‘Pakistanis prefer to save cash at home’

By Kazim Alam

KARACHI: As many as 50 per cent of the “emerging affluent” Pakistanis prefer to save cash at home as opposed to only 15pc Indians belonging to the same segment of society.

According to a study carried out in eight countries by Standard Chartered Bank (SCB) along with independent research agency GlobeScan, the preference for keeping cash at home stems from the desire to be able to access savings at short notice, wanting to avoid risk, or lacking investing experience.

The study looks into the savings habits of 8,000 emerging affluent consumers aged 25-55 across China, Hong Kong, India, Kenya, Korea, Taiwan, Singapore and Pakistan.

Speaking at its launch on Monday, SCB Head of Segments Arslan Khan said Pakistan-specific findings of the report are a result of face-to-face interviews with 1,000 Pakistanis conducted in November and December last year.

Each of these emerging affluent Pakistanis was a graduate, earned a gross monthly income of between Rs40,000 and Rs500,000, and belonged to A and B socio-economic groups, a classification based on their spending habits and living standards.

In addition to keeping cash under the mattress, favoured savings methods adopted by emerging affluent Pakistanis include savings accounts (38pc), property investment (8pc), mutual funds (4pc) and time deposits (3pc).

In contrast, their Indian counterparts seem more sophisticated given their preference for mutual funds (24pc), fixed income securities (19pc) and stocks (17pc).

An emerging affluent Pakistani saves only 14pc of his or her monthly income, lowest among the eight countries where the overall monthly savings average is 27pc, according to SCB Head of Wealth Management Muslim Reza Mooman.

Reasons for low savings among emerging affluent Pakistanis include not having enough money to save, difficulty in setting financial goals, preference for spending in the immediate term and low interest rate environment.

The study said relying on a basic approach to saving money can add years to the amount of time it takes the emerging affluent to achieve their savings goals.

“Saving for life-after-work only comes out on top for the 45-55-year olds – except in India, Kenya and Pakistan where children’s education is the priority for almost all age groups,” it said.

Switching from a basic savings approach to a low-risk wealth management strategy can increase the return by an average of 42pc over a 10-year period for Asia’s emerging affluent.

Emerging affluent Pakistanis, by moving one step up from their preference for basic savings techniques, can earn 82pc more over 10 years, the study said.

Published in Dawn, April 25th, 2017


Martin Dow in talks to buy French biotech firm

By Kazim Alam

KARACHI: Martin Dow Ltd Chairman Jawed Akhai said on Friday the pharmaceutical company is looking into the possibility of acquiring a biotech company in France.

It will be Martin Dow’s third acquisition in France if the ongoing negotiations bear fruit, Mr Akhai said while speaking at the third annual general meeting (AGM) of the Pakistan-France Business Alliance (PFBA).

Speaking to Dawn on the sidelines of the AGM, Mr Akhai said the negotiations for the biotech company’s acquisition were still in an early stage. He did not state the expected size of the investment.

The company claims to be among the five largest players in the pharmaceutical industry of Pakistan.

President François Hollande inaugurated Martin Dow’s newly acquired plant last month in Meymac, France. Mr Akhai said he met the French president three times in seven weeks leading up to the acquisition of the manufacturing facility, which shows the level of support Pakistani investors receive from the French government.

“Mr Hollande took personal interest and ensured that the whole region was re-zoned to make us eligible to receive subsidies,” he said while praising pro-investment policies of the French government.

With the exit of the United Kingdom from the European Union, France is positioning itself as home base for Pakistani companies that currently run their EU operations out of London. In addition to wooing Pakistani companies to invest in France, Paris is also encouraging French businesses to undertake joint ventures in Pakistan.

For example, a delegation of MEDEF International, a federation of French employers, recently visited Pakistan. As many as 20 representatives of French businesses, like Engie, Thales, Total, Clauger and Credit Agricole Corporate and Investment Bank, were part of the delegation.

According to French Ambassador Martine Dorance, the delegation did not sign any memorandum of understanding (MoU) during its visit. “But I know that a few things are cooking,” she said in an apparent reference to the investment plans of French companies in Pakistan.

The French companies are exploring business opportunities in Pakistan in energy, environment, agriculture, banking, architecture and aerospace sectors, an earlier press statement said.

According to export receipts published by the State Bank of Pakistan (SBP), the country’s exports to France are in decline.

They amounted to $430 million in 2015-16 after witnessing average annual decline of 9.6 per cent during the preceding two fiscal years.

Pakistan’s exports to France in the first seven months of 2016-17 were $275.2m, down 7.5pc from a year ago.

Foreign direct investment from France in July-Feb amounted to $140m, up 133pc from a year ago.

