|
|
| "
... the Company intends to enter into an agreement with Citibank N.A. in
Pakistan for |
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| obtaining
the Services (on full time or part time basis) of Citibank employees under
this |
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| agreement,
Citibank may, at the request of the Company make available to the Company, |
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| on
full time or part time basis, the services of those Citibank employees as are
expert in |
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| investment
and financial services. The Company also intends to enter into another |
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| agreement
with Citibank N.A. where under Citibank N.A. will allow the Company the use |
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| of
Citibank's office premises, furniture, fittings, office equipment, computers
and |
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| infrastructure
support for the Company's business in Pakistan. The Company considers |
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| that
it will be cost efficient to obtain these benefits from Citibank N.A." |
|
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| State
Bank of Pakistan's latest inspection report whose scope covered all
transactions since the |
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| inception
of the company to December 31, 1997 was received last month. The report,
while |
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| recognising
that the above arrangement has allowed costs to be managed and also that the |
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| company
does not require any provision for credit losses, nevertheless, called upon
your |
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| company
to discontinue this arrangement. The report has, however, not highlighted any |
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| incidence
where the above arrangement has been detrimental to your company's interests. |
|
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| As
you will see from the above, the environment in which your company is
operating has been |
|
| deteriorating
consistently. The State Bank of Pakistan's insistence in requiring a change
in the |
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| operating
methodology declared at the inception of' the company through the prospectus,
and |
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| therefore
approved by you, has caused all concerned to question the future business
prospects. |
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| Business: |
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| Earnings: |
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| As
anticipated in our half yearly report to you, the continued deterioration of
both the debt and |
|
| equity
capital markets impacted your company's earnings. Profit after tax declined
from Rs. 46.9 |
|
| million
in 1997 to Rs. 35.9 million in 1998. Accordingly, earnings per share
decreased from Rs. |
|
| 4.69
to Rs. 3.59. |
|
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| You
will also notice from the accounts that the balance sheet footing has shrunk
significantly. |
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| This
is primarily due to the withdrawal of the foreign investors' funds as
mentioned earlier. Since |
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| this
happened near the year end, the impact on earnings for 1998 was only
marginal. All deposits |
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| were
matched with corresponding assets which also had to be unravelled at a cost. |
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| Investments
& Capital Markets: |
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| The
Capital Markets activity remained depressed during the year. Your company
continued the |
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| conservative
policy highlighted in our earlier reports, which concentrated on reducing the |
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| market
risk of the portfolio. The result was halving of the equity exposure from 10
to 5 companies |
|
| (Shell
is reported in short-term investments). I am pleased to report to you that
while the market |
|
| declined
from a high of 1600 to 900 level, your company was able to generate a gain
from sale |
|
| of
equity of Rs 2 million. This allowed your company to absorb the loss of Rs.
0.7 million on sale |
|
| of
securities as a result of interest rate volatility. |
|
|
| On
the fixed income side the long term commercial paper portfolio declined from
Rs. 463 million |
|
| in
1997 to Rs 57 million in 1998. The reduction was contributed by pre-mature
liquidation of |
|
| funds,
at the request of a depositor, that were financing these assets. Another
commercial paper |
|
| had
to be liquidated prematurely to repay expensive financing. |
|
|
| Advisory: |
|
| You
will recall that the mandate for the privatization of Habib Bank Ltd. was
awarded to your |
|
| company
in January 1998. Phase I of work under this mandate has been completed which |
|
| included
initial review of operations and preparation of data room. I am pleased to
report that, |
|
| as
you will notice from the accounts, 80% of the mandated retainer fee has also
been received |
|
| from
the Privatization Commission. Subsequent to the announced intention of
divestiture of |
|
| Citibank
Overseas Investment Corporation's shareholding, the remainder portion of the
work |
|
| under
the mandate has been transferred to Citibank N.A., Karachi, in order to
address concerns |
|
| expressed
by the Privatization Commission. The remainder work to be performed by
Citibank |
|
| N.A.,
Karachi, pertains largely to international marketing. |
|
|
| Rating: |
|
| Consequent
to the May 1998 events and subsequent macro-economic developments, PACRA |
|
| put
the entire investment banking industry on a Rating Alert, pending detailed
review on a case |
|
|
| by
case basis. It is our understanding that PACRA has downgraded the rating of
each investment |
|
| bank
subsequently reviewed. Your company's long-term rating was also downgraded
one notch |
|
| from
AA- to A+ while its short-term rating was maintained at A1 + which is the
highest level in |
|
|
| PACRNs
rating scale. After the announcement of intended change of majority
ownership, your |
|
| company
was again put on rating alert by PACRA. You maybe interested to learn that
according |
|
| to
latest available rating, Jehangir Siddiqui & Company is also rated A+ by
PACRA. |
|
|
| Results: |
|
| During
the year your company earned pre tax profit of Rs. 52.3 million and net
income of Rs. 35.9 |
|
| million.
