KARACHI: The Economic Coordination Committee (ECC) of the cabinet is all set to approve two stock market support funds worth around Rs25-30 billion to stabilise the Pakistan Stock Exchange (PSX) on Thursday.

“ECC will consider approving the market support fund(s) on Thursday (May 30),” an official of the Securities and Exchange Commission of Pakistan (SECP) confirmed to The Banker Pakistan.

“The fund is under serious consideration and will be launched hopefully by next week or within 10 days,” quoted SECP Chairman Farrukh Sabzwari, according to Bloomberg.

“The ECC will consider approving the two funds to support the market,” said Arif Habib Limited Chief Executive Officer Shahid Ali Habib who was familiar with the development.

He said there were two funds under consideration including State Enterprise Fund (SEF) and Equity Market Opportunity Fund (EMOF).

The expected size of SEF is estimated to be around Rs20 billion. “The fund, aimed at stabilising the stock market, will have government’s sovereign guarantee… meaning that the government will pay back the money to the institutions contributing capital to establish the fund in case the fund is lost,” he said.

The state-owned institutions, which would pool funds, include the National Bank of Pakistan (NBP), State Life Insurance Corporation of Pakistan, Employees’ Old-Age Benefits Institution (EOBI) and National Insurance Company Limited.

Their boards of directors have given the green signal to participate in SEF. The ECC may also announce the amount being contributed by each of them.

The state-owned asset management company National Investment Trust (NIT) would manage both the funds.

It would use SEF to buy shares of only state-owned companies listed at the Pakistan Stock Exchange (PSX) like Oil and Gas Development Company Limited (OGDC), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO) and others. Later on, it would sell the shares at whatever time it deems suitable. NIT would continue buying and selling stocks through SEF.

“The fund is being established for a period of three years,” said Arif Habib CEO.

Equity Market Opportunity Fund

He also said that the estimated size of EMOF would be between Rs5-10 billion, depending on the government assessment regarding how much fund would be enough to stabilise the stock market.

This fund, however, would not get the government’s sovereign guarantee like SEF.

NIT would be given a free hand to use the fund to buy and sell shares of any of the companies listed at the PSX unlike SEF, which would be meant only for state-owned firms.

“Both the risk and rewards would be owned by the fund (EMOF) participants unlike SEF in which the risk lies with the government and reward with the fund participants,” he said. “This is the reason for which the size of funds under SEF would be bigger than EMOF.”

He said NIT had already operated the two funds (SEF and EMOF) in the past. That’s why it would not take many days to re-launch the two funds.

He recalled that NIT established SEF back in 2008, which helped stabilise the stock market at that time.

The then government had facilitated establishing the fund worth Rs20 billion, Habib recalled.

A market source quoted Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh saying, “All is set for Market Support Fund and Pakistan Opportunity Fund for (the) launch. Procedural changes have been made. Approvals across several boards and ministries are also done. ECC will formally give the guarantee and approval for the two funds on Thursday.

Shaikh agreed to establish the funds at a meeting with the PSX officials and stockbrokers on May 17.

The PSX benchmark KSE 100-Index recovered 8.42%, or 2,792.81 points, since the announcement of establishment of the funds, to 35,959.43 points on Wednesday.

Earlier, it had fallen around 37% to 38-month low at 33,166.62 points by May 17 from all-time high closing near 53,000 points in May 2017.

Govt softens shares buyback rules

The government has also softened rules to allow companies listed at the PSX to buy back their own company shares from shareholders. The measure is aimed at boosting confidence among stock market participants.

The new set of rules has ended conditions to buy back shares including taking No-Objection Certificate (NOC) from lenders, talking auditors’ approval for availability of funds to buy-back, using only funds available for paying dividend and buying back shares only of those companies which are eligible to be traded with borrowed money, it was learnt.

Arif Habib Limited and Arif Habib Corp appeared to be the first two companies to have announced buying back shares, according to notifications sent to the PSX on Wednesday. The two firms have called emergent meeting of their board of directors to consider buy-back of the shares under the new regulations titled Listed Companies (Buy-Back Shares) Regulations, 2019.

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