Published in Dawn, April 8th, 2017

Wathra stresses credit parity across regions

By Kazim Alam

KARACHI: State Bank of Pakistan (SBP) Governor Ashraf Mahmood Wathra said on Monday the criterion for Pakistan Banking Awards 2017 should include the geographical distribution of banks’ loans and deposits to promote financial inclusion.

Speaking at the launch of the second edition of Pakistan Banking Awards at the Institute of Bankers Pakistan (IBP), Mr Wathra said banks should be rewarded for expanding their footprint in neglected areas, such as Balochistan, Khyber Pakhtunkhwa, Gilgit-Baltistan, Federally Administered Tribal Areas and Provincially Administered Tribal Areas along with remote parts of Sindh and Punjab.

Pakistan Banking Awards, which started in 2016, are given to individual banks based on their performance in the developmental, financial and customer service spheres. Their eight categories are Bank the Unbanked Award, Best Microfinance Bank, Best Bank for Small Businesses and Agriculture, Best Bank for Corporate Finance and Capital Market Development, Best Customer Franchise, Best Islamic Bank, Best Environmental, Social and Governance (ESG) Bank and, lastly, the Best Bank of the Year. United Bank won in the best bank category in 2016.

Mr Wathra said the central bank has introduced a number of concessionary schemes in priority areas, particularly exports. “But banks don’t promote those schemes. They have failed to create awareness among their clients,” he said, adding that the awards should take into account how actively a bank promotes the SBP’s concessionary schemes.

The IBP, Dawn Media Group and accountancy firm A.F. Ferguson and Company are organising the awards. Dawn Media Group CEO Hameed Haroon said these awards should not be considered Dawn Banking Awards. “Dawn is only a facilitator. It is extending communication expertise only,” he said.

A.F. Ferguson and Company Partner Syed Faraz Anwar said the awards already assign a higher weight to banks that have a larger presence in neglected geographical areas. However, he assured the SBP governor that the relevant committee will look into the possibility of increasing the weight assigned to this performance indicator.


Habib Bank President Nauman K. Dar said the criterion for the Best Bank for Corporate Finance and Capital Market Development is “not in sync with” the actual practice of investment banking in Pakistan. The SBP governor agreed with Mr Dar’s observation and asked the IBP and A.F. Ferguson and Company to take into account a bank’s contribution to project financing in relation to its total assets.

NBP President Saeed Ahmad said some banks are poised to beat others by virtue of their size. As an example, he said no institution can compete with Meezan Bank in the Shariah-compliant category. Similarly, only a handful of banks qualify for the investment bank category, he said. “The awards should not be given based on what already exists. Instead, banks should be rewarded for the improvements that they make over the year,” he added.

Mr Anwar of A.F. Ferguson and Company said the size of a bank is not the only criterion as key ratios will determine if the institution is actually worth an award. For example, the award in the SME category will take into account a bank’s loans to start-ups as a percentage of its total advances.

Many banks did not fill their nomination forms diligently in 2016, which reduced their chances of winning, the SBP governor said. He asked IBP CEO Hussain Lawai to hold a working session for those bank personnel who are supposed to fill the nomination forms.

Mr Lawai said banks’ chief financial officers will sign the nomination forms this year to ensure that the information is up-to-date. The IBP will bear the cost of the awards ceremony without accepting contributions from banks to avoid any conflict of interest.

Jury members include SBP former governor Syed Salim Raza, former banking ombudsman Azhar Hamid, Pakistan Institute of Corporate Governance CEO Feroz Rizvi, English Biscuit Manufacturers CEO Dr Zeelaf Munir and former regional head of Citibank Middle East and Pakistan Shehzad Naqvi.

Published in Dawn, March 28th, 2017

Business on a tightrope

By Kazim Alam

AMERICAN businesses operating in Muslim-majority countries seem to be just one tweet away from ruin, thanks to frequent Twitter tantrums and country-specific executive orders by President Trump.

It may only be a matter of time before deep-rooted anti-Americanism manifests itself in passionate calls for boycotting US products and services should the new US administration continue to antagonise international trade partners. For example, a late-night ‘twitterstorm’ by President Trump denigrating Pakistan can spell disaster for dozens of American companies operating in the country.

So how frightened are American businesses in Pakistan these days? Nobody knows because they remain tight-lipped. The American Business Council of Pakistan (ABC), a 67-member representative body of large US companies operating locally, is avoiding any brush with media. None of its 11 office-bearers were available to comment on the issue, according to ABC Secretary-General Amna Daudi.

Speaking to Dawn, former ABC president Saad Amanullah Khan said big American businesses are deeply concerned about the direction the United States is taking under the new administration. “There’s been no policy change yet. But the whole atmosphere here is of anticipation,” said Khan, who worked in Ohio-based P&G for three decades and led Gillette Pakistan for more than seven years.