A sum of Rs. 133.8 million was available for appropriation including
unappropriated profit |
|
| brought
forward from last year. We propose to transfer to reserves as follows: |
|
|
| Available
for appropriation |
|
Rs. |
133.85 |
million |
|
|
|
|
| Transfer
to Special Reserve |
|
Rs. |
7.20 |
million |
|
| (mandatory
legal reserve) |
|
|
| Appropriation
for proposed dividend (@ Nil) |
Rs. |
- |
million |
|
|
| Un-appropriated
profit carried forward |
|
Rs. |
126.65 |
million |
|
|
| The
Directors recognise that the need to retain equity for maintaining the Legal
Lending Limit and ~.: |
|
| other
ratios, has to be balanced with the shareholders' needs. Therefore, after the
cash dividend |
|
| announced
for the year 1997, the Directors are passing over the dividend for this year. |
|
|
| Future
Outlook:
~ |
|
|
|
| We
take this opportunity to reiterate our review, communicated to you earlier,
that future |
|
| performance
of your company is heavily dependent upon prevailing economic conditions of
the |
|
| country
and the resolution of the issues highlighted above. The State Bank of
Pakistan fully recognises |
|
| the
issues faced by the Investment Banks. We had advised you that a committee had
been formed .... |
|
| under
the chairmanship of the State Bank of Pakistan to look into the issues facing
Investment Banks |
|
| and
recommend corrective measures. I had reported to you that your company was
represented on |
|
| this
committee and that all of the above issues had been presented. However,
appropriate steps are |
|
| yet
to be taken. |
|
|
| Directors |
|
|
| There
was no change in the Board of your company since the last report to you. |
|
|
| Pattern
of Share Holding |
|
|
| A
statement showing the pattern of shareholding in the Company is provided on
Page No. 25 |
|
|
| Holding
Company |
|
|
| Our
holding company is Citibank Overseas Investment Corporation incorporated
under the laws of |
|
| United
States of America. |
|
|
| Auditors |
|
|
| Messrs.
Ford, Rhodes, Robson, Morrow, Chartered Accountants, Auditors of the Company,
retire |
|
| and
offer themselves for re-appointment. |
|
|
| Staff |
|
|
| Finally,
I would like to thank the management and staff for their effort and
dedication in helping the |
|
| bank
through the most difficult year. |
|
|
|
On behalf of the Board |
|
|
| February 1st, 1999 |
|
Muhammad Azimuddin |
|
|
Managing Director & |
|
|
Chief Executive |
|
|
|
| Auditors'
Report to the Members |
|
|
| We
have audited the annexed balance sheet of CITICORP INVESTMENT BANK (PAKISTAN) |
|
| LIMITED
as at December 31, 1998 and the related profit and loss account and statement
of changes |
|
| in
financial position (cash flow statement), together with the notes forming
part thereof, for the year |
|
| then
ended and we state that we have obtained all the information and explanations
which to the best |
|
| of
our knowledge and belief were necessary for the purposes of our audit and,
after due verification |
|
| thereof,
we report that: |
|
|
| a)
in our opinion, proper books of account have been kept by the company as
required by the |
|
| Companies
Ordinance, 1984; |
|
|
| b)
in our opinion: |
|
|
| i)
the balance sheet and profit and loss account together with the notes thereon
have been |
|
| drawn
up in conformity with the Companies Ordinance, 1984, and are in agreement
with the |
|
| books
of account and are further in accordance with accounting policies
consistently applied; |
|
|
| ii)
the expenditure incurred during the year was for the purpose of the company's
business; and |
|
|
| iii)
the business conducted, investments made and the expenditure incurred during
the year |
|
| were
in accordance with the objects of the company; |
|
|
| c)
in our opinion and to the best of our information and according to the
explanations given to us, |
|
| the
balance sheet, profit and loss account and the statement of changes in
financial position (cash |
|
| flow
statement), together with the notes forming part thereof, give the
information required by |
|
| the
Companies Ordinance, 1984, in the manner so required and respectively give a
true and fair |
|
| view
of the state of the company's affairs as at December 31, 1998 and of the
profit and the changes |
|
| in
financial position (cash flow statement) for the year then ended; and |
