INTRODUCTION

Internship is the final compulsory component of Master of Business Administration programme. It is required to be undertaken individually by involvement in the work operation of any concerned organization. Basically internship is a practical application of the knowledge obtained in the area of specialization of the MBA and every student is required to study and analytically review the concerned aspect of the organization and also to report whether the theoretical concepts are being applied or not. Being a student of MBA with the major in Finance, I have selected the Securities and Exchange Commission of Pakistan for the purposes of internship. Securities and Exchange Commission of Pakistan is a newly established body corporate and it enjoys full operational, administrative and financial autonomy. The regulatory scope of the Commission is the securities market, administration of company law and regulation of some non-banking financial companies, in view of the strong inter-linkage among the three areas. In addition to regulating the above areas, the Commission is also responsible for regulating leasing companies. Leasing companies have been on the scene for almost a period of fifteen years now. Leasing was started as a result of the government decision to eliminate interest or Riba from all financial transactions. As such, leasing (Ijara) was accepted as one of the permissible mode of financing. Leasing is an important source of medium to long term financing, and the leasing sector was set up to develop a vital role in the capital formation of the country. Presently 33 leasing companies are registered under the Companies Ordinance, 1984 and with the exception of one, all are listed on the stock exchanges. In the Internship Report in the Chapter 1, complete introduction of the organization with specific reference of its functional profile have been given. As most of us know that Government of Pakistan has established this organization to provide a regulatory

Ejaz Alam Khan H5279752 MBA (Finance)

environment, which is conducive to sustainable growth and long-term viability of the corporate sector. In Chapter 2, keeping in view the area of my interest, responsibilities of the Specialized Companies Division of the Commission are discussed. This Division is responsible for regulation of Leasing, Mutual Funds, Modaraba companies and other specialized companies (except insurance companies). Its regulatory functions include licensing of these institutions under the relevant laws and rules, monitoring the performance and examination and analysis of financial statements. In Chapter 3, an industry analysis of the Leasing Industry has been made and also tried to provide all aggregate indicators for the last five years of the sector with its trends of key ratios. An overall inference is also part of it. In Chapter 4, three leading leasing companies have also been analysed with reference to their history, performance, balance sheet and income statement. Their last five years financial data and significant ratios are also given. At the end, some recommendations for improvement of the leasing sector as well as for the Securities and Exchange Commission of Pakistan have also been included in this report.

Ejaz Alam Khan H5279752 MBA (Finance)

1.

ORGANIZATION OF SECURITIES COMMISSION OF PAKISTAN

AND

EXCHANGE

The establishment of Securities and Exchange Commission of Pakistan with effect from 1st January, 1999 is an important milestone in the evolution of the regulatory framework for the capital market in Pakistan. Since 1981, the capital market and the corporate sector were being regulated by the Corporate Law Authority, a department of the Ministry of Finance, which had been set up to administer all the corporate laws in the country. The status of the Authority as a department of the Government circumscribed its effectiveness as it lacked administrative and financial autonomy to recruit professionally qualified staff and to develop necessary infrastructures. The rapid expansion of the market during early 1990s highlighted the need for establishment of an independent regulatory body with full operational and administrative autonomy. The process of restructuring the Authority into an autonomous Commission was started in 1997 under the Capital Market Development Programme of Asian Development Bank. A number of models of regulatory bodies, set up in the recent past in other countries of the region, were studied and after careful consideration, it was decided that: the proposed Commission should be named Securities and Exchange Commission of Pakistan and it should enjoy full operational, administrative and financial autonomy; the regulatory scope of the Commission should cover securities market, administration of company law and regulation of some non-banking financial companies, in view of the strong inter-linkages among the three areas; and the Commission should associate outside professionals and key policy makers with its policy formulation process.

The policy decisions regarding the constitution and the structure of the Commission were incorporated in the Securities and Exchange Commission of Pakistan Act, 1997 (the Act), which was passed by Parliament and promulgated in December 1997.

Ejaz Alam Khan H5279752 MBA (Finance)

On 1st January 1999, Mr. Shamim Ahmad Khan, the then Chairman, Corporate Law Authority, was appointed as the first chairman of the Commission. Four commissioners were also appointed out of whom, the following three joined the Commission: Mr. Abdul Rehman Qureshi Mr. Tariq Iqbal Khan Mr. Zafar-ul-Haq Hijazi

Subsequent to the resignation of Mr. Shamim Ahmad Khan in January 2000, Mr. Khalid A. Mirza (a senior official of the International Finance Corporation (IFC), posted as Chief of IFCs Regional Mission in Bangkok, Thailand) was appointed as Chairman of the Commission. He took over on 31st March 2000. Although the Commission became operational on 1st January 1999, it could not enjoy financial autonomy during the remaining part of the financial year. Till 30th June 1999, the Commission could only use the budgetary allocations, which had been made for the Authority in the budget of the Federal Government for the fiscal year 1998-99. Transformation of a government department into an autonomous body established under a statute required considerable groundwork. During the calendar year 1999, foundations of the new regulatory body were laid through a number of measures: A Corporate Plan was prepared with the assistance of ADB consultants which covered organizational structure, reporting relationships and functional profiles; information system strategy; plans to up-grade facilities like premises, equipment etc; skills development and financial plans. Based on the Corporate Plan, the work of the Commission was distributed among its six Divisions, powers of the Commission were delegated to the individual Commissioners and Appellate Benches as envisaged in the Act were constituted. A Service Manual, determining the terms and conditions of the Commissions employees, was prepared. Accounting and financial procedures were prepared and put into operation.

Ejaz Alam Khan H5279752 MBA (Finance)

Steps were taken to generate public awareness about the establishment of the Commission through seminars, the media, and circulars. A website (http//www.secp.gov.pk) was established that disseminates information regarding all-important developments and policy decisions of the Commission. New office premises at Islamabad (NIC Building, Blue Area) and additional space for the regional office at Karachi (5th Floor of SLIC Building No.2, Wallace Road) were arranged.

1.1

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT, 1997

The Commission is governed by the Securities and Exchange Commission of Pakistan Act, 1997 which encompasses the constitution of the Commission, appointment and terms and conditions of the Chairman and Commissioners, functions and powers of the Commission and financial arrangements. The main provisions of the Act are given below:
SUMMARY OF MAIN PROVISIONS OF SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN ACT, 1997

The Commission would be a body corporate and a legal person. The Commission would comprise of such number of commissioners including a chairman as may be fixed by the Federal Government but minimum and maximum number of commissioners shall be five and seven respectively. The tenure of the chairman will be three years while that of the commissioners shall be two or three years to be determined through random ballot to facilitate continuity of the Commission. The incumbents would be eligible for a second term. The Commission would administer the following laws: The Securities and Exchange Ordinance, 1969; The Companies Ordinance, 1984;

The Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980; The Insurance Act, 1938 (since replaced by the Insurance Ordinance, 2000); 1997. The Companies Legal Advisers Act, 1974; and The Securities and Exchange Commission of Pakistan Act,

Ejaz Alam Khan H5279752 MBA (Finance)

All the powers of the Authority and the Federal Government (except power for rules making) under the above laws are exercised by the Commission.