Member-companies of the ABC and Overseas Investors Chamber of Commerce and Industry (OICCI) are apprehensive, he said. “Building walls and imposing import duties don’t send a good message to the rest of the world,” he said.

According to Bilal Khan, a senior economist at Standard Chartered Pakistan, the prospect of a large-scale boycott of US products and services in the event of a travel ban on Pakistanis remains highly unlikely.

OICCI Secretary-General Abdul Aleem believes the hype being built around the idea of global American businesses taking a hit because of President Trump’s policies is unfounded. “We’re not at a stage where Pakistanis start boycotting American products,” said Aleem whose organisation has 31 member-companies of American origin.

There has been no noticeable change in direct investment from the US as a result of Trump’s executive orders, Aleem said. It is business as usual as far as imports are concerned, he added. “Pakistan is not Mexico. Their decision to exclude Pakistan from the ban list must have been well-thought-out,” he said.

Published in Dawn, February 19th, 2017

Data centre to tackle money laundering, terror financing

By Kazim Alam

KARACHI: The State Bank of Pakistan on Friday inaugurated a high-tech data centre which will help the Financial Monitoring Unit (FMU) in tracking down money laundering and terrorism financing.

The FMU is the financial intelligence unit of the finance ministry tasked with fighting money laundering and terror financing.

Established with the financial assistance of the UK Department for International Development, the data centre will host a specialist analytical suite of software (goAML) developed by the United Nations Office on Drugs and Crime (UNODC).

According to Shabbar Zaidi, a chartered accountant and former provincial finance minister, overvaluation and a lack of genuineness in financial transactions alert authorities to the possibility of money laundering.

The data centre will enable the FMU to automate the collection and analyse suspicious financial transactions being received from banks, exchange companies and other reporting entities in Pakistan. Moreover, the integrated system will enhance the FMU’s capability of disseminating financial intelligence to designated law enforcement agencies.

Speaking to Dawn, SBP Director Abid Qamar said the data centre would detect money laundering that was currently being done through formal banking channels. It was not meant for controlling money laundering that was taking place thro­ugh illegal channels, such as physical movement of currency notes acr­oss international borders, he added.

Mr Qamar said the extent of money laundering could not be determined right now. “We will have sufficient data in terms of the number of suspicious transactions and convictions in due course,” he added.

Previously, the analysis of financial data at the autonomous FMU was undertaken manually, which was slow and vulnerable to oversight. Now the customised software and high-precision equipment ins­ta­lled in the new data centre will allow the FMU to analyse suspicious transactions in a more robust, sophisticated and automated manner.

The British high commissioner and the UNODC representative accompanied SBP Governor Ashraf Mehmood Wathra at the inauguration.

Published in Dawn, February 11th, 2017

CDNS profit-collection system draws mixed response

By Kazim Alam

KARACHI: Thanks to a recent change in the profit distribution mechanism, widows and pensioners do not have to line up outside 485 offices of Central Directorate of National Savings (CDNS) across the country to collect their monthly returns.

All they have to do is take profit coupons and withdrawal slips of CDNS-run Pensioners Benefit Accounts (PBAs), Behbood Saving Certificates (BSCs) and Saving Accounts (SAs) to their respective banks, which will then credit money into their regular accounts.

While the move is supposed to minimise the manual handling of cash, many investors have shown scepticism.

“Dealing with banks is a headache. They need so many verifications. I like the present system because it is quick and hassle-free,” Hisamuddin, 52, told Dawn outside the National Savings Centre in Gulistan-e-Jauhar.

He said he helps his elder brother, who is over 60, manage his deposits in PBA that offers senior citizens and widows a return of 9.36 per cent per annum on a monthly basis.

Mr Hisamuddin said CDNS staff offered little help to make him understand the new profit-collection procedure. “A security guard handed me a form and told me to fill it out. I would rather stick to the old mechanism for as long as possible,” he said.

Returns on most CDNS schemes are notably higher than ones offered on regular savings accounts at commercial banks. In contrast, mutual funds managed by mostly private asset management companies (AMCs) offer relatively high returns on investment through their asset allocation funds. However, the CDNS is backed by the government and thus guarantees risk-free returns.

Not all CDNS investors are afraid of switching to the new system though. According to 35-year-old Fahd Ali Khan, the new system is going to save him a monthly visit to the savings centre to collect the profit on his parents’ investments in BSCs.

Although the new procedure will reduce cash handling at CDNS offices to a considerable extent, critics say bringing the Central Depository Company (CDC) into the loop would have eliminated the need for visiting the bank to deposit the CDNS-issued instrument. The securities depository is responsible for sending shareholders’ dividends directly into their bank accounts. Its partnership with CDNS can ensure the transfer of monthly profits directly into investors’ bank accounts.

