31 families control Pakistan Stock Exchange

[muhammadhafeezmalik]

Only 31 families dominate the Pakistan Stock Exchange and boards of directors for KSE-100 index companies are mostly filled with people close to these families, some of them are their employees, reveals a study by the Pakistan Institute of Development Economics (PIDE).

In 2018, when the data was collected, 31 families dominated the KSE-100, states the “Small club: distribution and networks in financial markets of Pakistan” - a study by vice chancellor of PIDE, Dr Nadeemul Haq and Amin Husain.

The study paper sheds light on corporate groups and their ownerships in the stock market and secondly the corporate governance by looking at how company boards are structured to examine the influence of the owner and its family on the structure and professional management of the company.

The paper underlined that the families had a fair degree of influence in the businesses because of haphazard privatisation and relatively lax multinational regulations.

“It appears that while Mahbubul Haq talked of 22 families dominating Pakistan in 1967, in 2018, some 50 years later, the wealth in the stock market may be largely owned or controlled by 31 families.”

The boards comprise similar people - corporate, business founders and family, retired and current member of the civil service, and the army. “In other words, it parallels the membership of an elite club in Pakistan”.

The paper findings challenge the deeply-held notion that the stock market is a reflection of strong economy and a vibrant financial sector of Pakistan.

The study noted that the network of directors of companies listed at the stock exchange showed that there was a high degree of connectivity, “which should be of concern”.

Boards of directors for KSE-100 companies are all connected in small clusters, where a few members act as go-betweens through memberships on multiple boards, or as part of identifiable family groups, it added.

Pakistan’s stock market tends to make headlines, sometimes because of record highs that make it the “best performing market of the region”, and sometimes because of crashes. The paper stated that the KSE was heavily skewed with the top 10 companies constituting more than half of the total market capitalisation - the value of companies traded at the stock exchange.

Their annual reports showed that the directors or significant shareholders held ownership of over Rs4.963 trillion out of the total market capitalisation of Rs6.8 trillion, according to PIDE.

The ownership of KSE-100 market cap is heavily skewed towards a few large investors. The single largest shareholder is the government of Pakistan. Together, the top 10 owners account for 37% of the market capitalisation of KSE-100.
The ownership of KSE-100 can be traced to 374 entities, but actually the market is influenced by 31 families.

Foreign shareholders and government ownership account for the bulk of the ownership of KSE-100 market capitalisation, at an estimated 61%.

Multinational companies, or MNCs, are the largest category of shareholders in KSE-100, typically denoting a holding-subsidiary relationship with a foreign principal and a local subsidiary.

Collectively, close to 41% of ownership of KSE-100 index firms is held by MNCs, whether foreign holding companies or other foreign entities, with a significant shareholding of over 5% each.

Local companies, even after 60 years of financial market development, remain a small part of the market at about 30%.

Board members
The study has largely focused on the boards of companies that are listed at the stock exchange.
The board members are a well-connected group with very easy information flows and connections. They are drawn from a fairly narrow group of bankers, accountants and former corporate professionals, and are mainly from Karachi, according to the study.
The 100 firms in the index have 880 positions and these positions are filled by 756 unique individuals, with some occupying several positions.

The Securities and Exchange Commission of Pakistan (SECP) and the corporate governance code require independent directors. “Here is little clarity on what ‘independent’ means. In many companies, independent directors are long-standing employees of owners and their ‘independence’ in decisions by the board may be questionable,” it added.

There were 220 positions for independent directors on these companies, averaging at over two independent directors per firm. About 14% serve on two boards, 6% serve on three boards and 3% serve on four or five boards. As many as 297 directors had corporate background, 148 were from the government, 32 were bureaucrats, 22 were from the army and 154 were from families, according to PIDE.

Women make up only about 10% of board members in Pakistan and a significant number of non-executive directors have served as government employees in the past, whether as bureaucrats, in the military or in regulatory bodies such as the SECP.
Most companies in the KSE-100 are connected to each other through directorships. Only a very few (at most 15) do not share common directorships with other companies in the index, according to the study.

It said that highly influential and well-connected directors were more likely to control the hiring process, exercise political power derived from positions previously held as elected representatives, bureaucrats, or military personnel, or offer an understanding of the functioning of key accountability institutions such as the SECP, amongst many others.

Kamal Chinoy, a former banker, Tariq Iqbal Khan - an accountant, Aamir Sherazie - owner of Honda company, and Qasier Javed - an accountant, were or have served on boards of 17 companies.

Published in The Express Tribune, May 5th, 2021.