The Government can assign administration of any other law to the Commission. Terms and conditions of the employees shall be determined by the Commission with the approval of the Policy Board. The main functions of the Commission in respect of securities market are: regulation of securities market; regulation and supervision of the activities of capital market institutions like central depository and stock exchanges clearing houses; registering and regulating work of stock brokers, sub-brokers, trustees, bankers to the issue, registrars to the issue, under-writers, portfolio managers and investment advisers; regulation of collective investment schemes (Unit Trusts and Mutual Funds); and regulating substantial acquisition of shares and mergers and takeover of companies.

A Securities and Exchange Policy Board shall be constituted, which shall consist of seven members out of whom three would be from private sector while four would be ex-officio namely; Secretary, Finance Division, Secretary, Law and Justice Division, Chairman of the Commission and a Deputy Governor of the State Bank. The tenure of the private sector members of the Policy Board shall be four years. The main functions of the Board are: to advise the Federal Government on all matters relating to securities market, regulation of companies and corporate sector and protection of interest of investors, measures to encourage self regulation by the stock exchanges and non bank financial institutions and measures to promote securities market; to approve the budget of the Commission; and to oversee the performance of the Commission to the extent that purposes of the Act are achieved;

The Commission shall administer and control a Fund consisting of all sums received from Federal Government, grants and sums raised by the Commission and fees, penalties and other charges levied by the Commission. The Fund shall be expended for the purposes of meeting lawful expenditure of the Commission. The Commission is required to prepare an Annual Report on the activities of the Commission to be released to the public and to be submitted to the Federal Government and the Parliament. The accounts of the Commission are to be audited by two auditors; one to be appointed by the Federal Government and the other by the Commission.

Ejaz Alam Khan H5279752 MBA (Finance)

The Commission has been vested with sufficient powers to carry out investigation and inspection and call for any information relevant to its scope of work. An Appellate Bench is to be constituted by the Commission to hear appeals in respect of an order passed by a Commissioner.

The decision of the Government to assign regulation of the insurance industry to the Commission was taken after its establishment.

1.2

ADMINISTRATIVE STRUCTURE OF THE COMMISSION

In accordance with the approved Corporate Plan, the Commission has been organized into the following six Divisions:

Securities Division; Enforcement Division; Specialized Companies Division; Company Law Administration Division; Insurance Division; and Support Services Division

1.3

FUNCTIONAL PROFILE OF THE DIVISIONS

Securities Division is responsible for all activities related to the securities market functions, including licensing and coordination, regulation of secondary market, public offerings, market intermediaries and market surveillance. Enforcement and Monitoring Division is responsible for review of accounts of listed companies, investigation and compliance of relevant laws and regulations by the management and prosecution (except in relation to specialized companies, including insurance companies). Specialized Companies Division is responsible for regulation of Mutual Funds, Modaraba companies, Leasing and other specialized companies (except insurance companies). Its functions include licensing, regulatory compliance and enforcement of all applicable laws Company Law Administration Division is charged with the responsibility of incorporating all companies and enforcing Companies Ordinance and other

Ejaz Alam Khan H5279752 MBA (Finance)

statutes and regulations in all (listed/unlisted/private) companies. The Division is also responsible for supervision of the field offices in various cities working as company registration offices.

Insurance Division is responsible for regulating the insurance sector. It would exercise powers of the Commission under the law, and will administer the law of insurance, covering licensing and supervision of insurers and other regulated entities under that law. Support Services Division is responsible for provision of efficient support services to the entire Commission. It would also attend to legal matters pertaining to various statutes, managing the funds and maintaining accounts, development and administration of human resources and introducing automation systems through information technology. It is envisaged that the regional offices shall have their own dedicated support services units, which would implement the policies and procedures prescribed by the Support Services Division at the head office.

Each of the above six Divisions have been divided into Wings for administrative purposes, which are mentioned below:

Securities Division Licensing and Coordination; Secondary Market Regulation; Public Offering; and Surveillance

Enforcement Division Accounts Investigation Compliance and Prosecution

Specialized Companies Division

Modaraba Companies and Modarabas Leasing Companies All Other Specialized Companies and Mutual Funds. Company Law Administration Division

Coordination and Liaisoning Regulation and Compliance

Ejaz Alam Khan H5279752 MBA (Finance)

Enforcement, Investigation and Prosecution Licensing, Approvals and Appeals

Insurance Division Actuarial Services Life Insurance Prudential Supervision Non-life Insurance Prudential Supervision Market Conduct Supervision Enforcement and Prosecution

Support Services Division Finance and Accounts Administration Legal Human Resource Information Technology.

The Commission is a collegiate body having collective responsibility. Chairman of the Commission is its Chief Executive Officer and is responsible for the working of the whole Commission while the Commissioners would assist him in over-all supervision. Each Executive Director while heading a Division, or one or more Wings of a Division, would be directly responsible to the Commission. The Wings have further been divided function-wise into Sections to be headed by a Joint Director accountable to the respective Director. 1.4 SECURITIES AND EXCHANGE POLICY BOARD

While ensuring full autonomy of the Commission, the Act provides for establishment of a Securities and Exchange Policy Board (the Policy Board). The main objective of the Policy Board is to provide guidance to the Commission in all matters relating to its functions and to formulate policies in consultation with the Commission. The Policy Board is also responsible for advising the Government on any matter falling within the

Ejaz Alam Khan H5279752 MBA (Finance)

purview of the Act and other Corporate Laws; and also to express its opinion on policy matters referred to by the Government or the Commission. The Act provides that the Federal Government shall appoint a Policy Board consisting of seven members out of whom four would be ex-officio while three would represent the private sector. The ex-officio members are: (i) Secretary, Finance Division; (ii) Secretary, Law and Justice Division; (iii) Chairman of the Commission; and (iv) a Deputy Governor of the State Bank of Pakistan. Following a recent amendment in the Act, the size of the Policy Board has been increased to nine members, including the Secretary, Commerce Division, as another ex-officio member. The term of an ex-officio member is the period of incumbency of his/her official position whereas the term of a private sector member is for a fixed period of four years. The first Policy Board was constituted as under: 1. 2. 3. 4. 5. 6. 7. Mr. M. Khalil Mian (Chairman) Mr. Bashir Ahmed Mr. Khurshid Marker Ex-officio Secretary, Finance Division; Ex-officio Secretary, Law Division; Ex-officio Chairman of the Commission; and Mr. Mukhtar Nabi Qureshi, Deputy Governor of the State Bank of Pakistan.

On the resignation of Mr. M. Khalil Mian, the Government appointed Mr. Khalid A. Mirza, Chairman of the Commission as Chairman of the Policy Board on 29th June 2000.

1.5

FINANCIAL ARRANGEMENTS

Since Commission is financially autonomous, a Fund has been established for meeting the financial requirements of the Commission. The Fund is administered and controlled by the Commission and consists of the following:

such sums as the Federal Government may grant from time to time; grants of money and sums borrowed or raised by the Commission for the purposes of meeting any of its obligations or discharging any of its duties; and 10

Ejaz Alam Khan H5279752 MBA (Finance)

taxes, fees, penalties or other charges levied under this Act, the Ordinance, the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), Law of Insurance and under any other law that is for the time being administered by the Commission.