The Regional Directorate of National Savings in Karachi refused to comment, saying it needs approval from the Ministry of Finance. However, mid-level officials in CDNS said the reluctance to switch over to the new profit-collection mechanism stems from a number of factors.

“Old people are naturally hesitant. Plus, our experience is that most senior citizens like to visit savings centres in person. It’s an activity they look forward to doing every month,” said one CDNS employee while requesting anonymity.

Another reason for some investors’ reluctance to opt for the new system is their desire to avoid the banking system. Unlike banks and AMCs, CDNS has fairly low know-your-customer requirements.

Out of roughly one million CDNS investors in Karachi, more than 460,000 have investments in these three schemes, according to a CDNS official. The maximum investment limit for a single investor is Rs5 million and a joint investor is Rs10m for both PBAs and BSCs.

Designed for widows and senior citizens, some people use these schemes to invest in the name of their ageing parents and other relatives. This enables them to earn relatively high, tax-free and guaranteed returns without having to declare their source of funds to the government.

“Up to 25pc of investors in these schemes are those who have parked funds in someone else’s names,” the CDNS official said.

Published in Dawn, February 10th, 2017

The journey of a ‘fugitive’ from Wall Street to Khayaban-e-Shahbaz

By Kazim Alam

KARACHI: From a government primary school in Karachi’s Sharafabad neighbourhood to the centre stage of high finance on Wall Street, the journey of self-styled investment guru Mir Mohammad Alikhan was unusual. But far more unusual has been his journey back from New York to Karachi.

After founding a full-service investment bank in early 1995 at the age of 29 and then running it as CEO from 110 Wall Street for about four years, Alikhan currently operates out of a small office located two floors above a Chinese restaurant on Khayaban-e-Shahbaz in DHA.

He spends most of his time uploading statuses and video messages for his 154,000-plus followers on Facebook. He publishes his “stock picks” frequently, trades shares for himself and dishes out (sometimes free) investment advice through social media. He also runs an “education company” and an online portal besides selling a training course on how to make “knowledge-based investments” in the stock market.

In short, the 50-year-old Wall Street veteran who claims to have owned $2.5 million worth of cars in the United States is now reduced to being a Facebook celebrity of sorts.

“I went from the most materialistic world to a world of raising my children for 15 years that changed me absolutely,” cigar-puffing Alikhan told The Express Tribune in an interview conducted in his Karachi office recently.

Taking quick and frequent glances over the computer screen during the conversation to keep track of the stock market, he repeatedly talked about raising his two children as a single parent, which has made him “a very content person, very happy person.”

The wheeler-dealer from New York, who rubbed shoulders with US congressmen and governors, is now living in Karachi as a ghost of his former self.

“After having swum in an ocean, you are recommending (that I should) swim in a well? You ask me what could be the next noble thing to do after having founded and run an investment bank on Wall Street. Nothing better than education. No investment bank I start could top that accomplishment,” he says.

So why did the first fully Muslim-owned investment bank on Wall Street, which was all set to go public as part of its holding company’s IPO in 1998, close down abruptly in February 1999?

“Wall Street is Zionist-ic. When you start doing things which are not conventional, it becomes very difficult,” he says.

He had to shut down his investment bank, Klein Maus and Shire (KMS), after he had an “absolute tussle” with New York State Attorney General Eliot Spitzer, he says. Refusing to delve into the specifics of the financial scandal that resulted into a sudden closure of his enterprise, he says the matter is “still sub judice.”

“I will fight this case at one point. I will fight one day the allegations that the (US) Securities and Exchange Commission has levelled against me,” he said while referring to the charges that the apex regulator of investment banking in the United States imposed on him back in 1999.

Alikhan left the United States 17 years ago. He has not gone back to his adopted country since then.

Road to America

Alikhan belongs to the royal family of Sir Mir Osman Ali Khan, the last ruler of the princely state of Hyderabad Deccan. His maternal grandfather, Syed Ali Asghar Bilgrami, was the governor of five provinces, he claims, proudly. “I come from a family of Urdu-speaking intellectuals.”

Alikhan’s sister, who was married and settled in New Jersey, sponsored him and the rest of the family members for immigration to the United States in 1984. He was 19 at the time.

He claims he graduated from Rutgers University (1984-88), majoring in economics and finance. He started working for Prudential Insurance Company in 1989. He joined a smaller firm afterwards and went on to become a partner there.

Alikhan established a full-service investment bank of his own within 10 years of moving into the United States – an enviable feat by all means.

But now he had his eyes set on raising about $31.4 million by listing his holding company, the United States Financial Group Inc (USFG), on Nasdaq.

