Shareholding Pattern of Corporate Sector in Pakistan – an Insight on Dominance of Business Groups and Families Over Corporate Ownership Structure
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Shareholding Pattern of Corporate Sector in Pakistan – An Insight on dominance of Business Groups and Families over Corporate ownership structure Research Department Institute of Cost and Management Accountants of Pakistan (ICMAP) Vision “To be the Preference in Value Optimization for Business” Mission Statement “To develop strategic leaders through imparting quality education and training in Management Accounting, to continually set and upgrade professional standards and to conduct research, bringing value-addition to the economy” Core Values “Integrity, Competence, Pro-activity and Innovation.” Research Report Shareholding Pattern of Corporate Sector in Pakistan – An Insight on dominance of Business Groups and Families over Corporate ownership structure Research Department Institute of Cost and Management Accountants of Pakistan (ICMAP) © ALL RIGHTS RESERVED No part of this publication covered by the Copyright may be reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without prior written permission of the Research Department, Institute of Cost and Management Accountants of Pakistan, Karachi. © Institute of Cost and Management Accountants of Pakistan, 2011 Published by: Research Department, ICMAP. Institute of Cost and Management Accountants of Pakistan E-mail: [email protected] Website: http://www.icmap.com.pk Fax: +92-21-99243342 Published in 2011 Disclaimer This document has been prepared as an analytical report and is not intended to be exhaustive. While the utmost care has been taken in the preparation of this publication, it should not be relied upon as a substitute for legal advice or as a basis for formulating business decisions. Brief Contents Page Foreword 5 From the Desk of Executive Director 6 Chapter 1 Executive Summary 7 Chapter 2 Introduction 11 Chapter 3 Relevant Laws on Company Shareholdings 13 Chapter 4 An Overview of Business Groups and Families 16 Chapter 5 Sector-wise Analysis and Findings 20 Chapter 6 Ownership Category-wise Analysis and Findings 22 Chapter 7 Company-wise Analysis and Findings 25 Annexure (Tables) 43 Contents Chapter 1 Executive Summary 7 o Business Groups and Family owned companies dominate ownership structure o Ownership structure in ‘Textile Sector’ is skewed towards ‘Promoters & Directors’ o ‘Associated Companies’ owns above 50% share in Refining and Automobile Sectors o General Public’ holds major shareholdings in Insurance, Sugar and cement Sectors o ‘Institutional Investors’ have major stakes in Fertilizer and Pharmaceutical sectors o ‘Pak-Arab Fertilizer’ leads with highest shareholding ownership per Shareholder Chapter 2 Introduction 11 2.1 Concentrated and Dispersed Ownership structures 2.2 Categories of Shareholders and Distribution of Share capital 2.3 Purpose and Objectives of the Study 2.4 Research Design and Data Source 2.5 Sample Selection Chapter 3 Relevant Laws on Company Shareholdings 13 3.1 Requirement for Listed companies to disclose shareholding pattern 3.2 Requirement for company to maintain a Register of Directors’ shareholdings 3.3 Requirement for Directors to make disclosures of shareholdings 3.4 Requirement for Directors to submit statements of beneficial ownership 3.5 Requirement for circulating shareholding information with Directors Report Chapter 4 An Overview of Business Groups and Families 16 4.1 Historical Perspective 4.2 Sector-wise Analysis of Sample Companies Chapter 5 Sector-wise Analysis and Findings 20 Sugar, Textiles, Refinery, Fertilizer, Pharmaceutical, cement, Automobile Banks and Insurance sectors Chapter 6 Ownership Category-wise Analysis and Findings 22 o Directors’ ownership category o General Public ownership category o Associated companies ownership category o Institutional ownership category Chapter 7 Company-wise Analysis and Findings 25 Sugar, Textiles, Refinery, Fertilizer, Pharmaceutical, cement, Automobile, Banks and Insurance sectors Annexure (Tables) 43 Shareholding Pattern of Corporate Sector in Pakistan 5 Foreword I am pleased to present this report titled ‘Shareholding Pattern of the Corporate Sector in Pakistan’, carried out by the Research Department, as part of the project assigned by the Research, Quality Assurance & Ethics Committee of the Institute. In fact, it was thought by the Committee to conduct a brief overview of the shareholding pattern of the listed companies in Pakistan, with a view to provide a useful reference to our members, holding key positions in the industry, as well as our students, who are to step into the Masud Muzaffar, FCMA - Chairman corporate world after completion of their studies. This Research, Quality Assurance & Ethics Committee