All expenditure of the Commission, including the following items, is charged to the Fund:

Any expenditure lawfully incurred by the Commission, including the remuneration of Commissioners and employees, including provident fund contributions, superannuating allowances or gratuities and legal fees and cost and other fees and costs. Any other expenses, costs or expenditure properly incurred or accepted by the Commission in the performance of its functions or the exercise of its powers under this Act. Purchasing or hiring equipment, machinery and any other materials, acquiring land and erecting buildings, and carrying out any other work and undertakings in the performance of its functions or the exercise of its powers under this Act. Repaying any financial accommodation received or moneys borrowed under this Act and the profit, return, mark-up or interest due thereon (howsoever called). Generally, any expenses for carrying into effect the provisions of this Act.

The Commission is required to prepare and submit its budget to the Policy Board within ninety days of its establishment and thereafter not later than thirty days before the expiry of each financial year. The Commission is required to keep proper accounts and at the end of each financial year prepare a statement of accounts, which shall include a balance sheet, and an account of income and expenditure. The Commission is also required to get its accounts audited by auditors appointed with the approval of the Federal Government. The Federal Government may if it deems fit; also require the accounts of the Commission for any financial year audited by the Auditor General of Pakistan. The Policy Board is required to send, within one hundred and twenty days after the end of each financial year, together with the annual report of the Commission, a copy of the statement of accounts of the Commission certified by the auditors and a copy of the auditors' report to the Federal

Ejaz Alam Khan H5279752 MBA (Finance)

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Government which shall cause them to be published in the official Gazette and submit to Parliament within two months of their receipt. The accounts of the Commission have been jointly audited by two firms of Chartered Accountants and submitted to the Government. A copy of the audited annual accounts for the period ended June 30, 3000 is annexed. 1.6 ADMINISTRATION, HUMAN SUPPORT SERVICES RESOURCE DEVELOPMENT AND

Support Services Division (SSD) is responsible for provision of efficient support services to the entire Commission including: Matters relating to finance and accounts; Handling of all legal matters relating to corporate laws being administered by the Commission, dealing with court cases, and providing legal advice to the Commission; Development of human resource, training of employees and appropriate recruitment rules for the induction of staff; Administrative matters relating to the security of the Commissions property, handling of the upkeep of the office premises and all other managerial issues; and Computerization, automation of the system and all matters relating to information technology.

SSD has been organized into five Wings, namely:

Finance and Accounts Administration Legal Human Resource Information Technology

The Commission has been endeavouring for the establishment of its organizational set up and framing of rules, regulations and procedures. SSD has been able to undertake the following assignments which were necessary for the operationalization of the Commission:Ejaz Alam Khan H5279752 MBA (Finance)

12

A separate Finance and Accounts Wing was established on 1st July 1999, the date when the Commission became autonomous in terms of financing. A standing operating procedure with regard to expenditure, revenue, imprest, accounting system for CROs and procurement of fixed assets was prepared. A formal Financial and Accounting Manual was prepared with the help of consultants appointed by ADB. The pay roll of the employees was computerized which worked successfully during the period. Accounting records were maintained according to the prescribed procedure. Habib Bank was nominated as a banker of the Commission and 18 collection accounts and 9 checking accounting were opened with its branches at various stations. Internal audit was introduced and a separate Pre-audit Department was established.

Consequent upon the above arrangements, Finance and Accounts Wing was able to reconcile its receipts and get its accounts audited within the statutory period. SSD is at present engaged in revamping the system for administration of human resource, establishment of a separate legal department as well as a department of information technology. 1.7 STAFFING

Section 43 of the Act empowers the Commission to determine suitability of officers and staff working in the Authority for appointment in the Commission. Such employees were not granted any right or lien to appointment on any post in the Commission. Pursuant to these statutory provisions, the Commission carried out an exercise to determine the suitability of the employees of the Authority and after careful consideration decided to release 21 officers working in BS-17 to BS-21 and 59 other staff members. On the basis of the qualifications and experience prescribed under the Corporate Plan, the Commission has so far inducted 39 new officers upgrading the professional expertise of the

Ejaz Alam Khan H5279752 MBA (Finance)

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Commission and improving its ability to discharge its responsibilities. Total existing strength of officers and employees and organizational chart of the Commission are annexed. 1.8 COMPUTERIZATION

Computerization was originally introduced in the organization (then the Authority) in early 1992, with the objective of facilitating name search of companies and to keep a database of companies incorporated under the Companies Ordinance, 1984. Over the years, the need was felt to expand and enhance the programme in order to improve operational capability and also to keep pace with similar organizations in the region. Presently, the company database system is being used in the Commission at its Headquarters and in the CROs. The database contains some basic information about all registered companies. The existing system, however, is not efficient and up-to-date and CROs are not electronically linked to headquarters. Record creation for new companies is centralized at the head office, whereas subsequent changes to the company records are done at their respective CROs and then replicated at all branches. A database containing annual and half-yearly accounts of public-listed companies is being maintained at headquarters. This database system is being used to generate various reports such as non-payment of dividends by listed companies. At present, there are about 761 listed companies, and the database contains accounting data of these companies for the last two years. The Commission is cognizant of the present problems faced by it in its monitoring procedures, the inherent delay in manual handling of all matters, problems faced by the public in getting quick and timely service from the Commission and the lack of an electronic communication system with the stock exchanges and CROs. The Commission is taking steps to address such problems through a carefully designed automation programme.

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It is also proposed to provide on a fast track basis, certain basic functions, such as:Availability of new names. Registration of new companies. Registration of mortgages/charges. Inspection of documents. Copies of documents. Filing of documents

These reforms are expected to bring marked improvements both in the quality and speed of service to the corporate sector. Software is being developed to enable monitoring of the three stock exchanges on real time basis. Unusual features in trading would be picked up and examined for timely corrective measures. The Commissions Headquarters and CROs are being connected through WAN. Databases are being developed for use by all regional offices. Updating of data would be facilitated by a properly designed communication system. Internal correspondence and circulars would also be handled electronically by way of e-mails and intranet facilities.

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2.

REGULATION OF SPECIALIZED COMPANIES

In addition to regulating the Securities Market and administering the Companies Ordinance, 1984, the Commission is also responsible for regulating leasing companies Modarabas and credit rating agencies. These functions are being carried out under the following laws and rules:

Leasing Companies (Establishment and Regulation) Rules, 1996 framed under section 506 of the Companies Ordinance, 1984 alongwith NBFIs Prudential Regulations issued by the State Bank of Pakistan. Investment Companies and Investment Advisers Rules, 1971 which regulate closed-end mutual funds.

Asset Management Companies Rules, 1995 which regulate open-end mutual funds.

Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 and Modaraba Companies and Modaraba Rules, 1981. Credit Rating Companies Rules, 1995.