USFG was a holding company for three subsidiaries, namely KMS, Sureal International and KMS Asset Management Group.

KMS was an investment bank. Sureal International sold nutritional and air-purification products in Russia and other republics of the former Soviet Union. KMS Asset Management Group came into being in 1997, but did not generate any revenues by the time the holding company initiated its bid to go public.

The downward spiral

Many setbacks took place one after another post-1998, leading to an early demise of Alikhan’s business empire.

Firstly, Alikhan was declared a “fugitive from justice” on May 17, 1999, for allegedly defrauding five of his clients out of more than $1.2 million in a “complex securities fraud scheme”.

A Manhattan grand jury has charged him with five counts of grand larceny in the second degree. If convicted, Alikhan will face up to 15 years in prison on each count, according to the office of the New York attorney general. An arrest warrant was issued for him, but he remains a fugitive to date.

“He is charged with using an elaborate scheme to artificially inflate the price of a number of securities by buying up shares, and then selling them to his clients without their authorisation,” according to the attorney general’s statement.

Secondly, Alikhan is also facing a lawsuit in the federal court in Manhattan filed by the US Securities and Exchange Commission that accuses him of a securities fraud. The commission has alleged that at least 55 investors were defrauded of more than $2.7 million.

It alleged that he made “material misrepresentations” about the financial condition of his businesses, such as overstating the assets of KMS and USFG by more than 20-fold and 200-fold, respectively.

The apex regulator of the US capital markets stated that Alikhan diverted company funds for his personal benefit and had exhausted KMS’ capital and closed its doors by March 17, 1999.

The commission has sought that he be ordered to repatriate all assets transferred abroad that were obtained from the illegal activities and be permanently barred from serving as an officer or director of a public company.

Alikhan’s holding company posted a basic loss per share throughout its existence from August 10, 1995, to September 30, 1998, according to a regulatory filing with the US Securities and Exchange Commission.

“No regrets”

Alikhan hobnobbed with the powers that be until the time he fled the United States. He had become “very much involved” in American politics and served as a member of New Jersey’s governor’s council under Governor Christine Todd Whitman, he claims.

“I was on the Republican Presidential Task Force,” he says, adding that he was “one of the largest donors of the Republican campaign” within New Jersey.

According to Alikhan, there was no charge against him when he left the United States. But he earned global notoriety when The New York Times published a story about him on January 2, 2000, about 10 months after the closure of his investment bank.

Alikhan says the article was actually aimed at hurting the credibility of General Pervez Musharraf who had assumed power in Pakistan in October 1999. Alikhan says he was serving “as an adviser to Musharraf” when The New York Times story appeared.

“It is very easy to write an article indirectly targeting the dictator of the time. Musharraf had said that he had brought only honest people to work with him. By single-handedly attacking me, they indirectly attacked his (Musharraf’s) credibility,” he says.

Alikhan believes somebody must have paid $18 million to The New York Times for the full-page news story because “advertisement rates, some say, were $18 million for the page” at the turn of the millennium.

“After you see the (Facebook) video, you will realise what happens to a Muslim who rises through the glass ceiling,” he says while referring to his online video post in which he “proves” he is innocent.

But why does he not simply go back to the United States and fight his case?

He says his case is in District 10, which is the district where the World Trade Centre collapsed on 9/11. Trial in the United States is by jury, not by judge, he says. “Would I ever in a billion years with a name Mir Mohammad Alikhan find a (neutral) jury where two towers had come down 600 yards away?”

He vehemently denies any wrongdoing, saying the US authorities should produce the person whose money he had stolen and have them sue him. “One person should at least come out,” he says.

In fact, The New York Times story, which Alikhan believes was paid content, mentions some of the victims of his alleged fraud: the Gambinos. The members of the Gambino organised crime family did file a lawsuit against the absent financier and one of his top brokers, the story says.

Moreover, a corporate regulatory filing called “Form S-1” that Alikhan’s holding company submitted to the US Securities and Exchange Commission as part of its unsuccessful attempt at public listing states that KMS had been accused of selling securities “through fraudulent sales practices, misrepresentations and omissions and that certain trades were unauthorised.” It says KMS agreed to repurchase the preferred shares for $110,000, payable in five equal monthly instalments commencing April 1998.

The same regulatory filing reveals that the US Securities and Exchange Commission had also issued an order directing a private investigation of certain activities of KMS, including a private placement of KMS securities in 1996 and 1997, the firm’s operational capability and the qualifications of the firm and certain of its personnel to do business as broker-dealer, record-keeping, and transactions in penny stocks.

