Project on Investment Corporation of Pakistan

Board Of Directors

(As On June 30, 1999)

Managing director

          Mr. Asadullah Khawja

Directors

          Syed Samsamul Haque                      Joint Secretary (IF)

                                                                        (International Finance Wing)

                                                                        Finance division

                                                                        Government of Pakistan

          Prince Abbas Khan                            Joint Secretary (I & E)

                                                                        Ministry Of Industries & Production

                                                                        Government of Pakistan

          Mr. Asif Saleem                                  Managing Director

                                                                        National Engg. Services Pak (Pvt) Ltd

          Dr. Najeeb Samie                                Chairman

                                                                        State Life Insurance Corp. of Pakistan.

          Mr. Istaqbal Mehdi                             Managing Director

                                                                        National Investment Trust Ltd.

          Mr. Muhammad Mian Soomro         President

                                                                        National Bank of Pakistan.

          Mr. Khalid A. Sherwani                     Senior Executive Vice President

                                                                        United Bank Limited.

          Mr. Shaukat Tarin                              President

                                                                        Habib Bank Limited.

          Mr. S. M. Munir                                  Director

                                                                        Muslim Commercial Bank Limited.

          Mr. Rashid M. Chaudhry                   President

                                                                        Allied Bank of Pakistan Limited.

Establishment-Wise Organization Chart

Department Of ICP Lahore Branch

1.  Investment Department

                                            i.            Account Opening Section

                                          ii.            Non-Sharing Discretionary Accounts Section

                                        iii.            Non-Sharing Non-Discretionary Accounts

2.  Account Department

3.  Administration Department

4.  Computer Department

5.  Shares & Transaction Section

6.  MO & R Cell

Department’s Chart

Functions Of Departments

1. Investment Department

Investment department consists of:

                                                              i.      Account opening section

                                                            ii.      Sharing account section

                                                          iii.      Non-sharing Discretionary accounts section

                                                          iv.      Non-sharing Non-discretionary accounts section

Functions Of Account Opening Section

Account opening section performs following functions:

1-      Open sharing /non-sharing accounts

2-      Provide every type of information to the client about the market. ICP and market operations.

3-      Guide clients that how to open an account and explain rules and regulations and operations of an account.

4-      Convince the client to open an account.

5-      Allocation of account number.

6-      Safe keeping of:

i)                    Specimen signatures cards.

ii)                  Account opening form.

iii)                Account agreement and GPA.

iv)                Investor’s file.

7-      Withdrawal of documents/account opening form

To perform all these functions, account-opening officer should be:

§  Well mannered.

§  Well behaved.

§  A good communicator.

§  Knows about the market operations current position and trends of market.

Functions Of Sharing And Non-Sharing Accounts

The officer and other staff of sharing and non-sharing department perform following functions:

1. Maintain investor’s accounts.
2. Designing and management of portfolios for investment in shares.
3. Conform the dividend and bounds shares from the Head Office.
4. Place orders for purchase and sale of shares and securities.
5. Maintain investor’s files.
6. Receive rights from companies and exercising of rights.
7. Monthly review of portfolio and change the portfolios according to market trends.
8. Check and control the statements of the accounts relating to investor’s scheme.
9. Provide funds/ deposit to the investor from his account at the request of investor.
10. Close an investor’s account at the request of the investor.

Functions Of Account Department

1)      Disbursement of salaries.

2)      Posting a voucher.

3)      Reconciliation

4)      Filing of vouchers.

5)      Receipts and payments to investors.

6)      Maintain books of accounts.

i)                    Cashbook.

ii)                  Petty cash book.

iii)                Cheque issued register.

iv)                Medical disbursement register.

v)                  Advance to staff register.

vi)                Investor’s scheme vouchers numbering registers.

vii)              H.O transferring vouchers numbering register.

viii)            Separate registers for each type of advance are maintained.

Functions Of Admin Department

1)      Department staff requirements in the branch.

2)      Maintain personal records of the employee.

3)      Maintaining the old record section.

4)      Appointment of staff.

5)      Maintenance of office premises and other general services.

6)      Procurement and supply of stationery and stores.

7)      Supervision of non-clerical and general staff including typing pool and mail section.

8)      Receipt, dispatch and distribution of mail.

9)      Purchase of vehicles and their maintenance.

10)  Issue increment letter.

11)  Keep record of all sick and casual leaves of staff.

12)  Maintain register of overtime for clerical and non-clerical staff.

13)  Keep record of all stationary taken by the staff of ICP.

Share And Transaction Department

Functions Of Shares Department

1)      Maintain Preliminary security deposit register (PSDR) for shares received from head office Karachi.