This responsibility has been entrusted to the Specialized Companies Division (SCD. Registrars are responsible for regulation of leasing companies and Modarabas. In addition to regulatory functions, the Commission also takes the initiative to develop such specialized institutions. Regulatory functions include licensing of these institutions under the relevant laws and rules, monitoring the performance, and examination and analysis of financial statements. Registrars (Leasing) and Registrar (Modaraba) pay special attention to profitability and liquidity of the institutions. They also ensure that the managements of the institutions follow prudent commercial practices and conform to the Prudential Regulations issued by SBP. Registrar (Modaraba) also enjoys powers, which are vested

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with the Registrar of Companies including filing of documents, maintenance of records, registration of mortgages and providing facility to the public for inspection of records. 2.1 LEASING COMPANIES

As a result of amendments in the Banking Companies Ordinance, 1962 effected in 1997, regulation of leasing companies was assigned to Corporate Law Authority. Commission is now carrying out this function. 2.2 MONITORING AND REGULATION The

Registrar (Leasing) in SCD monitors and regulates leasing companies in terms of the Leasing Companies (Establishment and Regulation) Rules, 1996 framed under section 506 of the Companies Ordinance, 1984. Under these Rules, leasing companies require permission of the Commission for change of chief executive and directors, for opening new branches and for issuance of COIs. Advertisements are also required to be approved by the Commission. In addition to compliance with the requirements stipulated in the Leasing Rules, the Registrar (Leasing) also ensures that the requirements of NBFIs Rules issued by the State Bank of Pakistan as well as requirements of IAS-12 and 17 are duly observed. SCD monitors periodical reports received from leasing companies, which provide information on: Liquidity position. Equity and liabilities Equity and contingent liabilities. Distribution of deposits/COIs by maturity. Source of borrowings and maturity. Analysis of advances. REGULATORY ISSUES

2.3

New leasing companies are required to have minimum capital of Rs. 200 million under the Leasing Companies (Establishment and Regulation) Rules, 1996. However, at present, only nine companies have paid up capital in excess of Rs. 17

Ejaz Alam Khan H5279752 MBA (Finance)

200 million. Although existing companies were directed to raise their capital upto Rs. 200 million but 24 leasing companies have yet to raise their capital upto the required amount. These companies have attributed their default to market conditions, which did not encourage issuance of right shares.

The Commission has notified for public opinion new rules to be called Leasing Companies (Establishment and Regulation) Rules, in substitution of the existing Rules with the aim of providing a comprehensive regulatory framework for the lease finance sector. The new Rules combine both the establishment of leasing companies as well as prudential regulations for the conduct of leasing business.

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3.

INDUSTRY ANALYSIS

At first glance, the term industry may seem self-explanatory. After all, everyone is familiar with the auto industry, the drug industry, and the electric utility industry. Analysts and investors need methods with which to classify industries. One well-known and widely used system is the Standard Industrial Classification (SIC) system based on Census data and developed to classify it on the basis of what they produce. 3.1 OTHER INDUSTRY CLASSIFICATIONS

The SIC system of industry classification is probably the most consistent system available, and possibly the easiest to use. However, it is not the only industry, designation in actual use. Standard & Poor's Corporation, at the end of 1982, provide weekly stock indexes on approximately 100 industry groupings (or parts of industries) Many of these series go back 30 or 40 years. 3.2 ANALYSING INDUSTRIES

Industries are analysed through the study of a wide range of data, including sales, earnings, dividends, capital structure, product lines, regulations, innovations, and so on. Such analysis requires considerable expertise and is usually performed by industry analysts employed by brokerage firms and other institutional investors. 3.3 INDUSTRIES IN PAKISTAN

In Pakistan, the capital market classifies the industries on the basis of what the companies are produced. In the following table the total number of industries including their companies and their performance is shown.

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NUMBER OF INDUSTRIES INCLUDING THEIR COMPANIES AND THEIR PERFORMANCE

S.N o. Sector 1996 No. of Cos. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. Mutual Fund Modarabas Leasing companies Inv./Sec.Cos/Ba nks Insurance Textile Spinning Textile Weaving Textile Composite Woollen Synthetic & Rayon Jute Sugar & Allied Ind. Cement Tobacco Fuel & Energy Engineering Auto & Allied Engg. Cables & Elect.Goods Transport & Comm. Chemical & Pharm. Paper & Boards Vanaspati & Allied Construction Leather & Tanneries Food & Allied Ind. Glass & Ceramics Miscellaneous Total: 39 52 30 39 39 15 3 28 51 9 27 8 38 20 7 28 16 25 16 7 41 15 19 4 8 22 11 30 78 2 Div . pai d 23 21 18 15 15 34 2 11 2 7 0 21 7 3 14 3 11 5 3 27 9 0 0 5 10 4 14 284 1997 No. of Cos . 39 52 32 39 39 15 2 27 53 8 27 8 38 21 6 27 16 25 16 7 41 15 19 4 8 21 11 30 78 1 Div. pai d 24 20 19 18 17 39 7 16 3 9 1 18 3 2 19 5 11 4 2 25 7 1 0 6 10 2 10 29 8 1998 No. of Cos. 39 48 32 39 39 14 9 27 53 8 27 8 38 20 6 28 16 25 15 7 41 15 19 4 8 22 11 29 77 3 Di v. pai d 22 13 20 15 16 34 7 16 1 9 3 8 1 2 20 5 10 5 2 23 8 1 0 4 12 2 9 26 8 1999 No. of Cos . 39 47 32 39 39 14 6 26 54 8 26 8 38 20 6 28 16 25 15 7 39 15 19 4 8 22 10 29 76 5 Di v. pai d 1 9 2 6 2 0 2 0 1 7 5 1 9 1 7 2 1 2 3 2 1 4 2 2 0 4 1 1 4 2 2 3 8 0 0 6 1 3 4 1 2 33 0 2000 No. of Cos. 39 47 32 40 39 144 26 54 7 26 7 38 20 6 27 16 25 15 8 39 15 19 4 8 22 10 29 762 Div. paid 21 24 21 25 13 80 7 29 2 8 2 21 6 2 20 4 9 5 4 23 7 1 2 6 13 5 12 372

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FIVE YEARS TURNOUT OF COMPANIES WHO HAVE PAID DIVIDEND 1000

No. of Companies

800 600 400 200 0 1996 1997 1998

Years

36%

38%

35%

43%

49%

1999

2000

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3.4

LEASING INDUSTRY

LEASING SECTOR IN PAKISTAN Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NAME OF LEASING Asian Leasing Corporation Limited Askari Leasing Limited Atlas Lease Limited Capital Assets Leasing Corporation Limited Crescent Leasing Corporation Limited Dawood Leasing Company Limited English Leasing Limited First Leasing Corporation Limited Ghandhara Leasing Company Limited Grays Leasing Limited Ibrahim Leasing Limited Inter Asia Leasing Company Limited International Multi Leasing Corporation Limited Lease Pak Limited Mercantile Leasing Company Limited National Asset Leasing Corporation Limited National Development Leasing Corporation Limited Natover Lease and Refinance Limited Network Leasing Corporation Limited ORIX Leasing Pakistan Limited Pacific Leasing Company Limited Pak Apex Leasing Company Limited Pak Gulf Leasing Company Limited Pakistan Industrial Leasing Corporation Limited Pakistan Industrial and Commercial Leasing Limited Paramount Leasing Limited Saudi Pak Leasing Company Limited Security Leasing Corporation Limited Sigma Leasing Corporation Limited Trust Leasing Corporation Limited Union Leasing Limited Universal Leasing Corporiation Limited Shareholders equity Rs. in million 92.48 638.85 316.87 98.56 338.50 306.73 136.67 297.35 91.79 134.90 141.86 81.74 85.97 101.00 115.23 74.39 1240.48 43.60 113.34 926.29 147.96 120.17 107.56 581.22 229.94 294.86 353.04 121.53 121.00 367.54 288.28 76.20

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Leasing companies have been on the scene for almost a period of fifteen years now. Leasing was started as a result of the government decision to eliminate interest or Riba from all financial transactions. As such, leasing (Ijara) was accepted as one of the permissible mode of financing. Leasing is an important source of medium to long term financing, and the leasing sector was set up to develop a vital role in the capital formation of the country. Presently 33 leasing companies are registered under the Companies Ordinance, 1984 and with the exception of one, all are listed on the stock exchanges.