Alikhan says the US authorities have not convicted him in absentia in the last 17 years, implying they could not adequately back up the charges against him with evidence. “I have not gone to America (in 17 years). I have lived in London, Paris and Dubai. If evidence is strong, extradition treaties exist in all these places,” he says.

Highlighting the fact that then Attorney General Spitzer had to resign as governor of New York in later years when he faced a prostitution scandal, Alikhan says his principal foe was “morally bankrupt”.

“I have no regrets,” he says, defiantly.

Shady degrees

The New York Times story claimed that Alikhan had acknowledged in interviews with the regulators he never earned a Rutgers degree. According to Rutgers University, either the student identity number or the social security number is necessary to establish the credentials of a former student.

Alikhan refused to share either of these IDs with The Express Tribune, saying he was “absolutely beyond the point of proving anything to anyone.”New York

The regulatory filings from the late 1990s show Alikhan also holds a bachelor’s degree in physics and mathematics from the University of Karachi in addition to his Rutgers qualification.

However, he did not acknowledge his bachelor’s degree from the University of Karachi when The Express Tribune asked him about his educational qualification during the interview.

The University of Karachi did not get any mention in his Facebook page entry on July 17 titled “From Sharafabad to Wall Street” that says he attended Sharafabad Government Boys School and St Patrick’s High School before leaving for the United States at the age of 19.

Adviser to PSX MD

Alikhan says he has been advising the Pakistan Stock Exchange (PSX) for several years unofficially. “I have been advising (PSX Managing Director) Nadeem Naqvi. Market regulations, innovations in the market. This new small-to-medium exchange, I played a role in it,” he says.

However, Naqvi wrote in an email to The Express Tribune last week that “Ali Khan’s assertion is incorrect.”

The PSX MD said Alikhan interviewed him for a TV programme a long time ago. After the interview, Naqvi said the two men “casually discussed” stock market dynamics.

“I stated we were planning to launch a small and medium enterprises (SME) market and he said he would like to assist. Thereafter, there was no discussion with him on any subject and although he said he would like to advise the exchange, his offer was not taken up,” Naqvi added.

Day job

In addition to his online advisory services, Alikhan also runs AMZ MAK Capital, which makes financial technology-related investments. The company was in the news recently after Alikhan got his former staff locked up in a police cell in an intellectual property dispute. The case is pending before a judge.

In his “education company” called Mind and Markets, Alikhan employs one CFA and two graduates of Lahore School of Economics. He picks stocks based on their fundamentals and has hired a separate analyst to carry out technical analysis. Alikhan also conducts company management interviews and uploads them on his Facebook page.

He recommends stocks to the general public through Facebook as well as a log-in portal, but calls them his “personal picks”. He says he does not have any registration with the Securities and Exchange Commission of Pakistan (SECP).

A spokesman for the SECP confirmed Alikhan is not registered with the commission as a regulated person. But the spokesman did not clarify whether sending out investment advice on a public forum while possibly having undisclosed holdings in the same stocks would constitute any conflict of interest.

“Pakistan needs education in financial markets. Pakistan has zero requirements for even a stock broker,” he says. “I want to educate Pakistani youth about financial matters.”

Originally appeared on The Express Tribune on The Express Tribune on September 1, 2016.    

Engro Foods: Dutch firm buys majority stake for $448 million



Engro Corporation has signed an agreement with a Netherlands-based dairy company for the sale of up to 51% shareholding in Engro Foods at an estimated price of $448 million, a securities filing said on Monday.

Engro Corporation currently controls approximately 87% shareholding in Engro Foods while the general public owns the rest of the outstanding shares. The deal will take place at Rs120 per share, which reflects a discount of about 26% to Engro Foods’ share price of Rs163 last week.

The majority stake in Engro Foods will be bought by a legal entity in which Dutch dairy cooperative FrieslandCampina will hold approximately 80% shares. International Finance Corporation (IFC) and Dutch development bank FMO will hold the remaining shares in the legal entity.

The share price of Engro Corporation rose 1.4% to Rs337.6 on Monday while the stock of Engro Foods shed 5% to close at Rs155.17 per share.

Engro Corporation said in a statement it would stay on as a “significant partner and shareholder” under the new company structure. The stake of Engro Corporation in Engro Foods will likely be around 36% post-transaction.

The Dutch company is required under the local takeover laws to make an attempt to purchase at least half of the shareholding currently owned by the general public.

The provision is supposed to ensure that ordinary shareholders also benefit in case the sponsors of a listed company sell their stake in a major deal. This means general investors will also have a chance to avail the public offer extended by FrieslandCampina to sell at least half of their 13% current holding in Engro Foods.

Any number of shares that ordinary shareholders decide to sell to FrieslandCampina will be adjusted against the shareholding that the Dutch company is supposed to acquire from Engro Corporation.

