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Dividend, profit making listed cos' number declined last fiscal

HARIS ZAMIR

KARACHI: The number of dividend declaring and profit making companies listed at the Karachi Stock Exchange declined substantially during the last fiscal year due to economic slow down and erratic government policies.

The small shareholders were the main losers behind the sluggish economic trend that prevailed in the country for the last couple of years. The failure of cotton crop badly eroded the profits of the textile companies listed at the stock exchange. The losses suffered by the textile sector had a chained affect, creating liquidity crunch with the banks, leasing and Modaraba companies.

The profit of these companies also shrank while mutual funds which have portfolio based on textile companies also suffered colossal losses.

"There has been a continuous decline in the dividend paying companies owing to chronic issues faced by the industrial sectors individually," a leading trader said. The textile companies suffered losses due to drastic fall in the cotton production since last couple of years. Sugar and Cement sectors were also in red because of over capacity and multiplicity of taxes. "Though captive power plants and independent power producers earned profits but did not distribute any payouts to their shareholders as there was rift with the government over the high tariff charges," he added.

According to the Karachi Stock Exchange (KSE) research division's working updated till November, 1999, out of 773 companies, only 266 companies or 34.41 percent declared dividends. Of the total companies listed at the KSE about 49.42 percent or 382 companies were profit making during the 1998-99.

In the corresponding year, out of 781 companies on board 424 companies were profit making, while 298 companies paid dividend.

The same analysis showed that 313 companies or 40.49 percent were loss making companies, while in the previous year the number was around 294.

This statistics revealed that recession has stranglehold on the country and broad-based measures are required to bail it out from the economic mess.

During the 1997-98, the profit after taxation of these companies totalled Rs 24.008 billion, while in 1998-99 it was around Rs 32.850 billion. During the period under review these companies paid taxes to the tune of Rs 9 billion compared with Rs 11 billion a year ago.

Analysts hoped that number of dividends for the last quarter has been on the rise, following the government's decision to pay at least 40 percent of their profits in shape of dividends to their shareholders. If any company

fails to distribute their earnings they have to pay a penalty of 10 percent on their paid up capital.

"This measure would not deprive the share of small investors and would force those companies to pay dividend which despite earning profits, transfer their revenue to some other accounts," they said.

They pointed out that in order to improve the efficiency of the companies, the government should allow mergers and acquisitions in the textile sector.

The companies which are dormant and trading below their par value should be handed over to those groups which despite depressed economic conditions are earning sizable profits.

Small shareholders suggested that accounting and auditing standards needed to be beefed up, in terms of providing some kind of benchmark of minimum rations to be maintained in the tax, especially in case of listed companies.

They said that the exchange should allow listing of those companies where the group or the sponsors have good track record and paying good dividends in their companies. All new transfer of funds to associate companies should be banned.

Because several companies have drained funds from the listed companies and established an associate company which is earning profit.

These funds have been borrowed at cheap rates that too give benefit to associate or unlisted company.

A leading economist said that the exchange should review all the listed companies once again. Though the exchange is closely monitoring the companies, the process needed to be strengthened further to help solve the problems of the shareholders.