3.5 INDUSTRYS AGGREGATE INDICATORS

In the following sections contain brief description of the overall size of the leasing sector in Pakistan and its performance over the last five years. The trend of industrys aggregate indicators for the last five years are given below: Industry's aggregate indicators 1995 No. of companies Paid up capital Retained earnings Investment in lease finance Investments Borrowings Revenues Net profit Financial charges Operating expenditure Taxation Cash Dividend 1996 1997 1998 Rs. In million 1999 2000 32 4762 3441 30281 3162 25740 5704 573 3709 1368 151 409

27 30 33 33 32 2,766 3898 4234 4352 4566 1904 2746 3234 3359 3305 9404 21892 25164 28111 29039 1484 1768 2590 2724 2664 7780 18432 21603 23173 23765 2522 4090 5046 5315 5528 517 922 906 610 451 1058 2758 3006 3293 3634 390 926 959 1198 1294 92 165 155 293 149 60 537 399 340 371

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3.6

INFERENCE

The number of companies and the paid up capital are the industries input parameters whereas revenues, profits, financial charges and investments are the output parameters indicating the extent of the benefits provided by the industry. The paid up capital has increased from Rs. 3.8 billion in 1996 to Rs. 4.7 billion in 2000, showing an increase of 24% over the five years. Amongst the output parameters investment in lease finance increased increased from Rs. 21 billion in 1996 to Rs. 30 billion in 2000, maintaining its increase trend in the five year period and showing an overall increase of 43%.
No. of Companies
33 32 31 30 29 28 1996 1997 1998 1999 2000 5000 4000 3000 2000 1000 0 1996 1997 1998 1999 2000 30000 20000 10000 0 1996 1997 1998 1999 2000

Paid up capital

Investment in Lease Finance

40000

Net profit was showing a decreasing trend from 1996 to 1999. It has now increased in the year 2000 showing increase from Rs. 451 million to Rs. 573 million in 2000 an improvement of 20% in the year above.

Revenues 6000 5000 4000 3000 2000 1000 0 1996 1997 1998 1999 2000 4090 5528 5704 1000 900 800 700 600 500 400 300 200 100 0 922

Net profit
906

5046

5315

610 451

573

1996

1997

1998

1999

2000

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The revenues have grown from Rs. 4 billion in 1996 to Rs. 5.8 billion in 2000 which indicates an increase of 45% in the five years period. The above figures indicate that the leasing industry showed some what better results in 2000 as compared to 1999 as the net profit showed an increasing trend for the first time in the five years period and the total investment in lease finance grew by Rs. 1.2 billion as against 928 million in the previous years. 3.7 TRENDS OF KEY RATIOS

The following tables show the key ratios of the leasing industry Trends of Key Ratios Earning per share (Rs.) Return on equity (%) Return on Investment (%) Net profit margin (%) Revenue per share (Rs.) Financial charges/Total Expenses (%) Debt Leverage (X) Leasing and Financing/Net Worth (X) Total Assets/Net Worth (X) Current Ratio (X) Financial charges/Total Revenue (%) 1996 1997 1998 1999 2.13 1.67 1.40 0.79 13.99 11.88 7.91 5.73 3.33 2.81 1.79 1.25 22.56 17.69 11.48 8.16 9.46 9.41 12.21 9.70 71.44 72.76 69.99 71.57 3.20 3.23 3.42 3.60 3.40 3.43 3.59 3.57 4.20 4.23 4.24 4.60 1.07 1.25 1.17 1.24 - 65.73 2000 0.92 6.58 1.36 9.31 9.86 70.32 3.84 3.84 4.84 1.38 63.78

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3.8

INFERENCE

Net profit m argin (%)

25

Return on equity (%)

16

22.56 17.69 11.48 8.16

13.99 11.88 7.91 5.73

14 12 10

20

15

10

9.31

8 6 4 2

6.58

0 1996 1997 1998 1999 2000

0 1996 1997 1998 1999 2000

The key ratios of the leasing industry indicate that after a difficult year in 1999, the industry has somewhat stabilized in 2000 as the two key ratios i.e., Net Profit Margin and Return on Equity, after showing a decline trend up till 1999 have shown a slight increase in 2000. Net Profit Margin increased from 8.16% to 9.3% while return on investment grew from 1.25% to 1.36%. This stabilizing trend indicates that the efforts of the leasing industry to increase lease investments and to recover stuck up rentals have started to bear fruit.

Return on Investm ent (%)

3.5 3 2.5 2 1.5 1 0.5 0 1996 1997 1998 1999 2000 0.5

Earning per share (Rs.)

2.5

3.33 2.81

2.13 1.67 1.4 0.79 0.92

1.79 1.25 1.36

1.5

0 1996 1997 1998 1999 2000

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4.
4.1

ANALYSIS OF THREE LEADING LEASING COMPANIES

ASKARI LEASING LIMITED - COMPANY INFORMATION

Askari Leasing Limited, a subsidiary of Army Welfare Trust, is focused on underwriting quality lease business; with a twofold objective of ensuring safety of capital and maximizing the shareholders return. The company is involved in the business of auto financing and big corporate transactions to large local and multination companies.

Board of Directors

Lt. Gen (R) Mohammad Afsar, Chairman Brig (R) Ikram Ul Hassan, Director Brig (R) Muhammad Ayub, Director Brig (R) Gul Zaman Satti, Director Mr. Khalid Sharwani, Director Mr. Shujaat Ali Khan, Director Mr. Javed Ahmed Noel, Director Dr. Amjad Waheed, Director (NIT Nominee) Mr. Taimur Afzal, CEO

Commenc ed Business on Head Office Tel: Fax Offices at: Staff Strength Listed at: Auditors: Legal Advisors

November 1993 5th & 6th Floor, AWT Plaza, The Mall, Rawalpindi 5511309-11, 111-111-345 5565670 Karachi, Lahore, Faisalabad 70 Islamabad, Rawalpindi,

Karachi, Lahore and Islamabad Exchanges Taseer Hadi Khalid & Co., Walker Martineu Saleem

Stock

4.2

PERFORMANCE HIGHLIGHTS

Besides maintaining the status of largest leasing company, it disbursed in excess of Rs. 3 billion during the year, which is the largest ever disbursement by any leasing company in Pakistan.