analytical report, though not very exhaustive, would certainly provide them valuable insight on the ownership structure and style of the listed corporate sector in Pakistan. A sample group of 44 representative companies; five each from six manufacturing sectors (sugar, textiles, refinery, fertilizer, pharmaceuticals, cement and automobile) and two services sectors (banks and insurance companies) have been selected for this study (due to small base of refinery sector, only four companies have been included). The study summarizes the companies’ shareholders into five categories viz. Directors, General Public, Associated companies, Institutional investors and foreign ownership. I am quite confident that this report would be a useful addition to your study material. I am indebted to the members of the Research, Quality Assurance & Ethics Committee for their valuable support and input, which led to completion of this report. I must appreciate here the excellent efforts of Mr. Mushtaq Madraswala, Executive Director and the hard work put in by Mr. Shahid Anwar, Deputy Director Research, in compiling and analyzing the data, included in this report. 6 ICMAP Research From the Desk of Executive Director It has always been the utmost desire of our Institute to present helpful professional advice and guidance for the benefit of its members, both in practice and in employment. This guidance is also in shape of research-based reports and studies, pertaining to the industry and corporate sector, in addition to information on the core area of cost audit and management accounting. The intention is to keep our members abreast with various industry issues and matters, so as to help them understand industry demands and opportunities in order to Mushtaq A. Madraswala Executive Director play an effective role as ‘strategic leaders’. The Research Department, which conducts such studies from time to time, has come out with yet another well- researched report on the “Shareholding pattern of Corporate Sector in Pakistan”, aimed at providing an insight to our members on the corporate ownership pattern in different sectors. I hope that the readers will find this report quite interesting and beneficial. Shareholding Pattern of Corporate Sector in Pakistan 7 Executive Summary This study examines the shareholding pattern and/or the ownership structure of the corporate sector in Pakistan, by using sample of forty-four representative firms from the manufacturing and services sectors. The manufacturing segment covers seven different sectors namely; sugar, textile, refinery, fertilizer, pharmaceuticals, cement and automobiles, whereas the services sector includes banks and insurance companies. Five companies each from the above nine sectors have been selected, with the exception of refinery sector, where only four companies are included, due mainly to the extremely narrow base of this industry sector. The data on shareholding pattern has been taken from the annual reports of these companies for the financial year 2010. The ownership structure has been classified into the following five major heads for the purpose of this study, and the data have been gathered and compiled accordingly: (1) Directors ownership (2) General Public ownership (3) Associated companies ownership (4) Institutional ownership (5) Foreign ownership The directors’ ownership includes the shareholdings in the company by the promoters as well as the directors’ spouses and minor children. The Associated companies are mostly the sister concerns or subsidiary companies of the groups, holding stakes in the selected companies. The Institutional ownership signifies investments made by banks, DFIs, mutual funds, investment companies, financial institutions, insurance companies, non-financial entities such as trusts etc. The foreign ownership refers to shares held by the foreigners and overseas Pakistanis. Business Groups and Family owned companies dominate ownership structure ICMAP research establishes the recognized fact that ownership structure in selected companies is mostly concentrated and closely held by business groups and family-run businesses. It is quite evident that in majority cases, the promoters or directors, through the ‘associated companies’ indirectly own the company shares. The family owned companies has, therefore, controlling equity interests, leading to insider control and concentrated ownership in such companies. It is a fact that being part of a large group of companies, a business firm is in a good position to reap several benefits from the group association. For instance, it can benefit from the goodwill and reputation of the group, as well as share the resources in finance and technology. Thus, a large stake of associated companies may have a positive impact on the company’s performance. However, this also leads