In the middle of the state emblem of Pakistan, right there for the entire world to see, resides an embarrassing secret. Surrounded by a wreath of Jasmine, Pakistan’s national flower, is a quartered shield. In each of the four sections there is the image of a crop.
From left to right these are cotton, wheat, tea, and jute. In 1951 when Pakistan ceased to be a dominion of the British Empire and became a republic in its own right, these were the most important crops grown in the entire country. Two of them, tea and jute, were grown in erstwhile East Pakistan.
Today, Pakistan imports both of these products. Last year, imports of tea were worth close to a billion dollars. While the vast majority of this came from Kenya, there were also tea imports from Bangladesh close to $90 million. The import of jute is far less extravagant, costing Pakistan over $52 million in 2023, with nearly all of that coming from Bangladesh. While Pakistan is not a big exporter, jute is a major cash crop for Bangladesh, and a pillar of their textile industry. In 2024, the export of jute yarn, sacks, and products constituted nearly $900 million. In fact, before Bangladesh gained independence in 1971, jute was the single largest export oriented product in United Pakistan.
Today, jute is little more than a shameful and shoddy remnant, and not just on the state emblem. After 1971, what remained of Pakistan still needed jute. Industries, packaging, and trade were all reliant on jute bags. As a result, a number of jute mills began popping up in West Pakistan in the late 70s. These mills would import jute fibre and turn them into bags before either exporting them or selling them on the local market. This industry still remains, although it has been a bit of a start-stop affair.
Take, for example, Suhail Jute. The company was established in 1981 and has been involved in the production of jute related products. It was involved in manufacturing of twine, Hessian clothes and sacking cloth. From the beginning, the financial performance saw highs and lows as earnings flipped flopped between profits and losses.
But in recent days Suhail Jute has been the epicenter of something strange. In a space of just 18 days, the company’s share price has seen an increase of nearly five times. This is, of course, in a market that has witnessed an increase of almost 300% since June of 2023, so companies performing well are not suspicious by nature. But the exchange increased over a span of one and a half year, which means that the yearly return earned by the exchange was around 200% while Suhail Jute will see an annualized return of 60 times if the same trend was expected to continue.
So what is going on? By all accounts there is no jute resurrection in Pakistan. Has Suhail Jute uncovered a pot of gold? Or is there more to it that the Pakistan Stock Exchange (PSX) should be looking into?
Jute King
In the summer of 1964, Time Magazine ran an article titled Pakistan: Jute King. Nearly two-decades into statehood, jute was probably the most recognisable product coming out of Pakistan. Within the Indian subcontinent it had long been known. Its earliest recorded mention can be found in the Ain-i-Akbari, the 15th century text recording the reign of Mughal Emperor Akbar. Jute at the time was used as a low-grade fabric to make clothes. It was then simply a cheap alternative to cotton.
But the influence of jute, particular jute from Bengal, has been felt all over the world. In fact, in the colonial era it was a very important crop that often was useful during times of international conflict.
It was during the Napoleonic wars that Britain’s supply of Russian flax was interrupted, making jute an important and immediate alternative. Initially, there were difficulties. Jute was difficult to process and turn into sacks in European flax mills. Bengali kareegars would make jute fibre by hand on smaller cotton looms in the off-season. By the 1830s, however, Scottish firms Balfour and Melville cracked the puzzle of processing jute for industrial use, employing water and whale fat to soften its coarse fibers. Their breakthrough turned jute into a viable material for European mills. Orders soon flooded in for burlap sacks destined for sugar plantations in Dutch-controlled Java. Bengal’s abundant jute fields suddenly became a vital cog in the machinery of global trade.
Jute, once the coarse thread used to make cheap clothes, quickly became known as the “golden fiber”, becoming the lifeblood of Bengal’s economy. In 1855, the first jute mill in British India opened in Rishra, near Kolkata, heralding the dawn of industrial-scale production. By the late 19th century, Kolkata had cemented itself as the epicenter of the jute trade, with mills multiplying rapidly. By 1901, 51 mills employed over 10,000 workers, exporting sacks, ropes, and fabrics as far afield as the United States and Australia. For British India, jute became the second-largest industry after cotton.