2)      Prepare security deposit letter (SDL) for shares received from investor. Six copies of SDL are prepared and sent one copy to:

i)                    Shares department (H.O.).

ii)                  Shares department (H.O) along with transfer deed.

iii)                Computer department.

iv)                Investor’s copy.

v)                  Investor’s file.

vi)                Office copy.

3)      Maintain a documentation register.

4)      Physically deliver shares to the investors.

5)      Safe keeping of shares.

6)      Attest all entries incoming and outgoing securities in transit and record in a permanent securities deposit register (PSDR) as well as transit Register.

7)      Demand shares/securities from head office for onward delivery to the investor.

8)      Keep up to date records pertaining economical and financial analysis of various companies.

FUNCTIONS OF TRANSACTION DEPARTMENT

Ø  The main function of transaction section is to operate in the stock exchange. The transaction section officer deals in the scale and purchase of shares. Transaction officer gets sales and purchases order from investment officers.

Ø  Maintains separate registers for

§  Head officer sale

§  Head office purchase

§  Local sale

§  Local purchase

Ø  Recording of confirmation of sale / purchase orders.

Ø  Recording of cancellation of sale / purchase orders.

Ø  Recording of debt and credit vouchers against purchase and sale orders.

Ø  Prepare purchase clearing schedule and sale clearing schedule. Seven copies of clearing schedule are performed for:

Share department (HO)                      3 copies

Account department (HO)                  2 copies

Transaction department                      1 copy

Broker                                                 1 copy

Ø  They sent this clearing scheduling along with sale/purchase confirmations and brokers confirmation letter to share deptt. (HO) Karachi and transaction department (branch). They sent only purchase/sale confirmations along with clearing schedules to account deptt. (HO) Karachi.

Computer Department

Computer section is equipped with the modern technology. Computer section is using AS400 for all operations. The computer section and investment department through the terminal uses application system 400. The computer section operates the main server. AS400 is mainframe and its model number is 9402-E02. Investment Corporation of Pakistan uses this system AS400 in all organization. But now ICP is thinking to replace it with the Window NT.

Functions:

There are following three systems which are being computerized by ICP Lahore’s computer section:

1)      Accounting system.

2)      Investment system.

3)      Transaction system.

1. Accounting System

All the general vouchers originated by the account department are punched in computer. Vouchers are punched in computer on daily basis operator of computer has to enter the voucher in the computer, remaining work is done automatically by the computer. The computer operator also prepares trial and general ledger.

2. Investment System

All the vouchers that relate to the investor’s scheme are also entered in the system. Investor’s records are updated by entering the transaction relating to their account. The investment officers through terminal also share this information. This system was developed to accommodate the investor scheme.

3.Transaction System

Under this system, all the transaction of sale / purchase either local or head office are operated.

Ø The process starts when investment officer makes sale / purchase orders either local of     head office and precedes it to the transaction officer.

Ø The orders then come to computer operator for entering in computer.

Ø In case of local transaction all the process is done at the Lahore and only intimation of transaction is sent to the head office accounts department while the sale / purchase orders of head office are proceeds to transaction department head office and these transaction go to account department for payment.

Ø The account department precedes this process to head office computer department, which completes the transaction and sends back to the ICP Lahore branch.

Ø These transactions come to the transaction officer to update his manual record and computer department also updates the computerized record as well.

MO & R Cell

The basic function of this department is monitoring, operations and recovery of project financing. All the matters from the application of loan to the approval of loan are handled by this department. As ICP has stopped project financing (due to unavailability of credit line from State Bank) so only monitoring and recoveries are done now a days.

In monitoring, officer of MO & R Cell follow up those parties who had financed by ICP and study their balance sheets and other statement annually, monitoring officer also negotiates with debtors about the rescheduling of loans.

At present only recovery function is done at Lahore branch. All the matters of recovery of loans are handled by MO & R Cell

Part III

MARKETING MIX

INVESTOR’S SCHEME

INTRODUCTION:

The corporation introduced the investor’s scheme in 1967. The investor’s scheme of the corporation is one of the initial steps maintained for individuals who for their limitations cannot operate directly on the market taken for widening the base of share ownership through investment accounts. These account are

This scheme is also for the individuals and institutional investors who do not wish to operate through mutual funds, under this scheme, the investors have some freedom and participation, which is not available in the mutual funds.

The corporation’s investor’s scheme has been very successful in fulfilling the objective of broadening the base of investment. As a first step the corporation opened its branches in important cities of the country for facilitating such investor who were facing difficulty to operate on the only stock exchange at Karachi in 60’s.