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The major source of resource mobilization of the company is Certificates of Investments (COIs) and as on June 30, 2000 total COIs were Rs. 4.7 billion ($80 million). Pre-tax profit for the year 1999-2000 was Rs. 100 million. The companys

administrative expenses as a percentage of total assets are 0.9% which is the lowest among the largest leasing companies. The company is rated A+ and A1 long and short-term obligations by Pakistan Credit Rating Agency. 4.3 BALANCE SHEET
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) EQUITY Issued, subs. & Paid up capital Reserves & Retained Earning Total equity LIABILITIES Deferred liabilities Long Term Loan Certificates of Investment Lease Key Money Short-term loan and running finance Short-term COIs Other current liabilities Total Current Liabilities Total Liabilities ASSETS Tangible Fixed assets Net Investment in Lease Finance Long term investment Other long term assets Current portion of lease finance Short term finance Investments Other current assets Cash and Bank Balance Total Current assets

Rs. in million 200.00 149.74 349.74 31.29 8.33 1044.3 3 200.50 285.94 683.60 135.21 1104.7 5 2738.9 4 6.51 1424.1 4 5.00 0.50 491.34 73.34 233.18 325.35 179.58 1302.7 9 200.00 269.81 469.81 74.67 12.50 1822.40 283.88 595.39 558.75 201.02 1355.16 4018.42 240.00 254.00 494.00 20.00 253.00 1494.00 317.00 699.00 1467.00 284.00 2450.00 5147.00 240.00 288.00 528.00 83.00 2202.00 0.435 443.00 1365.00 458.00 2266.00 5618.00 324.00 314.85 638.85 224.58 3693.00 572.58 322.33 864.12 705.80 1892.00 7221.21

14.82 2195.17 5.00 6.39 710.30 467.51 362.30 198.22 58.71 1797.04

21.00 3786.00 5.00 10.00 1222.00 0.00 881.00 252.00 191.00 2546.00

22.00 4118.00 5.00 10.00 1216.00 25.00 878.00 309.00 407.00 2810.00

35.17 3360.00 5.00 9.29 1866.93 35.91 1098.00 468.35 341.06 3810.83

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Total Assets

2738.9 4

4018.42

5147.00

5618.00

7221.21

4.4

SIGNIFICANT RATIOS
198.04 1.18 1.72 7.83 6.83 17.49 441.87 1.33 0.98 8.55 7.55 23.49 97.00 1.04 0.00 8.38 9.42 25.58 544.00 1.33 10.63 7.42 22.00 1918.56 2.00 1.96 11.00 9.00 19.72

Net Working capital (Rs.) Current ratio (X) Payable/Receivable & Loans (X) Total Assets/Net worth (X) Debt Leverage (X) Break-up value (Rs.)

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4.5

INCOME STATEMENT
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) INCOME Lease income Mark-up income Capital Gain on Investment Non-Interest Income Other income Total Income EXPENSES Operating expenses Financial expenses Prov. For Pot. Lease Losses/Loan Prov. For Dimn. In value of Investment Profit before taxation Taxation Net Profit APPROPRIATION Dividend Reserve for Bonus Shares Statutory Reserve Other Reserves

Rs. in million 312.58 52.93 00.00 13.42 0.35 379.28 22.97 236.49 17.22 2.36 100.24 4.50 95.74 40.00 0.00 19.15 36.00 511.13 102.98 00.00 13.40 3.47 630.98 31.90 420.44 43.38 0.18 135.08 15.00 120.08 0.00 40.00 24.02 56.00 594.00 122.00 00.00 0.00 0.40 716.40 40.70 530.00 45.30 0.00 100.00 28.00 72.00 20.00 0.00 0.00 19.00 638.00 159.00 0.69 798.00 49.00 665.00 12.00 0.54 71.00 8.50 62.00 48.00 12.5 121.00 767.04 107.01 36.13 0.82 911.01 67.12 794.48 30.61 (0.11) 100.55 9.10 91.45 64.80 18.29 23.00

4.6

SIGNIFICANT RATIOS
18.96 84.11 25.24 4.79 47.90 3.50 27.37 2.00 0.00 31.55 82.32 19.03 6.00 60.00 2.99 25.56 0.00 20.00 30.00 86.00 14.00 4.54 00.00 2.64 20.75 2.00 0.00 33.25 91.50 7.76 2.60 25.80 1.61 11.70 2.00 28.00 89.00 10.00 2.82 28.23 1.27 16.00 2.00 -

Revenue per Share (Rs.) Financial Charges/Total exp. (%) Net profit margin (%) Earning per share (Rs.) Earning per face value (%) Return on Investment (%) Return on equity (%) Dividend per share (%) Stock Dividend (%)

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4.7

NATIONAL DEVELOPMENT LEASING CORPORATION LIMITED -COMPANY INFORMATION

National Development Leasing Corporation Limited is the pioneering and a major player of the leasing sector in Pakistan. The Corporation was established in 1984 as a joint venture between National Development Finance Corporation, Asian Development Bank, International Finance Corporation and local sponsors. National Leasing Started business with an equity base of Rs. 20 million which has over the last 16 years grown to a figure exceeding Rs. 1.2 billion.

Board of Directors Mr. Mohammad Salim, Chairman Mr. Mubashir a. Akhtar, CEO Mr. Mohammad Naseem, Director Mr. S.M. Saleem, Director Mr. Mohammad Sharif, Director Mr. Zahid Haleem Sheikh, Director Mr. Farrukh Hussain Sheikh, Director Ms. Etrat H. Rizci, Director

Commence d Business on Head Office Tel: Fax Offices at: Staff Strength Listed at: Auditors: Legal Advisors

June 02, 1984 10th Floor, NIC Building, Abbasi Shaheed Road, Karachi 5660671 5680454 Karachi, Lahore, Islamabad, Faisalabad 100 Karachi, Lahore and Islamabad Stock Exchanges Ford, Rhodes, Robson, Morrow. Mohsin Tayyabally & Co.

4.8

PERFORMANCE HIGHLIGHTS

Profit before taxation of the Corporation was Rs. 95 million during the year 2000 as compared to Rs. 120 million in the previous year. Total income earned during the year dropped from Rs. 698 million to Rs. 633 million depicting a fall of 10.3%. The reduction in lease revenue is mainly due to decline in disbursements in previous years. Cost of borrowings decreased to Rs. 399 million from Rs. 447 million in the previous year, due to availability of comparatively cheaper funds and efficient handling of short-term borrowings. Administrative and operating expenses were Rs. 99 million as against Rs. 87 million in 1999, which mainly reflects the incidence of inflation. The Corporation made provisions of Rs. 57

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million against potential lease losses as compared to Rs. 29 million provided last year. Provision for diminution of investment witnessed a reversal of Rs. 17 million as against increase of Rs. 16 million in 1999, due to appreciation in the market value of the portfolio. 4.9 BALANCE SHEET
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) EQUITY Issued, subs. & Paid up capital Reserves & Retained Earning Total equity LIABILITIES Deferred liabilities Long Term Loan Certificates of Investment Lease Key Money Short-term loan and running finance Short-term COIs Other current liabilities Total Current Liabilities Total Liabilities ASSETS Tangible Fixed assets Net Investment in Lease Finance Long term investment Other long term assets Current portion of lease finance Short term finance Investments Other current assets Cash and Bank Balance Total Current assets Total Assets

Rs. in million 359.42 780.00 1139.4 2 3.28 738.15 221.53 466.99 734.31 1533.9 2 434.37 2702.6 0 5271.9 7 56.31 2904.7 2 165.38 18.36 1066.2 8 293.61 353.87 277.13 136.31 2127.2 0 5271.9 7 359.42 828.24 1187.66 377.40 822.55 1199.95 377.40 856.00 1233.40 377.40 863.08 1240.48