|
|
| d)
in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance,
1980, was |
|
| deducted
by the company and deposited in the Central Zakat Fund established under
Section 7 |
|
| of
that Ordinance. |
|
|
|
| Karachi |
|
Ford, Rhodes, Robson,
Morrow |
|
| February
1st, 1999 |
|
Chartered Accountants |
|
|
|
| Balance
Sheet |
|
| As
at December 31, 1998 |
|
|
|
1998 |
1997 |
|
|
Note |
(Rs. in 000's) |
(Rs. in 000's) |
|
| SHARE
CAPITAL AND RESERVES |
|
| Authorised
capital |
|
| 20,000,000
ordinary shares of Rs. 10 each |
|
200,000 |
200,000 |
|
| Issued,
subscribed and paid-up capital |
3 |
|
| 10,000,000
ordinary shares of Rs. 10 each |
|
100,000 |
100,000 |
|
| fully
paid in cash |
|
|
|
| Reserve |
|
4 |
163,827 |
127,937 |
|
|
|
---------- |
---------- |
|
|
263,827 |
227,937 |
|
|
| DEFERRED
LIABILITIES |
|
| Taxation |
|
- |
397 |
|
| LONG
TERM LIABILITIES |
|
|
|
| Certificates
of Investment |
|
5.1 |
76,998 |
442,344 |
|
| CURRENT
LIABILITIES |
|
|
|
|
| Certificates
of Investment |
|
5.2 |
32,679 |
880,161 |
|
| DPNs
sold under repurchase agreements |
|
40,000 |
120,000 |
|
| Accrued
expenses and other liabilities |
6 |
12,935 |
61,929 |
|
| Taxation
- net |
|
- |
8,774 |
|
| Proposed
final dividend |
|
- |
15,000 |
|
|
85,614 |
1,085,864 |
|
| CONTINGENCIES
AND COMMITMENTS |
7 |
|
|
---------- |
---------- |
|
|
426,439 |
1,756,542 |
|
|
=========== |
=========== |
|
|
| TANGIBLE
FIXED ASSETS |
|
8 |
- |
9,586 |
|
| LONG
TERM DEPOSITS |
|
|
200 |
- |
|
| LONG
TERM INVESTMENTS |
|
9 |
27,634 |
37,984 |
|
| LONG
TERM DEMAND PROMISSORY NOTES |
10 |
57,000 |
462,600 |
|
| CURRENT
ASSETS |
|
|
|
|
| Bank
balances and placements |
11 |
221,156 |
390,590 |
|
| Short
term investments |
|
12 |
24,804 |
375,000 |
|
|
| Demand
promissory notes |
|
- |
421,200 |
|
|
|
|
| Income
accrued or receivable |
|
9,453 |
33,977 |
|
|
| Prepayments |
|
13 |
22 |
25,355 |
|
|
|
|
|
| Taxation
- net |
|
14 |
82,810 |
- |
|
|
| Other
receivables |
|
3,360 |
250 |
|
|
---------- |
---------- |
|
|
341,605 |
1,246,372 |
|
|
---------- |
---------- |
|
|
426,439 |
1,756,542 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
| Managing
Director & |
|
Director |
|
| Chief
Executive |
|
|
|
| Profit
and Loss Account |
|
| For
the year ended December 31, 1998 |
|
|
|
1998 |
1997 |
|
|
Note |
(Rs. in 000's) |
(Rs. in 000's) |
|
| INCOME |
|
|
| Income
from demand promissory notes |
|
114,413 |
173,786 |
|
| Return
on bank deposits and placements |
15 |
35,199 |
33,946 |
|
| Income
from investments |
|
16 |
35,980 |
54,326 |
|
| Exchange
gain |
|
11,070 |
29,903 |
|
| Consultancy
and corporate advisory fees |
|
20,185 |
2,983 |
|
| Mark-up
on Term Finance Certificates |
|
5,072 |
1,949 |
|
| Profit
on sale of investments |
|
1,305 |
14,790 |
|
| Underwriting
commission |
|
180 |
264 |
|
|
---------- |
---------- |
|
|
223,404 |
311,947 |
|
| EXPENDITURE |
|
| Interest/Return
on certificates of investment |
123,638 |
183,162 |
|
| Return
on DPNs sold under repurchase agreements |
21,261 |
31,626 |
|
| Return
on investments sold under |
|
| repurchase
agreements |
|
1,267 |
- |
|
| Mark-up
on short term running finance |
|
1,319 |
- |
|
| Administration
and operating expenses |
17 |
23,652 |
33,520 |
|
|
(171,137) |
(248,308) |
|
|
---------- |
---------- |
|
| Profit
before taxation |
|
52,267 |
63,639 |
|
| Taxation |
|
18 |
|
|
| Current |
|
(15,497) |
(17,286) |
|
| Prior |
|
(1,277) |
- |
|
| Deferred |
|
397 |
554 |
|
|
---------- |
---------- |
|
|
(16,377) |
(16,732) |
|
|
---------- |
---------- |
|
| Profit
after taxation |
|
35,890 |
46,907 |
|
| Unappropriated
profit brought forward |
|
97,957 |
75,550 |
|
|
---------- |
---------- |
|
| Available
for appropriation |
|
133,847 |
122,457 |
|
| APPROPRIATIONS |
|
|
| Transfer
to special reserve |
4 |
(7,200) |
(9,500) |
|
| Proposed
final dividend @ Nil (1997: 15%) |
|
- |
(15,000) |
|
|
---------- |
---------- |
|
|
(7,200) |
(24,500) |
|
|
---------- |
---------- |
|
| Balance
carried forward |
|
126,647 |
97,957 |
|
| The
annexed notes form an integral part of these accounts. |
|
|
| Managing
Director & |
|
Director |
|
| Chief
Executive |
|
|
|
|
| Statement
of Changes in Financial Position |
|
| (Cash
flow Statement) For the year ended December 31, 1998 |
|
|
|
|
1998 |
1997 |