Further in order to provide an incentive to small and medium investors for investing in shares, the corporation provided extension to investment account holders were provided at concessional rates in the ration of 3:1 in initial years and two 2:1 thereafter, 3:1 means investor has to deposit 1000 and against his deposit, ICP will give him 3000 loan which will be deposited with ICP and this deposit will be used only for investing in shares. Later on there ration changed from 3:1 to 2:1.

Conversion of Accounts

In 1980, ICP converted its existing accounts into sharing and non-sharing account. An existing investment account was converted into non-sharing account only if it had a credit balance. And old investment accounts only their approved securities had larger value than debit balance.

All the shares held in old investment account were transferred to Non-Sharing account at the respective average rates through BIT vouchers whereas only approved shares were transferred to Sharing account at prevailing market rate through internal purchase / sale vouchers, without any BIT vouchers and service charges.

Two types of accounts were introduced in 1980

1. Sharing account
2. Non-Sharing account

Since 1967, the corporation through its investor’s scheme attracted thousands of investors to make investment in Shares of listed companies (which are quoted on stock exchange).

SHARING ACCOUNT

Definition

“Sharing scheme means an investor’s deposit account in which ICP also makes deposit for purchase of approved shares and share the net income or lost”.

“Sharing scheme means an investor’s deposit account in which ICP also invests and to assist in implementing the policy of the Government of Pakistan to substitute interest-bearing ICP advanced by profit and loss Sharing investment.”

In short in sharing account:

1. ICP also makes deposit with the investor
2. ICP share profit and loss with the investor

Introduction

In 1980, ICP introduced two types of investor’s scheme

1. Sharing account
2. Non-Sharing account

In Sharing scheme initially ICP provided this incentive to the investor that 40% deposit by investor and ICP will deposit 60%. In case of profit ICP will get 40% profit and investor will get 60% of the profit and in case of loss Investor will bear 40% of the loss and ICP will bear 60% of loss.

In 1991 when there was no restriction on the foreign exchange. Government allowed the ICP to have the ration of 50:50-50% will be equity and 50% will be invested by ICP and similarly profit and loss will also be distributed on equally basis.

Important Features Of Sharing Scheme

ICP’S deposit in the account

1.      ICP makes deposits only in sharing accounts. It makes deposit either directly or through such sources as the board may approve.

2.      ICP’S deposit in a Sharing account is always equal to the deposit of the account holder/ investor.

3.      Total asset at all times in sharing account is the property of ICP and account holder in equal proportion.

4.      ICP cannot deposit money in sharing account less than Rs.50, 000 and investor also has to deposit the same amount.

5.      ICP will get 50% of the profit and (in case) will bear 50% of the loss.

Managing of Account:

ICP manages investor’s deposit account for self and for the account holder(s). ICP receives the following fee and charges from the account holder.

                                i.            Services Charges

Service charges are calculated at the rate of ½ % of money value of each transaction of sale and purchase at the time of that transaction.

                             ii.            Management Charges

Management charges are calculated at the rate of 3/4% on cost of investment at the end of each quarter. So management charges are 3% annually.

Annual Account of Sharing Accounts

Each Sharing account is examined after the 30^th of June in every year to determine the net assets of the account and the profit and loss accrued to the account the fiscal year. The profit / loss of sharing account consists of:

Investment at cost

+/- Credit / debit balance

-         Net total deposits made by the ICP and account holders.

Withdrawal Of Funds / Deposit

In a sharing account investor can not withdraw some amount of his deposit because sharing account is a joint account of ICP and investor, but in a sharing account, investor can withdraw his accrued profit from his account, but investor can not withdraw any profit of accrued prior to finalization of the yearly account and declaration of net profit of the account.

Withdrawal Of Shares

In Non-Sharing accounts, investor can withdraw his shares or transfer his shares on his own name. But in sharing account investor cannot withdraw his shares and transfer shares on his own name.

Distribution of Profit Adjustment of Loss

1)      In Sharing account, profit / loss is distributed equally between the investor and ICP

2)      Profit distribution is done on 1^st July. (On an annual basis and the final year for this purpose is July-1 to June-30.)

3)      Profit is paid after the deduction of the tax and zakat if applicable.

4)      The net profit / loss in sharing account compromises:

Investment at cost

+/-        Credit / Debit balance in the investor account

-           Net total deposit made by the investor and ICP.

In case of profit, ICP withdraws his share of profit and the investor gets his share.

In sharing account ceiling limit is Rs.50, 000 when the investor’s deposit is less than Rs. 50,000 profit distribution is not made but reinvested till the balance of deposit reaches Rs. 50,000.