4.42 1280.22 139.96 531.97 423.52 1436.45 307.00 2485.69 5311.98

4.29 1304.53 105.81 555.60 446.98 984.57 321.97 2187.78 4923.70

5.32 1513.58 174.92 535.83 479.20 540.09 322.58 2001.96 4804.92

7.48 1274.70 180.33 295.60 311.83 453.99 853.30 1619.12 3377.23

60.10 2427.19 55.18 356.33 1339.80 248.85 422.70 320.26 81.37 2479.68 5311.98

59.08 2155.54 50.69 564.31 1494.77 59.35 150.11 316.48 73.27 2215.99 4923.70

60.59 2183.44 14.38 485.31 1599.33 21.01 125.92 210.50 104.45 2163.93 4804.92

60.00 2127.36 10.31 295.38 1721.13 53.90 134.25 128.57 86.81 2124.66 4617.71

4.10 SIGNIFICANT

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RATIOS
Net Working capital (Rs.) Current ratio (X) Payable/Receivable & Loans (X) Total Assets/Net worth (X) Total Financing/Net worth (X) Debt Leverage (X) Break-up value (Rs.) 575.40 0.79 1.67 4.63 3.74 3.63 15.85 -6.01 0.99 1.28 4.47 3.66 3.47 16.52 28.21 1.01 0.78 4.10 3.72 2.83 15.90 161.97 1.08 0.77 3.90 3.59 2.63 16.34 505.55 1.31 0.78 3.72 3.57 2.54 16.43

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4.11

INCOME STATEMENT
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) INCOME Lease income Mark-up income Capital Gain on Investment Non-Interest Income Other income Total Income EXPENSES Operating expenses Financial expenses Prov. For Potential Lease Losses/Loan Prov. For Dimn. In value of Investment Profit before taxation Taxation Net Profit APPROPRIATION Dividend Reserve for Bonus Shares Statutory Reserve Other Reserves

Rs. in million 806.81 223.18 33.42 0.00 51.63 1115.0 4 113.09 641.44 34.50 59.39 266.62 55.00 211.62 107.83 0.00 1058 90.00 628.98 136.28 8.56 0.00 11.12 784.94 614.19 70.23 0.47 32.18 22.38 739.45 571.80 99.01 1.13 26.06 698.00 539.50 58.52 11.63 22.86 632.51

82.36 517.04 55.47 0.41 129.66 27.50 102.16 53.91 17.98 5.11 28.00

85.31 458.11 110.76 7.24 78.03 28.00 50.03 37.74 0.00 2.50 10.00

86.95 446.63 28.64 15.73 120.05 30.00 90.05 56.61 4.50 29.00

99.32 398.59 56.83 (17.37) 95.14 22.00 73.14 66.04 3.66 4.00

4.12

SIGNIFICANT RATIOS
15.51 76.00 18.98 2.94 58.80 4.01 18.57 1.50 0.00 10.92 75.77 13.02 1.42 28.40 1.92 8.60 0.75 5.00 9.80 66.44 6.77 0.66 13.26 1.03 4.17 0.50 00.00 9.25 83.70 12.90 1.19 23.86 1.90 7.30 0.75 0.00 8.38 74.17 11.56 0.97 19.40 1.58 5.89 0.87 -

Revenue per Share (Rs.) Financial Charges/Total exp. (%) Net profit margin (%) Earning per share (Rs.) Earning per face value (%) Return on Investment (%) Return on equity (%) Dividend per share (%) Stock Dividend (%)

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4.13

ORIX LEASING PAKISTAN LIMITED - COMPANY INFORMATION

ORIX Leasing Pakistan Limited is a subsidiary of ORIX Corporation, the largest leasing company in Japan and a leading diversified financial services provider internationally. ORIX Corporation an asset base in excess of US$ 50 billion and an international presence in 20 Countries. The Company is mainly involved in leasing of industrial machinery, office equipment, commercial vehicles and passenger cars. The Companys strength lies in a large and diversified customer base with special emphasis on small to medium size entities in all sectors. The companys Consumer Finance and Auto Lease Departments cater to the needs of individuals for household appliances and saloon cars. The companys operating lease division provides generators, communication equipment and vehicles on short-term rentals.

Board of Directors

Mr. Yoshihiko Miyauchi, Chairman Mr. Shakirullah Durrani, Vice Chairman Mr. Takeshi Sato, Director Masatoshi Yokota, Director Mr. Mohammad Mazharuddin, Director Mr. Shaheen Amin, Director Mr. Mohammad Qamarul Haq, Director Mr. Humayun Murad, CEO

Commenc ed Business on Head Office Tel: Fax Offices at: Staff Strength Listed at: Auditors: Legal Advisors

January 1, 1987 Overseas Investors, Chamber Building, Karachi 111-242-424, 2426020 of Commerce

2425897 Karachi, Lahore, Islamabad, Sailkot, Faisalabad, Peshawar, Hyderabad and Multan 224 Karachi, Lahore and Islamabad Stock Exchangtes Sidat Hyder Qamar & Co. Mansoor Ahmad Khan & Co.,

4.14

PERFORMANCE HIGHLIGHTS

ORIX Leasing achieved good growth during the year with new business volume at Rs. 2.7 billion showing an improvement of 33% over the previous years volume. The company provided financial assistance to 1,436 businesses. As at June 30,

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2000, the company had assets of Rs. 6.1 billion and net worth of Rs. 926.3 million. For the year ended June 30, 2000 revenues rose to Rs. 980 million (1999: Rs. 905 million) and profit before tax increased to Rs. 156 million (1999: Rs. 150 million) enabling the company to maintain cash dividend at 40%. The Pakistan Credit Rating Agency maintained the companys credit rating at A1+ and AA- for short and long term debt respectively on the basis of accounts for the year ended June 30, 2000. These are the highest credit ratings achieved by a leasing company in Pakistan. 4.15 BALANCE SHEET
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) EQUITY Issued, subs. & Paid up capital Reserves & Retained Earning Total equity LIABILITIES Deferred liabilities Long Term Loan Certificates of Investment Long term deposits Current maturity of long term loans Short-term loan and running finance Short-term COIs Other current liabilities Total Current Liabilities Total Liabilities ASSETS Assets in own use Operating lease assets Net Investment in Lease Finance Long term investment Other long term assets Current portion of lease finance Short term finance Investments

Rs. in million 161.11 524.76 685.87 5.28 1386.7 0 7.79 394.11 518.66 505.75 124.77 371.65 1522.8 3 4002.5 8 36.73 0.00 1940.4 7 71.89 42.23 1717.4 3 14.58 37.72 161.11 588.08 749.19 7.66 1948.10 6.94 505.55 485.05 288.45 180.79 384.43 1338.72 4556.16 161.11 659.75 820.86 10.60 1699.67 7.38 576.22 718.76 53.36 325.69 378.00 1475.80 4590.53 201.39 669.38 870.70 13.54 1983.88 11.53 679.38 1057.56 4.87 134.59 472.10 1669.12 5228.22 201.39 724.90 926.29 17.49 1948.53 223.68 911.38 974.94 241.67 402.92 464.25 2083.78 6111.15

42.38 0.00 2493.90 126.41 59.21 1608.40 14.59 22.50

39.33 45.88 2176.58 126.41 53.68 1854.34 14.50 10.00

34.45 113.38 2371.44 280.17 49.09 2020.00 14.50 8.77

59.30 151.65 2878.84 285.77 63.58 2285.31 24.55 9.33

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Other current assets Cash and Bank Balance Total Current assets Total Assets

67.57 73.96 1911.2 6 4002.5 8

63.68 125.09 1834.26 4556.16

58.66 211.15 2148.64 4590.53

177.24 159.18 2379.69 5228.22

240.16 112.66 2672.01 6111.15

4.16

SIGNIFICANT RATIOS
388.43 1.26 5.33 5.84 3.71 42.57 495.54 1.37 5.48 6.08 3.88 46.50 672.84 1.46 4.91 5.59 3.42 50.95 710.58 1.43 5.04 6.00 3.67 43.24 588.23 1.28 5.58 6.60 4.09 46.00

Net Working capital (Rs.) Current ratio (X) Total Financing/Net worth (X) Total Assets/Net worth (X) Debt Leverage (X) Break-up value (Rs.)