“With the tender price likely to be lower than the prevailing market price, we don’t expect minority shareholders to sell their shares,” said Topline Securities in a research note, adding Engro Foods is the most actively traded consumer firm in Pakistan and provides minority shareholders with long-term growth potential.

It said the deal at a discount of about 26% was not surprising, as the market already expected a lower price. “The main reason for the Dawood Group (sponsors of Engro Corporation) to sell the stake at a discounted price is to gain FrieslandCampina’s dairy expertise and introduce new products,” it said.

“Engro Foods’ dairy segment consists of only three products that contribute around 90% to the company’s net sales,” it added.

In a statement on Monday, FrieslandCampina said it expected to benefit from the conversion of the Pakistani market from loose to packaged dairy consumption. “At present, less than 10% of tradable milk consumed in Pakistan is processed and offered in packages,” it said.

“The conversion is expected to accelerate in the near future as a result of the growing middle-income class, a desire for higher quality milk as well as the increasing urbanisation,” it added.

Topline Securities said Engro Corporation would generate cash of around Rs47 billion, part of which would most likely be invested in energy-related projects with a higher rate of return.

Engro Foods contributed more than a quarter to the corporation’s revenues last year. Therefore, its sale will result in a decline of around Rs4 per share in the holding company’s earnings, as per workings of Topline Securities.

“However, this decline will be compensated if the sale proceeds are either put in the bank or used to pay off debt. As of the latest quarterly accounts, Engro had Rs72 billion of debt on its books,” it said.

According to Alfalah Securities, Engro Corporation is expected to book a one-time gain of Rs82 per share as a result of the transaction. Consequently, it expects the share price of Engro Corporation to rise to Rs376 per share by the end of 2016 as opposed to the current rate of Rs337.

Published in The Express Tribune, July 5th, 2016.

How Pakistan’s NFCs have outperformed India, Sri Lanka’s



Credit greases the engine of economic growth. In particular, loans to private-sector businesses are considered a mainstay of the modern economy: credit lets private-sector businesses invest in new plants, machinery, inventory and human resources. New jobs are created, consumption goes up, and so does the GDP.

In contrast, slow growth in private-sector credit uptake leads to fewer jobs, limited expansion in businesses and stagnant income levels.

In short, credit is the oxygen that keeps the economy going.

So what should one make of the fact that banks’ credit to the private sector as a percentage of GDP has dropped by nearly half post-2009?

Of course, GDP growth has been far from satisfactory for the last six years. But what about the profitability of large private-sector companies that are typically the primary recipients of banks’ credit?

Conventional wisdom suggests that the drop in domestic credit – financial resources that deposit-taking entities have loaned to the private sector – is reflective of the unprofitability of large, private enterprises. Why else would banks hold back credit and forego future interest income, after all?

But that is hardly the case with large Pakistani companies, official statistics show.

In a comparative assessment of corporations in light of credit to the private sector released on July 1, SBP economist Talha Nadeem used Bloomberg data to study a total of 68 large, non-financial corporations (NFCs) based on their total assets from Pakistan, India and Sri Lanka.

The study concludes that the shortlisted Pakistani NFCs have generated “impressive returns” over the analysis period – particularly post-2011. The key measures that Nadeem used to arrive at this conclusion are return on assets (ROA) and return on common equity (ROCE) ratios – two of the best determinants of corporate profitability.

In fact, Pakistan’s largest NFCs have performed better than their counterparts in India and Sri Lanka in terms of both ROA and ROCE, the study reveals.

“Essentially, these profitability ratios dispel the notion that large Pakistani NFCs are not performing well. In fact, such firms have, on average, consistently posted strong returns in the last few years,” Nadeem says.

This leads to a basic question: why are these large NFCs not taking out more bank loans for rapid expansion if their returns have been so high?

The answer lies in Pakistani companies’ penchant for ‘deleveraging’. In simple words, deleveraging stands for paying off debt or borrowed money and increasing the reliance on equity instead.

By using the debt-to-common equity ratio, the study shows that many large Pakistani corporations have opted for deleveraging in the last six years.

This means Pakistani companies have been paying off their past bank loans since 2009 while resisting the temptation to borrow for further expansion. Interestingly, the study shows the shortlisted Indian and Sri Lankan firms are more leveraged than their Pakistani counterparts.

The study says large Pakistani companies are increasingly opting for “inter-corporate financing” instead of borrowing from banks. In essence, inter-corporate financing involves a holding company making equity investments in its subsidiary as opposed to the subsidiary taking out a traditional bank loan.