When liquid funds are not available in an investor’s account, the profit distribution may be made by scale of shares held in investor’s account, if so required by the investor. Payment is made to the investor by crossed cheque. The cheque is send to the depositor’s bank under registered mail

Closure Of Sharing Account

Sharing account is a joint account of ICP and investor. If investor wants to close his account, he has to give 15 days notice in writing to the ICP and declare his intention to close the sharing account. On the other side if ICP wants to close account then ICP has to give written notice to the investor. If ICP closed the Sharing account at the request of the investor, then ICP shall not allow the investor to open an account within one year from the date of closure of his sharing account.

Procedure For Closing Of Account

1)      First of all investor sends an application / notice to the ICP for closing of his account

2)      After receiving an application, investment officer sharing account prepares a sale order sheet about the sale of the share of the investor’s account and send this sheet to Karachi head office for the sale of shares.

3)      Investment officer sharing account fills “closure of account” form and send it to the head office.

4)      After selling of all shares department Karachi to finally close the account.

5)      ICP determine the net assets of the account and distributes them between the ICP and the investor.

6)      Payments to investor are always made by crossed cheques and to “account payee only.”

7)      In case of joint account, the cheque should bear the names of all or any one of the account –holder. However, if all the joint account-holder authorizes in writing to issue cheque in one name it may be issued accordingly.

NON-SHARING ACCOUNT

INTRODUCTION

In 1980, ICP introduced two type of investor's scheme:

1. Sharing Scheme
2. Non-Sharing Scheme

Non-Sharing Scheme /account is further divided into two accounts:

                         I.      Non-Sharing Discretionary Account

                      II.      Non-Sharing Non-Discretionary Account

In Non-Sharing account:

                                         i.          ICP does not make any deposit

                                       ii.          ICP does not share profit and loss with the investor.

Definition:

1. Non-Sharing Discretionary Account:

“ Non-Sharing discretionary account means a deposit account /investment account which is always operated by ICP.”

2. Non-Sharing Non-Discretionary Account:

“ Non-Sharing non-discretionary account means a deposit account /investment account which is solely operated by investor.”

IMPOTANT FEATURES OF NON-SHARING SCHEME:

1. Who can make deposit in this scheme?

Any person or persons, who are Pakistani nationals and want to open account, can open a Non-Sharing account. A Non-Sharing account can either be discretionary or a non-discretionary account.

2. Joint Non-Sharing Account:

Investors can open a joint Non-Sharing discretionary / non-discretionary account. But more than four persons cannot open joint account. Joint application is not acceptable.

3. How to Open an Account?

If an investor wants to open an account with Investment Corporation of Pakistan, he has to fill up prescribed application form. Investor has to sign the form and investment officer also takes his signature on a specimen signature card. Investor has to give a copy of his national ID card. He has to comply with all other requirements specified in the application form.

Operations Of An Account

1. Non-Sharing Discretionary Account

Non-Sharing discretionary account is operated by ICP but if the investor wants to operate his account then he can do so. If investor wants to be a sleeping investor then ICP operates his account otherwise he would operate himself.

2. Non-Sharing Non-Discretionary Account

Non-Sharing discretionary account is solely operated by the investor. ICP cannot operate his account. Investor gives his instruction in writing to the ICP for the operation of his account and ICP acts accordingly.

3. Distribution of Profit and Loss

In both cases of Non-Sharing discretionary account and Non-Sharing non-discretionary account whole profit and loss goes to investor. ICP does not take any profit or beer any loss from the Non-Sharing account.

4. Declaration For Non-Deduction of Zakat

If any investor declares for non-deduction of zakat from his account, he has to submit such declaration to the ICP branch office at least one month prior to 1^st of Ramazan.

5. Closure of Non-Sharing Account

ICP closes a Non-Sharing account at any time at the request of the investor. The request should b in writing. When an investor wants to close his account, he has to pay all the ICP charges and dues.

6. Management Of Accounts

ICP manages investor’s deposit account and receives charges its service and management charges. The term “Management ” means that ICP performs a number of different tasks for investor includes:

q  Acquisition of shares and securities by subscription by original or right issue.

q  Sale of shares and securities.

q  Transfer of shares and securities.

q  Collection of benefit including dividend and bonus.

q  Registrations of Shares and securities.

q  Purchases of shares and securities.

q  Professional council and assistance and other services related to investment.

ICP is entitled to receive the following fees and charges from account holders:

a. Service charges

ICP receives service charges on every transaction of sale and purchase at the time of transaction. Service charges are calculated at the rate of ½% of money value of each transaction.

b. Management Charges

Management charges are calculated on cost of investment and are 3% annually. These charges are calculated at the rate of ¾% of amount of investment at cost on the last day of each quarter of the year.

7. Withdrawal Of Funds / Deposit

In Non-Sharing account, investor can withdraw his funds / deposit if the investor has credit balance in his account and he wants to withdraw some amount of his funds, he has to write an application to the ICP about the withdrawal of funds.

