The Engro restructuring

This is one of those situations where a dramatic headline would belie a much more banal surface reality, while perhaps highlighting a more important deeper reality. It goes something like this.

Headline: Engro is being delisted from the Pakistan Stock Exchange.

Surface reality: It is a restructuring that means that the entity through which Engro investors will own their shares in the underlying assets is changing, but the change does not affect their economic ownership of Engro. The new entity will still be publicly listed, and will be called Engro Holdings Ltd.

Deeper reality: The move is being necessitated by a tax structure that is more punitive than anywhere else in the world, and good players like Engro and their major shareholders, the Dawood family, are being penalized for scrupulously playing by the rules, even when they are unfair.

This is an article about tax law, which most people find painfully boring, but we promise to not dive too deep into the technicalities and instead stay focused on the bigger picture which is that the Pakistani tax code disincentivizes good behaviour and highly incentivizes bad behaviour by Pakistani companies – particularly sponsors of publicly listed companies.

But first, we do need to explain what is happening. And for that, we need to explain why Engro is one of Pakistan’s most significant publicly listed companies.