Break-Up Value - 1995

Article excerpt

With a view to curb insider trading the Securities and Exchange Ordinance. 1969 (SEO) was amended. The amended Ordinance prohibited direct or indirect dealing in securities by associated person in possession of information which is generally not available to general investors which could materially affect the value of such securities. A mechanism to compensate affected persons who may have suffered losses From such dealings has also been provided in the law. With a view to safeguarding the interest of small investors, a new section has been added in the SEO, 1969, which relates to fictitious and multiple applications made by unscrupulous persons.

Break-up Value is networth per share and is still one of the important criteria to judge the financial soundness of a company. The Break-up Value per share is assessed by adding together the assets (current and fixed), including property and reserves, deducting all liabilities and dividing the resulting figure by the hum her of ordinary shares. Alternatively for the sake of simplicity the Paid-up capital, Free Reserves and Unappropriated profit are added together and divided by the number of ordinary shares. Thus, the percentage of free reserves and surplus to Paid-up capital gives a clue to the Break-up Value per share. The higher this percentage, the better are chances for bonus or right issues.

The recommendation made by the special committee headed by the Chairman of CLA to improve the performance of stock market both from short-term and long-term perspective were approved by the government during the year under review includes - (a) Disinvesting by the Privatisation Commission of the principal amount of shareholdings of ICP and NIT in order to improve liquidity position of these institutions, (b) freedom to autonomous bodies in their investment activities, permission to managements of pension funds, provident funds and Employees Old Age Benefit Institution funds to invest in shares upto 10 per cent of these funds subject to certain conditions, (c) to treat general insurance companies at par with other investors in respect of their investment in secondary market etc.

Meanwhile a number of corporate laws were amended/ formulated during 1995-96 to further strengthen the capital market. Issue of capital was liberalised by repealing in July, 1995, the Capital Issues (Continuance of Control) Act, 1947. The task of granting approval for prospectus has now been entrusted to the stock exchanges. However, the dates of the publication of prospectus and opening of subscription are fixed on receipt of approval from the Corporate Law Authority (CLA). Guidelines regarding issue of capital have been issued by CLA in the form of Companies (Issues of Capital) Rules, 1996. These new rules are in addition to other corporate laws such as Companies Ordinance, 1984 and the self-regulating rules of Stock Exchanges such as their listing regulations. These rules cover issues such as pricing of issues, terms for right issues, bonus issues and issues of shares for consideration other than cash and are aimed at developing the stock exchanges as self-regulating entities.

With a view to curb insider trading the Securities and Exchange Ordinance, 1969 (SEO) was amended. The amended Ordinance prohibited direct or indirect dealing in securities by associated person in possession of information which is generally not available to general investors which could materially affect the value of such securities. A mechanism to compensate affected persons who may have suffered losses from such dealings has also been provided in the law. With a view to safeguarding the interest of small investors, a new section has been added in the SEO, 1969, which relates to fictitious and multiple applications made by unscrupulous persons.

                                      No. of      No.  of     No. of
                                        Cos.         Cos.       Cos.
Sector                                  1995         1994       1993

Cotton Textile                            25           28         28
Sugar & Allied                             8            6          8
Vegetable & Allied                         1            2          1
Chemical & Pharm. …