After receiving application, investment officer (Non-Sharing account) checks his/her account / holding and will issue a debit voucher in which investor’s bank is credited and ICP’S bank and investor’s account is debited. After receiving debit voucher, accounts officer issues check to the investor.

In other case, if investor has no credit balance and he wants to withdraw some amount of his deposit, then there would be two criterion depending on the nature of discretionary / non-discretionary account.

Case: Non-Sharing non-discretionary

Investor has to give instruction in writing that please sell my shares and give required amount of money. ICP will sell his shares and after 10 days of application, ICP will issue check to the investor.

Case: Non-Sharing discretionary

If wants to withdraw his deposit and gives an application to the ICP then investment officer has the right to sell his shares and give him the required amount of money. But if the investor has given the instruction to ICP that you cannot operate my account without my instruction, then investment officer cannot sell his shares without his instruction or permission

Withdrawal Of Shares Or Return Of Shares To Investor

Investor can transfer shares on his own name or withdraw shares from ICP only to his other Non-Sharing account; moreover investor cannot withdraw shares in case of sharing account.

Why Investor Withdraws Shares?

Investor withdraws shares from ICP because of certain reasons:

1. To avoid the management charges investor withdraws his shares. If shares are with the ICP then investor has to pay 3% per annum management charges to ICP.
2. Investor withdraws his shares and keeps them with himself. Whenever market conditions would improve and price of his shares will increase he would sell his shares in the market and would get maximum profit.

Procedure Of Withdrawal Of Shares

ü  ICP receives an application about the withdrawal of shares from investor.

ü  Concerned investment officer checks investor’s holdings (account and shares).

ü  A requisition is prepared by the concerned investment officer

ü  The concerned investment officer and an officer of shares department jointly sign requisition.

ü  This requisition is sent to the head office Karachi, one copy remains with the concerned investment officer and the other copy goes to the officer of share department as a record

ü  The shares department, head office Karachi confirms investor’s holdings according to his record. And sends shares physically to the branch.

Pricing

The shares internally transacted between the investors are priced on the basis of middle price reflected in the tern over list issued by the stock exchange on the day on which the transactions are matched.

Ø  If there is no transaction in a particular share, the price printed in the official ready board quotation is taken as between the investors, is matched at that price.

Ø  If there are three are more transaction in odd numbers, the middle price is taken as the matching price.

Ø  If the numbers are even, exceeding two, matching is affected at the list of two middle prices.

TRANSFER OF ACCOUNTS

In ICP we have got two types of transferring accounts:

q  BIT (Branch Internal Transfer)

q  TAB (Transfer Account Branch)

BIT (Branch Internal Transfer)

This term is used when one account is transferred to another For example; shares and funds are transferred from sharing account to a non-sharing account or from one non-sharing account to another non-sharing account.

TAB (Transfer Account Branch)

This term is used when one account is transferred from one branch to another branch.

BRANCH INTERNAL TRANSFER

OR

TRANSFER OF ONE ACCOUNT TO ANOTHER ACCOUNT

             I.      When an investor maintains more than one account he wants to merge his accounts he can do this. For this purpose investor has to give a written request to ICP.

          II.      In case of sharing accounts investor cannot transfer his shares / balance from one sharing account to another account.

    III  In case of non-sharing accounts investor can transfer his shares / balance from one account to another.

IV  Investor can transfer shares / balance from a Sharing account to non-sharing account but he cannot transfer balance from non-sharing to sharing.

V   The balance in the account being closed is debited to the concerned account and credited to the account to which it is being merged.

VI   The following documents are prepared to effect transfer:

a)      Port folio confirmation - PC form

b)      Payment / transfer of account —- PTA form

c)      Statement of account being closed

d)     Debit voucher

e)      Transfer authorization

TRANSFER ACCOUNT BRANCH

OR

TRANSFER OF ONE ACCOUNT TO ANOTHER BRANCH

A.    An Investor has to give a written application / request to ICP for one transfer of his account to other branch.

B.     The application for transfer, must be signed by the investor in accordance with the signature recorded with ICP.

C.     The manager must verify the investor’s signature and his verification action must be recorded.

The investment officer, who is currently handling the concerned account is responsible for processing transfer formalities.

Transfer of an investor’s account to another branch must be authorized by the chief manager.

1.      In case of transfer of account to another branch the investment officer will furnish the following to the Transferee branch:

2. Account opening form
3. Debit / credit voucher
4. Specimen signature card
5. General power of attorney
6. Investors account agreement
7. Three copies of each TAB
8. Latest address of the investor an upto-date statement of investor s account

BENEFITS ON SHARES

Investors get three types oF benefits from the shares:

1.      Dividend

2.      Bonus Shares

3.      Right Shares

Dividend

Conipanies announce dividend on their shares from time to time. ICP recieves this dividend from the companies and add it in the credit balance of the investor.