But the success wasn’t without its fractures. Most mills were owned by foreigners, while the labor force remained predominantly local. The economic ebbs and flows of the early 20th century—a price surge in the 1920s followed by a collapse in the 1930s—exposed the vulnerabilities of an industry tied to fickle global demand. Reports commissioned by the British Raj in the Great Depression painted a grim picture of the boom-and-bust cycles haunting the trade.
But jute would not stay down. The second world war brought renewed interest, and by the time of partition it was the most important crop and export product in the newly minted state of Pakistan. Partition brought new problems. Most of the jute was grown in East Bengal, now known as East Pakistan, but jute mills were mostly in West Bengal, and had been a major cash cow for Calcutta industrialists. Pakistan and India were at an impasse.
This proved to be one of the early moments of industrial zeal and ingenuity in Pakistan. Instead of relying on exporting the raw product to West Bengal and making an easy buck, Pakistan embarked on an ambitious industrialization drive. By 1951, Adamjee Jute Mills—a project supported by the Pakistan Industrial Development Corporation (PIDC)—emerged as a beacon of this effort. It was joined by other mills like Bawa Jute Mills Ltd. and Victory Jute Products Limited, propelling Pakistan into the global jute market.
Investors from West Pakistan such as the Bawanis, Adamjees, Isphahanis, Dawoods and many others flocked together in setting up a good number of jute mills in Narayanganj, Khulna and Chittagong. The Adamjee Jute Mills set up by the well-known industrialist Abdul Wahid Adamjee in 1951 became the largest jute mill of the world employing around 30,000 workers. By 1960, East Bengal boasted 14 mills, 12 of which owed their existence to PIDC backing. However, most of these ventures were spearheaded by non-Bengali entrepreneurs from West Pakistan.
In 1970, a year before Bangladesh gained independence, East Pakistan had 77 jute mills employing 170,000 workers and had become the world’s largest exporter of jute, contributing 46% of Pakistan’s foreign revenue.
The jute leftovers
Pakistan was now left with a problem. There were 12 jute mills in West Pakistan and there was no jute. It was the same problem India had faced in 1947, and much like West Bengal, Pakistan accepted the new reality and the mills began importing raw jute from India. Efforts have consistently been made to grow jute in Pakistan, but they have largely been unremarkable at best and woeful at worst.
In the midst of all this, Suhail Jute was incorporated in 1981. The challenges for a jute company at this juncture were clear, and Suhail Jute’s performance reflects this. A snapshot of the past two decades is revealing. Going as far back as 2003, the company experienced profits in some years while it has suffered losses in others. Earning per share was at its highest in 2003 registering at Rs 6.13 per share which was quickly followed by a hugely loss making year where a loss per share of Rs -5.63 was made in 2005. The volatility that was caused was due to the cost of raw materials that the company was paying in order to manufacture its products.
Even though the performance was volatile, the profits earned meant that the operations could be continued. One strategy that was being used in order to remain profitable was through purchase of National Investment Trust units which were complimenting the profits. From 2006 to 2008, this source of income raised Rs 17 crore from which around half were earned in 2008 alone. What worked in the good years turned disastrous in 2009 when the stock market saw a freeze and it ended up making a loss of Rs -7.96 per share.
While the investments were making losses, the gross profits earned were one of the highest in its history as it earned 5 crores as gross profits in 2009. In 2010, Suhail Jute was able to reduce these losses as gross profits stayed high while some of its investments recovered. This showed that the business model was generating ample amounts of return to justify production to be carried out.
Floods and closure of plant
It seemed that despite the raw material being imported, jute mills had figured out a way to be profitable in Pakistan. All of this changed in 2010. In the summer of that year, the manufacturing plant was left devastated when the country suffered from floods. Due to the damage caused, production had to be halted and the machines were turned off for the last time. The extensive damage and deterioration meant that the production had to be stopped in order to carry out the necessary repairs. It was expected that once these had been done, the plant would be humming once again.
This never came to pass as Suhail Jute started to spiral downwards. In 2011 and 2012, it was able to see some sales, however, the losses booked due to damage to raw material meant that the losses were too large. In 2011, the company saw losses of Rs -17 per share which increased to Rs -19 per share in 2012. With rising costs of raw material, rising administrative costs and losses being made by their investments, it proved to be the perfect storm leading to magnified losses. The plant had already been shut down and now the sales dried up as well.