It reveals that “long-term investments” of private firms rose from an average of 5.4% in 2009-12 to 7.3% in 2014 as a percentage of their total assets. Conglomerates with substantial inter-corporate financing include Fauji Fertilizer, PTCL, Engro Corporation, Hubco, Nishat, Packages, Ibrahim Fibres, Attock Refinery and Lucky Cement, according to the study.

“The deleveraging trend in particular has increased the future potential appetite for credit by NFCs in Pakistan,” it says, adding that there may be “significant and quick growth spurts” should commercial banks tap into the demand for credit by niche segments like SMEs and housing finance.

Published in The Express Tribune, July 4th, 2016.

Turkish company says it will acquire Dawlance for $258m



Turkish company Arcelik has said it is going to acquire Dawlance, a privately held Pakistani manufacturer of consumer durables, for $258 million.

According to a research note issued by Deutsche Bank to its clients, one of the subsidiaries of the Turkish company, Ardutch BV, has signed an agreement to acquire three companies based in Pakistan and British Virgin Islands that collectively own 100% shares of Dawlance.

The deal is likely to be closed by the end of 2016, as it requires approvals from competition authorities, purchase of minority stakes and transferring of land and buildings to the ownership of the company, it said.

When contacted by The Express Tribune, Dawlance General Manager for Sales and Marketing Hasan Jameel said he could neither confirm nor deny the deal.

Earnings snapshot

Dawlance manufactures white goods – which are consumer durables like refrigerators, freezers, air conditioners, microwave ovens and washing machines – in three factories and sells them in local and foreign markets.

Financial accounts of Dawlance are not public because of its private-limited status. However, according to the earnings details Dawlance has provided to Arcelik, it had revenues of $220.6 million in 2015. Similarly, its (adjusted) earnings before interest, tax, depreciation and amortization (EBITDA) amounted to $45 million (roughly Rs4.5 billion) last year. Its net debt amounted to $30 million at the end of 2015, according to Deutsche Bank.

Reason for sale

Although Jameel refused to entertain any questions with regard to the sale of Dawlance, sources close to the sponsors of Dawlance say the company had been on the auction block for the last five years.

Majority shares of Dawlance are owned by Bashir Dawood. He is a step-brother of Hussain Dawood, a corporate titan who controls majority shareholdings in HUBCO, Engro and Dawood Hercules groups.

Sources say the owner of Dawlance wanted to permanently move abroad. His children have established careers in fine arts and interior designing in Europe and the Middle East and apparently have little interest in managing the family business.

Bashir Dawood and his immediate family members reportedly own 100% shares in Dawlance through Pakistani as well as offshore companies. His name and those of his immediate family members, Farah and Mariyam Dawood, also appear in the recently leaked Panama papers. The leaks show the three family members are shareholders of Golden Lake Ventures Group Inc, a British Virgin Islands-based company.

Market share

There are four major players in Pakistan’s white goods market, namely Dawlance, PEL, Haier and Orient. Waves and Kenwood are relatively smaller players, albeit with significant shares in some segments of the durables market.

The microwaves segment is completely dominated by Dawlance in Pakistan with the company controlling about 70% market share, according to market sources.

Dawlance is also the single largest player in the refrigerator segment with up to 45% market share.

In air conditioners, however, Haier owns the largest market share (40%). Dawlance is a relatively small player in this segment with about one-tenth of the market share.

Dawlance boasts of having one of the widest dealers’ networks and after-sale networks in Pakistan. It has 37 branches in addition to 750-plus franchises across the country – a fact that distinguishes it from most of its competitors.

Web of companies

Dawlance operates through a complex web of subsidiaries in order to minimise its tax expense, inside sources say.

For example, a group company registered by the name of United Refrigeration Industries manufactures goods and then ‘sells’ to another subsidiary that either sells it onwards to local dealers or exports the durables.

Similarly, another company of the group by the name of Dawlance Real Estate owns a number of properties that are eventually rented out to other companies of the Dawlance group.

These roundabout transactions within the group companies help save dealers in terms of taxes, sources say, thus leaving the dealers with wider profit margins to pocket.

According to an internal memo sent out to all Dawlance employees early on Friday morning, Bashir Dawood will continue to “guide” the company in the future. The memo named four companies of the group, saying these would not be part of the proposed partnership “at this stage.”

One of the four group companies is United Sales, which handles the nationwide hire-purchase business for end-customers. Another company is Dawlance Marketing, the tax-registered entity for exports and high-profile key customers. In addition to Dawlance Real Estate, the memo also mentions Electric City, the group entity that carries Dawlance’s own retail outlets for cash-based sales to end-customers.

“We see benefits passing onto these entities as well and intend to… merge these entities and take our retail and hire-purchase setups global, starting with Sri Lanka and Bangladesh as the initially shortlisted markets to launch Dawlance,” it said.

Published in The Express Tribune, July 2nd, 2016.