Bonus Shares

Companies also give bonus shares to their shareholder. Bonus shares are free of cost that investor has to pay nothing for it. These bonus shares are added in the portfolio of investor

Right Shares

o   If a company wants to increase its capital, it will issue right shares to its existing shareholder after getting approval from the controller of capital issue.

o   Company cannot offer these right shares to the general public.

o   Company offers right shares to the existing shareholders.

o   These right shares are not free of cost.

o   If shareholder wants to purchase right shares that are offered to him, he can buy them otherwise he has the right to sell them in the market after getting approval from the company.

o   Some companies offer 50% right shares; it means if investor has 200 shares he is offered 100 right shares, if company offer 400% right it means if investor has 100 shares he is offered 400 right shares. Right shares are offered to existing shareholder at par.

PORTFOLIO DESIGNING

Portfolio designing requires professional knowledge and skill, while designing a portfolio in the light of investment objectives of any investor; the investment officer should try to secure shares that offer the best possible returns. The investments in forms of attractive dividends, bonus shares and reasonable growth etc.

The Principal of diversification of stock should be followed in designing a portfolio with a view to minimizing risk and securing the best possible returns for the investor. Prior to the inclusion of shares in investor portfolio, the investment officer examines the nature and management of business, its past performance and market-ability, the earning per share, the past dividend record, the current price of the stock and its prospects of growth.

PORTFOLIO MANAGEMENT

All sharing and non-sharing accounts are reviewed on monthly basis. For this purpose each investment officer reviews sufficient numbers of accounts every day by completing the portfolio review form with his recommendation to the Manager / chief manager for his approval. After the recommendation have been approved by the manager/chief manager, investment officer incorporates the final recommendations on the remaining two copies Of the review form and arranges immediate dispatch to the investor concerned for his information/approval. He must ensure that the portfolio reviews are dispatched to the investor on top priority basis preferably the same day.

PURCHASE AND SALE OF SHARES

If an investor decides to purchase or sell certain shares and securities through an investment account maintained with ICP, he should convey his instructions to the ICP. Purchase or sale order should be communicated to ICP in writing. Instructions on telephone are not acceptable. According to the rules and regulations of ICP investors cannot make direct purchase and sale of shares with brokers against their accounts with ICP.

If an investors wishes to purchase shares against sale of shares held in his portfolio, purchase order should not be placed unless the sale is confirmed. The cost of purchase plus services charges must not exceed the expected sale proceeds.

ORDERS FOR PURCHASE/SALES OF SHARES

There are three types of orders for purchase /sale of shares or securities

1. FOK order /unlimited order
2. Limit order
3. Matching of purchase and sale order

FOK Order (Fill or Kill Order):

A   FOK order is suitable for a quick or urgent transaction.

A   FOK order remains valid for three stock exchange working days from the date on which the order is placed with the stockbroker.

A   FOK order is automatically cancelled on the expiry of three days.

A   FOK order connotes a transaction irrespective of the extent to which the price may have to be raised in case of purchase. Or lowered in the case of shares and securities

Limit Order.

A   ICP limit order is suitable for less urgent transaction.

A   ICP limit order remains valid from seven calendar days from the days the order is placed with the stockbroker.

A   Limit order is automatically cancelled on the expiry of seven days.

A   In a limit order the investor fixes the price at which he wants to buy/sell a share, so he gives price limit.

Purchase Or Sale Confirmation

ICP (Lahore Branch) send purchase/sale order to the head office transaction section if share are purchase or sold within three or seven days in respective cases then head office sends then purchase / sale confirmation to the ICP (branch).

Automatic Cancellation

ICP sends purchase/sale order to the head office transaction section .if order is not executed within three days or seven days according to the respective cases then head office Karachi transaction section sends the automatic cancellation to ICP (branch).

Matching of Purchase and Sale Orders.

ICP may receive purchase orders from some account holders and sale orders from others in respect of same shares and securities. It may, as a convenient and speedy method of execution of such order internally matches such orders out of “ investors pool” or its own portfolio. ICP receives brokerage of such execution of orders. However brokerage is not charged if sale /purchase takes place within one family account maintained by husband, wife, parents and children.

The price at which shares are sold/purchase by internal matching shall be the median (middle) price as reflected in the fluctuation sheet of the stock exchange for the day.

In absence of any transaction of such shares on stock market that day, the price quoted on the official Ready Board Quotation list of the stock exchange for the day is considered to be the matching price.