The impact of the losses started to weigh down on its equity. The equity was valued at around Rs 22 crores as far back as 2007, however, the losses of 2011 and 2012 meant that this became negative in 2012. Due to the magnitude of the losses, equity of Rs 37 crores was wiped out in a matter of 5 years. The only element protecting the equity was the revaluation reserve which had increased from Rs 22 crores in 2003 to Rs 82 crores in 2012. In order to fund some of the gap created by the losses, directors had to provide a loan while short term liabilities were used in order to accrue the expenses that were coming due. This led to short term liabilities increasing from Rs 9 crore in 2003 to Rs 25 crore by year end of 2012.
Suhail Jute is part of a group of companies that included Colony Sarhad Textile Mills. Even before Suhail experienced its own hardships, Sarhad textile mills were seeing their own troubles as the textile mills were facing their own crisis. In order to help an associate company out, Suhail had lent money to Sarhad which was standing at Rs 7 crores by the end of 2012. There were few chances that Suhail would see these funds in the near future which meant that its assets were overvalued from where they would be realized at.
From bad to worse
With such a dire situation, things were only going to get worse as production was stopped and administrative expenses were still being paid. From 2013 to 2024, the earnings per share have been consistently in the red with cumulative losses of Rs 1 billion being made. With no source of income or cash generation, it was felt that there was not enough working capital available with the company to justify production. With no source of funds, the repair work could also not be carried out. Suhail Jute was stuck in a Kafka-esque nightmare as it was not able to carry out production due to lack of funds and it was not able to raise any funds as no production was possible.
The challenges were mounting, and their lenders went to court in order to recover anything from Suhail. With no access to additional borrowing, the directors stepped in to make sure that salaries could be paid and the basic skeleton of the company could be maintained. What started off as a loan of Rs 2 crores has increased to Rs 34 crores by the end of 2024. Similarly, the accrued expenses have also increased from Rs 27 crores to Rs 50 crore by 2024. As the losses have continued to pile up, the equity has fallen to Rs 81 crores in the red. The only saving grace is the fact that the revaluation reserve has gone to Rs 1.6 billion which is able to sustain the equity to some extent by keeping it positive.
In terms of its loan to Sarhad, a merger was carried out between Sarhad and Suhail where the land and production facility of Sarhad was sold to Suhail in exchange for the outstanding loan. In 2017, the merger was finally carried out and the loan of the associate was wiped off. It was felt that the merger would increase the assets and reduce the negative equity that existed on the balance sheet. There was also a likelihood that the assets could be used for further financing from banks.
The management at Suhail was confident that they would be able to revive itself and showed their commitment by providing loans to the company at no interest in order to put their money where their mouth was.
As the production facility stays dormant, the reality has changed little and it seems that the company is standing at the precipice right now. In this condition, the management at Suhail has realized that it would be impossible to restart production and there are active efforts being made to carve out the assets of the company and to sell them piece meal in order to generate as many funds as possible.
From an outsider’s perspective, the affairs of the company were regularly being assessed by its auditors who kept raising red flags at the things within the company. The auditors kept feeling that the receivable from Sarhad was going to become obsolete and the company needed to write off this asset from its books. The management stated that the sale of land would make this receivable redundant. The auditors also felt that the losses being made and the factory being closed raised concern over whether the company could continue into the future as a going concern. The management was able to show their commitment by injecting necessary funds.
Why is the stock market seeing value where there is none?
In short, all of this shows that the conditions at the company are bleak to stay the least and something monumental would have to change before any recovery could be envisaged. But it seems that the stock market is already expecting things to change before anything substantial has been disclosed. An increase of share price by five times is already extraordinary. When it is being seen in a company which is weighed down by debt and is shut down for more than 10 years, then suspicions start to rise.
Going as far back as 1995, it was seen that the share price was hovering around Rs 3. The shareholding has mostly been held by the directors and associates and the volume has been thinly traded. As there are few shares available for trading, the share is seldom traded seeing very low volumes. The share price rose to Rs 30 when the financial position of the company was improving and profits were being earned before it fell back to Rs 10 when the plant was shut down. From 2015 to 2021, Suhail failed to deposit the necessary fees to the exchange which led to suspension of its shares trading altogether.