 

[muhammadhafeezmalik]

There are 31 families in Pakistan dominating Pakistan’s stock market, indicating the number of influential and wealthy families had gone up from 22 to 31 since the country’s independence.



It was the crux of the highly important research paper by former Deputy Chairman Planning Commission and Vice-Chancellor PIDE Dr. Nadeem Ul Haq and Amin Hussain. The explosive research paper stated that Mahbubul Haq famously pointed to 22 families owning Pakistan. But, in 2018, when the data was collected, 31 families dominated the KSE.

The paper stated: "Pakistan’s stock market tends to make headlines, sometimes because of record highs that make it the ‘best performing market of the region’, and sometimes because of the crashes. However, the degree to which it contributes to capital formation in the country is not a topic of study, while the ensuing ownership and governance structure is hardly ever made a part of public discourse. One such study concluded that 'around 64 percent of the 44 selected sample companies are controlled by prominent business groups and families of Pakistan'. This paper extends the aforementioned research to cover the top 100 companies that constitute the benchmark KSE-100 index2 at the Pakistan Stock Exchange (PSX).

"It also analyses the structure of ownership and sponsor control of companies constituting the KSE-100, and their impact on the functioning and transparency of the stock market. Pakistan’s corporate governance and human resource management practices are frequently questioned in the media and academic circles. A common phenomenon is companies managed as family enterprises despite being listed on the stock exchange. The offspring of the owners tend to be absorbed into the management of these companies, which are referred to as ‘seth companies’, seth being the founder/owner of the company.

"The objective of this paper is twofold. The first is to shed light on corporate groups and their ownerships in the stock market. We review the ownership structures of the large conglomerates to examine the extent of diversification in the stock market. This also gives us an idea of the kind of power that large houses wield in the market, and the choices available to the small shareholder. Secondly, we look at corporate governance by looking at how company boards are structured and examine the influence of the owner and his family on the structure and professional management of the company. Prevailing accounting standards and listed entity regulations require disclosure of shareholding by directors, and significant shareholding of more than five percent held with legal persons (individuals or companies), in addition to those held with associated undertakings, banking and financial institutions, trusts, etc. Using data from disclosures in 2018, this study focuses on directorship and significant shareholding of five percent or more for all listed entities that constitute the KSE-100 index and uses it as an indicator of ‘control’ and concentration of ownership in the top 100 companies.

"Of course, this is after accounting for the government, multinationals and the army. The families have a fair degree of influence in the businesses because of haphazard privatization and relatively lax multinational regulations. The analysis has found fewer clusters as different clusters are linked through family associations i.e. if two members of the same family initially owned shares in companies that were previously in two different clusters, these clusters would now be linked since the same family has ownership in both.

"Apart from allowing us to aggregate family ownership in the KSE-100, changes in the structure of the network point to the influence of family ties on the overall structure of the network. If we consider family association unimportant, then the network looks as it did previously.

"On the other hand, if we consider families to be an important consideration, then this second network gives an insight into the ownership network at a family level. We now also add the field for the number of families in each cluster. Clusters that only have a single-family are usually family groups running their own business groups. In other clusters, we can see multiple families associated through shared ownership. The largest one here is Component 0, which now has 51 KSE-100 companies. It contains six families linked through shared investors and investment.

"The boards comprises similar people — corporate, business founders and family, retired and current members of the civil service, and the army. In other words, it parallels a membership of an elite club in Pakistan. What is surprising is that there is very little representation from civil society, i.e. professionals and academia of Pakistan. Women make up only about 10 percent of the board members in Pakistan. It is notable that a significant number of non-executive directors have served as government employees in the past, whether as bureaucrats, the military, or in regulatory bodies such as the SECP. The other notable concentration belongs to those identifiable as family members.

When we look at the network of directors, there is a high degree of connectivity, which should be of concern. Boards of directors for KSE-100 companies are all connected in small clusters, where a few members act as go-betweens through memberships on multiple boards, or as part of identifiable family groups.

"The network consists of 16 components, where a component refers to the subset of nodes that can be reached through continuous edges, i.e. without any breaks. Recall that components are distinct subgroups. It is apparent that a giant component connects 82 percent of the individuals in the network (this number reduces when families are included), with very few smaller components. This indicates that most companies in the KSE-100 are connected to each other through directorships. Only a very few (at most 15) do not share common directorships with other companies in the index.

"Looking deeply at the 20 directors with the highest between ness centrality to see what we can learn from their characteristics. The highlights are as follows: Not surprisingly, there are no influential women. Interestingly, the most visible names are not on the list, their children are. The list seems to have many accountants, former bankers, NIT employees, and career professionals who have worked at these companies or groups.