MUTUAL FUNDS

What is Mutual Fund?

Investment companies are financial intermediaries that pol1 the funds of investors which arc seeking some general investment objectives and invest them in number frequently traded different types of securities. This pooled fund provides thousands of investors with proportional ownership diversified portfolio, which are operated by professional investment managers.

Mutual funds remove risk associated with putting all your eggs in one basket, as the typical small investor tends to do. Building up a diversified portfolio requires large funds, which is beyond the means of an individual small investor. In this perspective mutual funds offer excellent opportunity to avail benefits of large-scale portfolio and investing them in shares, which promise higher rates of return.

MUTUAL FUNDS OFFERS:

A   Professional management

A   Diversification of managed portfolio

A   Availability of diversified investment opportunities to common investors

A   Collective sharing or profit

A   Collective sharing of burden out of fund management

A   Reduction in transaction cost

A   Portfolio is constructed according to the fund’s objectives.

In order to attract more people towards mutual funds, the return on mutual funds should be better than that of returns on the present saving and other schemes

ICP’S Mutual Funds

ICP has introduced closed-end mutual funds in Pakistan. These mutual funds have successfully broadened the base of investment by providing the investors an excellent opportunity of pooled investment.

For the floatation of any mutual funds, ICP determines the amount that it has to collect. They collect money from the general public. After collecting money, Investment Corporation of Pakistan purchases portfolio (shares) from the market. This portfolio consists of shares of different companies. Then Investment Corporation of Pakistan issues share certificate to the investor \ Funds holders and announces its portfolio at the year-end, ICP determines profit and loss during the year because of purchase and sale of shares and announces dividends. The total income of funds after deducting the expenses is distributed among its certificate holders in proportion to their investment.

The first ICP mutual fund was floated in June 1967. Since then ICP has over the year, floated a series of closed-end mutual funds. So far the corporation has floated 26 mutual funds including one State Enterprise Mutual Fund (SEMF). Investors find their investment safe and return-oriented in majority of ICP mutual funds.

Purpose Of Mutual Funds:

The main purpose of mutual funds is to provide maximum possible return to the fund holders. To achieve this objective management of funds chooses diversified portfolio so that risk should minimize and profit should maximize.

Another purpose is to attract the general public to invest in the stock market and improve secondary market operations.

ICP’S MUTUAL FUNDS

STATE ENTERPRISE MUTUAL FUNDS

State Enterprise Mutual Fund was floated in 1980 with a capital of Rs. 280 million. The portfolio of ICP SEMF, which comprises was floated for providing benefits of pooled investment to investors particularly overseas Pakistanis

The corporation enhanced the capital base of the SEMF, through issuance of right certificates to the existing certificate-holders of the SEMF by 200 percent raising the capital of SEMF to Rs. 840.0 million. With this enhancement in capital, the aggregate capital of all the listed 26 ICP mutual funds has soared to over Rs.3. 1 billion. ICP is the only fund manager whose funds under management increased by over Rs.2 billion during the last 6 years.

During the year 1992-93, the corporation declared an enhanced dividend of 83% on SEMF, The KSF in consideration for excellent performance by the ICP SEMF has been awarding the fund to the top companies’ awards since 1 993.

Because of the depressed economic conditions in the country, the number of dividend paying stock has declined. Despite these conditions, ICP has declared 25% dividend on SEMF.

ICP’S MUTUAL FUNDS

ICP’SMUTUAL FUNDS RATES OF DIVIDENDS 

ICP distributes 90% of profit on mutual funds to its fund-holders / investors and on1y 10% is retained for expenses. ICP declared dividends on its mutual funds annually and also declared interim dividends to its fund-holders .All fund-holders are receiving handsome dividends which compare a very favorably with the rate of return of other listed share.

The mutual funds managed by the corporation are a Source of regular income for the fund-holder and increasing rates of dividends have made theses funds the mot attractive medium of pooled investment in the country.

The corporation during the year ended June 30, 1 993 created a record by declaring the highest ever dividend of 370% on its 12^th mutual fund. The rates of dividends for 1992-93 ranged from 12% to 370%.

Despite unfavorable conditions on the stock market the rates of dividends for the year I 996-97 were attractive. The overall return for the year I 996-97 ranged from 10% to 65%. Moreover, despite bearish market to its fund–holders the interim dividend ranged from 10% to 50%.

PROJECT FINANCING

Since in corporation in 1966, till June 30, 1994.ICP was also engaged in project financing. The investment Corporation of Pakistan was providing financial assistance to sponsors for meeting their local currency requirements in establishment of industrial projects. It had not only provided financial assistance for the establishment of new projects but also for balancing, modernization and replacement (BMR) of existing projects.