Once trading restarted, the share price floated between Rs 10 and Rs 60 while the volumes were again low considering the rest of the market. In December 2024, things changed. The share price was traded at Rs 40.21 on 5th of December and in a course of a month, it has reached Rs 193 by 6th of January. From 17th December, the price has consistently increased by 10%, maximum allowed for a day, for 13 consecutive trading sessions. The average daily volume of the trades are only 3,300 shares. So what exactly has changed which has warranted such an increase in share price? According to the company’s disclosures, there seems to be no material information which justifies this increase.
Based on the Pakistan Stock Exchange (PSX) rulebook, the listed companies compliance sends a letter to the company asking them to explain the reason behind the increase in price and to release any material information that might not have been disclosed. This is just a letter that is sent and the listed companies have a simple reply to these letters that they are not aware of any material information. A basic shrug of the shoulders phrase of “I don’t know” in reply to the question asked. The letter is taken as final and no subsequent investigation is carried out. The formalities are completed and nothing takes place after that.
A victim of manipulation?
The problem with this measure is that investors are the ones who lose out at the end. As the share price is improving, there is a feeling that something has taken place at the company and that things might be changing. Fueled by the price increase, rumors are circulated in the market which start to confirm the suspicions and interest in the company starts to gain traction. The price keeps increasing and investors sit up and take notice. With little information to go by, they invest their hard earned savings expecting the share price to keep going upwards.
This is how the classic pump and dump works. A company starts to see its share price increase out of nowhere. As investors start to get involved, the price initially increases and then once the manipulator feels he has seen the apex of the share price, he starts to dump the shares in the market to earn a quick profit. The investor who was pumping the price from the beginning starts to sell his shares at a higher price and leaves the other investors to be left holding the bag. Since the 6th, the share price has crashed in reverse and the share price was at Rs 140.74 on the 9th of January. Investors who would have bought at Rs 193 have seen a quarter of their investment evaporate into thin air.
The shareholding pattern shows that less than 4% of the shares are free floating and the thinly traded nature of the shares means that the price can be increased or decreased with very few shares being traded leading to large price changes. There have been cases of pump and dump that have taken place in the recent rally as companies with shut production plants have seen their share price increase before crashing back to where they had started their rally. The examples of Bela Automotive, Data Agro and Chakwal Spinning are just to name a few. All of these companies have seen their share price increase manifold before coming back down again. Of course, cases only become clear over time and with investigation. Even then they are often left unsolved. But there have been plenty of cases to raise alarm bells when something like this happens.
Where to from here?
So what can be done in order to not let pump and dump strategies take place/ Well for starters, the company can be proactive on their own part and try to distance itself from any such activity. When Bela Automotive was seeing its price increase, the management and the majority shareholders actually sent a letter to the exchange saying that they were cognizant of the increase in price and that they were asking for an investigation to be launched. Something similar can be called for by Suhail Jute which will protect them from being accused of any such allegations. It will also take some air out of the bubble and bring some transparency into the market.
What can the regulatory bodies do? For starters, the PSX needs to be more vigilant. With people’s money being at stake, the exchange should look to be stricter. Rather than just sending a letter, the exchange needs to investigate who is trading in the shares and whether they are perpetuating a pump and dump strategy to earn a quick buck at the expense of the investors. Trade data is available with the exchange which can shine some light on how the share price has increased. The fact that the company is suffering financially only magnifies the point that the price was being increased with no fundamental reason or rationale behind it. The subsequent crash in the price only compounds the feeling that a pump and dump has been carried out and someone needs to be punished for taking the investors for a ride.
The Securities and Exchange Commission of Pakistan also has jurisdiction if it feels that markets are being manipulated at the expense of the investors. In relation to Suhail Jute, the SECP was asked for a comment in which it stated that “(W)ith reference to the query regarding share price of Suhail Jute Mills Limited (“SUHJ”). This is to apprise you that share price in stock market is driven by demand/supply forces and closing price of the share is determined by mechanism given in Rule Book of PSX.”
“Furthermore, we would like to inform you that we are actively monitoring trading activities in the stock market to detect any potential market abuses and other forms of unlawful practices. In case any instances of market abuse is identified in relation to the stock of SUHJ, appropriate actions will be initiated as per law.”
Rather than sending just a letter, the exchange should launch an investigation using the trade data and make the market aware that they are launching an inquiry to figure out what was actually taking place. The PSX has been one of the top performing exchanges in the last year. In such a situation, adding these guard rails and checks and balances will only build the trust of the investors in the transparency and fairness as well.
