KARACHI: The State Bank of Pakistan (SBP) has introduced a new mechanism to enable companies in Pakistan to conveniently remit out disinvestment proceeds to their foreign shareholders.
The initiative has been undertaken to make Pakistan more attractive for investments by boosting investors’ confidence and improving the ease of doing business. As per sources, the SBP had been engaging with stakeholders over the last few months in commitment to understanding the issues faced and to improve the SBPs regulatory framework.
What is the new mechanism?
Under the new mechanism, the bank designated by the company has been delegated the authority to remit the entire disinvestment proceeds to non-resident shareholders, upon submission of required documents, by following a convenient mechanism without referring the case to SBP. The number of required documents would be in accordance with the size of the transaction.
For disinvestment proceeds not exceeding the market value/break-up value: the required documents would include a copy of Share Purchase Agreement, broker’s memo in case of quoted shares/break-up value certificate of a QCR rated practising chartered accountant in case of unlisted shares, latest audited financials of the company, signed M-Form, and an undertaking from the buyer that in case the transaction is between related parties, the same has been concluded at an arms-length basis.
For disinvestment proceeds exceeding the market value/break-up value: the additional required documents would include a detailed valuation/ transaction due diligence by the buyer showing basis, methodology, and key valuation metrics used for valuation.
In case the total remittance of disinvestment proceeds exceeds 50 million US dollars (or equivalent in other currencies) during a span of six months, the applicant shall also submit an independent review of the buyer’s valuation, from QCR rated practising chartered accountant that shall be assessed by the designated bank without needing to send to the SBP.
How is this different from the old mechanism?
Previously, the designated bank required prior approval of the SBP for remittance of disinvestment proceeds above market value for listed securities and above breakup value for unlisted securities. This requirement presented numerous constraints for investors.
What impact does this change have?
According to the SBP, the initiative will increase the investors’ confidence and would facilitate the local companies, in particular, the start-ups to attract more foreign investment for their businesses.
Further, Tundra Fonder Founder and Chief Investment Officer Mattias Martinsson tweeted, “Might sound like a small detail, but for those with experience of dealing with “the old system”, this is a potentially huge step towards simplifying FDI-transactions. Implementation will be key.”