4.17

INCOME STATEMENT
1996 12 1997 12 1998 12 1999 12 2000 12

30th June Reporting Periods (Months) INCOME Lease income Operating Lease Income Markup income Other fees and income Other income Total Income EXPENSES Operating expenses Financial expenses Prov. For Pot. Lease Losses/Loan Profit before taxation Taxation Net Profit APPROPRIATION Dividend Reserve for Bonus Shares Capital Reserve for deferred tax Other Reserves

Rs. in million 631.29 16.81 8.32 0.56 656.98 95.50 362.48 32.47 166.53 8.00 148.53 72.50 0.00 0.00 75.00 733.50 29.39 18.89 0.45 782.23 115.60 474.36 35.17 157.10 25.00 132.10 72.50 0.00 0.00 65.00 757.45 9.10 57.84 13.64 1.05 839.08 140.08 536.99 28.12 133.89 30.00 103.89 32.22 40.28 0.00 30.00 762.71 35.61 61.81 44.99 0.00 905.12 171.64 551.14 31.88 150.46 20.00 130.46 80.55 0.00 48.70 7.00 843.02 53.50 47.43 33.80 2.25 980.00 221.92 562.26 39.72 156.10 20.00 130.10 80.55 0.00 34.08 7.00

4.18

SIGNIFICANT RATIOS
40.78 73.91 48.55 75.88 52.08 76.15 44.94 73.03 48.66 68.24

Revenue per Share (Rs.) Financial Charges/Total

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exp. (%) Net profit margin (%) Earning per share (Rs.) Return on Assets (%) Return on equity (%) Dividend per share (%) Stock Dividend (%)

22.61 9.22 4.22 23.64 4.50 0.00

16.89 8.20 3.09 18.41 4.50 0.00

12.38 5.16 2.27 13.23 2.00 25.00

14.41 6.48 2.66 15.42 4.00 0.00

13.89 6.76 2.40 15.14 4.00 0.00

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CONCLUSION
Securities and Exchange Commission of Pakistan The establishment of Securities and Exchange Commission of Pakistan is, no doubt, an important milestone in the evolution of the regulatory framework for the capital market. It has been established keeping in view the dire needs of our corporate sector under a capital market development programme of Asian Development Bank. The Commission is functioning under a well-defined organizational structure with reporting relationships and functional profiles. It is planning to up-grade its facilities like premises, equipment etc; skills development and financial plans. Securities and Exchange Policy Board is also functioning well with the main objective to provide guidance to the Commission in all matters relating to its functions and to formulate policies in consultation with the Commission. Commission is financial autonomous and its main source of income is fees, penalties or other changes levied under the Act and the Ordinances being administered by it. During the year ended June 30, 2000 its income was Rs. 150.15 million and expenditure was Rs. 67.17 million. Its surplus of income over expenditure was Rs. 82.98 million that is a sign of sound financial position. (Balance Sheet and income statement are annexed). The Commission after its establishment has declared surplus 21 officers and 59 staff members pursuant to the statutory provisions to determine the suitability of the employees and upgrading the professional expertise. Commission has also inducted 39 new officers to improve its ability to discharge its responsibilities. This change is also helpful to achieve its objectives.
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The Commission is facing problem in its monitoring procedures by the cause of inherent delay in manual handling and public is facing problem in getting quick and timely service. This is due to lack of an electronic communication system with the stock exchanges and its Company Registration Offices. The Commission is planning to solve this problems through a carefully designed automation programme. Leasing Industry During the last few years, leasing has evolved as an important financing tool, especially for the small and medium enterprises. With economic progress being driven by small and medium enterprises sector growth, the leasing sector is indeed playing an important role in the process of economic revival of the country. The figures of the leasing industry indicate some what better results in 2000 as compared to 1999 as the net profit as the net profit showed an increasing trend for the first time in the five years period and the total investment in lease finance grew by Rs. 1.2 billion as against 928 million in the previous years. The key ratios of the leasing industry indicate that after a difficult year in 1999, the industry has somewhat stabilized in 2000 as the two key ratios i.e., Net Profit Margin and Return on Equity, after showing a decline trend up till 1999 have shown a slight increase in 2000. Net Profit Margin increased from 8.16% to 9.3% while return on investment grew from 1.25% to 1.36%. This stabilizing trend indicates that the efforts of the leasing industry to increase lease investments and to recover stuck up rentals have started to bear fruit. Payment of Dividend in the Leasing Sector is also showing an increasing trend as in 1996 out of 30 companies, 18 companies had declared dividend (60%) and in 2000 out of 32 companies 21 companies have declared dividend (66%).

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RECOMMENDATIONS
Securities and Exchange Commission of Pakistan Though the Securities and Exchange Commission of Pakistan, during its infancy, is playing its statutory role efficiently but I have seen in the Commission a number of complaints from the passive shareholders that the companies are earning profits but not paying dividend and due to this reason minority shareholders are not getting the fruits of their investment. Commission in the past also started action against these types of companies. This action has increased the number of dividend paying companies (1996 36% and 2000 49%). But I think it is not sufficient, it should be increased and Commission should play its statutory role more efficiently to safeguard the interest of minority shareholders. This is also one of the main causes of depressed securities market in the country. In most of our corporate sector, the active shareholders are also management of the companies and they enjoy the benefits in the form of their salaries and perks from the companies. The Commission should rationalize the salaries and perks with earning of the companies by implementing code of corporate governance. Leasing Sector As the leasing sector is performing well as compared to other sectors, investors have better choices in it for investment purposes.

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ANNEXURES
Securities and Exchange Commission of Pakistan
Balance Sheet as at June 30, 2000 Fixed assets Current assets Advances, deposits, prepayments and other receivables Cash and bank balances 7,993,706 25,472,625 114,830,134 140,302,759

Less current liabilities Accrued and other liabilities Net current assets Net assets Represented by: The Fund Grant received from the Government Assets acquired from the dissolved CLA Assets acquired from the re-appropriation of fund by the Government Surplus of income over expenditure

11,564,509 128,738,250 136,731,956

50,000,000 1,316,511 2,433,000 82,982,445 136,731,956

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Securities and Exchange Commission of Pakistan

Income and Expenditure Account for the year ended June 30, 2000

Income Fee and other recoveries Income on bank deposits 141,837,181 8,315,862 150,153,043

Expenditure Salaries, allowances and other benefits Operating expenses Assets acquired from the reappropriation of fund by the Government

42,218,352 22,335,241 2,414,363 202,642 67,170,598 82,982,445 150,153,043

Surplus of income over expenditure transferred to the fund

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Ejaz Alam Khan H5279752 MBA (Finance)

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Ejaz Alam Khan H5279752 MBA (Finance)

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