"There does not seem to be much professional diversity in the group. It seems that most influential directors come from large metropolitan centers. They are mostly from Karachi, with Lahore being second. Islamabad has possibly one or two directors. It seems that many directors are reappointed in other companies as many of them have been on as many as 17 or 18 boards. The smallness of the club is once again reinforced.

"KSE is heavily skewed with the top 10 companies constituting more than half of total market capitalisation. Annual reports show that directors or significant shareholders (73 percent of total) hold ownership of over Rs4.963 trillion out of a total market cap of Rs6.8 trillion. This means that minority shareholders, holding less than 5 percent each, hold about 25 percent of the shares in each KSE-100 firm. Large firms such as Phillip Morris, Pakistan Tobacco, and Pak Suzuki are listed as mostly accounted for, as one or two legal owners hold over 90 percent of shares in the company.

"The ownership of KSE-100 market cap is heavily skewed towards a few large investors. For example, the single largest shareholder is the Government of Pakistan, which accounts for over 12 percent of market capitalisation with its controlling/substantial shareholding in KSE-100 heavyweights such as OGDCL, PPL, K-Electric, Mari Petroleum, PTCL, PSO, SNGPL, among others. Together, the top 10 owners account for 37 percent of the market capitalization of KSE-100.nted for, as one or two legal owners, hold over 90 percent of shares in the company.

"Different categories of entities that have ownership in the KSE100 and share each owns. These categories include the national government, foreign holding companies, local holding companies, and employee funds, etc. Together, the ownership of KSE-100 can be traced to 374 entities, which includes a special category of all unidentified individual owners.

"Multinational companies, or MNCs, are the single largest category of shareholders in KSE-100 typically denoting a holding-subsidiary relationship with a foreign principal and a local subsidiary. For example, British American Tobacco accounts for 9 percent of market capitalization for KSE-100 through its controlling share in Pakistan Tobacco Company. Collectively, close to 41 percent of ownership in KSE-100 index firms is held with MNCs, whether foreign holding companies or other foreign entities, with a significant shareholding of over 5 percent each.

"The second largest category of owners is the National Government, where the Government of Pakistan, directly and indirectly, is an investor through public sector enterprises and corporations such as State Life, State Bank of Pakistan, Privatisation Commission, WAPDA, etc. We refer to ownership of shares of a KSE-100 company by another KSE-100 company as intra KSE-100 ownership, while local non-KSE-100 companies are Pakistani companies not listed in the KSE-100. Interestingly, intra KSE-100 ownership accounts for just 9 percent of accounted market cap, whereas local non-KSE-100 companies and local holding companies together account for 20 percent of KSE-100 market cap.

"Individual owners, such as board-members, account for a total of 6 percent market capitalisation, whether in their capacity as directors, director-owners, or non director significant shareholders. In contrast, provincial governments, public sector banks, and NIT together account for just 1 percent of market capitalisation. Foreign shareholders and government ownership account for the bulk of ownership in KSE-100 market capitalisation, an estimated 61 percent."

31 families control KSE-100

ISLAMABAD: There are 31 families in Pakistan dominating Pakistan’s stock market, indicating the number of influential and wealthy families had gone up from 22 to 31 since the country’s...

www.thenews.com.pk

 

[Mohamed Bin Tughlaq]

This is basically how it is in every country and in every society whether it is these from past generations or these in the newer generations or the future.. But some elites are worse then others. Allah says if he wishes good upon people he guides their leaders and give them good people as their Elite..

A few elite group will always take charge of the rest.. Mathmematical fact.. Even in the Quran this group of people are mentioned separately as the ''Elite'' and they were mentioned in every civilization Allah has destroyed example when Allah sends a prophet that prophet and the Elite had a sit down first and if the elite rejected destruction was brought upon the people? You may ask why? Because the Elite has so much control over the population and civilians. the elite consists of Respected elders who have power, tribal leaders, the King and his high ranking officers across all sectors, the wealthy who function like the deep state and have a say and finance the king and his officers to form factions.

This is how the elite is constructed it is like as if they have their own pyramid ranking and while The remaining population are sheep for the elite they never question their elite. The chances of them listening to somone new among them who came with something new instead of their leaders and respected figurers was zero hence the punishment is always brought forth once the elite rejected the prophet.. This was the same case in Aad, Thamud, Firuan, and the people of Cyprus who at one point killed 3 prophets in successions (It was exclusively the elite who killed him and they rejected all 3 of them and even killed a 4th one but he was not a prophet just a man and he became a martyr)