The three commercial banks (HBL, BALANCE and UBL and two privatized bank (ABL, MCB) of Pakistan represented on the board of ICP are also locked in the Consortium financing lead by ICP. So, the size of resources available at the disposal of  ICP for project financing was very large. The financial assistance for project financing was arrange through Term Finance Certificates )TFC) while funds for purchase of Locally Manufactured Machinery (LMM) was provided under state Bank of Pakistan’s sponsored scheme.

Since its inception, the total financial assistance (including underwriting) approved by the corporation along with its consortium-members amounted to RS. 12.8 billion, of which ICP’s commitments stood at RS. 5.0 billion. The financial assistance approved by the corporation was providing to all-important sectors of the economy.

The corporation has stopped project financing temporarily since July 1994. After an in-depth analysis of its activities and under the instruction of the government has stopped providing financial assistance. And ICP has no more funds for financing purposes. After July 1994, disbursements of loans have been made only in that cases, which were approved before July 1994 and their disbursements were pending. In 1995-96, ICP has disbursed RS. 27.0 million for six applications and during the year 1996-97. ICP has disbursed an amount of RS. 4.0 million only for one project in respect of locally manufactured machinery.

MODES OF FINANCIAL ASSISTANCE

The financial assistance is provided through the following modes:

1. Short Term TFCs
2. Long Term TFCs
3. Financing of locally manufactured machinery
4. Equity investment
5. Underwriting cover

1. Short Term FTCs

• Short term TFCs are in locally currency.
• The duration of these TFCs is about 3 years.
• Short Term TFCs substitute a part of the equity to be raised from the public in case of public limited companies to be quoted on the stock exchange.
• At the time of project approval, implementation and trial run operations of a project, some sponsors Prefer to finance part of the public portion of the equity through bridging loans. These funds are usually disbursed after utilization of entire sponsor’s equity through escrow account at the tail end of the implementation of the project.
• These TFCs are normally retired from the proceeds of the public issue. They can also be retired out of the internal cash generation of the project or from sponsor’s own resources.

2.    Long Term TFCs

·         The duration of the long term TFCs is usually 7-1 years.

·         Long term TFCs are also in local currency.

·         Repayments of these TFCs is made in six monthly installments

·         The funds can be used to meet local currency expenditures as well as import of foreign machinery

3.    Financing of Locally Manufactured Machinery

·         It is a subsidized credit made available by the state bank of Pakistan.

·         Its availability is contingent on the availability of funds from the state bank of Pakistan.

·         The purpose of financing of locally manufactured machinery is the promotion of local engineering industry.

4.    Equity Investment

·         ICP may participate in the equity along with the promoters of a project. The contribution will be for a minority position.

·         In equity investment, ICP become the shareholder of the company and receive profit on share from the company.

·         ICP does not receive interest in case of equity investment.

·         For example, if a project’s lost is ten lack and sponsors provide eight lack and for two lack they request to ICP that take the share of their company and become shareholder. If ICP accept their request then it take shares against two lacks and receives profit on it. After a particular time period. ICP can sell these shares in the market.

5.    Underwriting Cover

The sponsors, with a track record, normally prefer to go for public subscription at the implementation state of the project. Relatively new sponsors wait for the project to achieve a satisfactory level of operations before they approach the public. ICP may consider both the propositions and provide underwriting cover.

TERM AND CONDITIONS FOR

PROJECT FINANCING & UNDERWRITING

The company who wants to get financial / underwriting assistance from ICP, it has to provide all information and documents required by the ICP.

1. The company has to provide the following particulars of all its directors and any other sponsoring share holders of the company:

i.                    Full name, Address, NIC number and National tax number.

ii.                  Percentage share holding in the proposed project.

iii.                Name and Address of Banks and Bank A/C number.

iv.                Detail of Technical and Academic qualifications.

v.                  Detail of entrepreneurial experience of running another business and or industry.

2. Give the justification that the directors / sponsors past experience will be helpful in running the proposed project.
3. For each of the business / industrial concerns, provide the following information:

i.                    Date of incorporation

ii.                  Date of start of commercial production

iii.                Names of products, their uses and capacity,

iv.                Copies of audited / unaudited financial statements for the past 4 years.

v.                  Statement of borrowings from other financial institutions and commercial banks indicating:

·         Principal amount of loan availed

·         Nature of loan

·         Date of disbursement

·         Overdue showing the Principal and interest separately

·         Amount of loan not yet fallen due.

4.    Project Description

Company has to give a detailed description of the proposed project covering the following aspects:

i.                    Name of products and their respective uses.

ii.                  Annual production capacity at 100% efficiency.

iii.                Number of Days, the project will be able to operate in year and the required number of shifts per day.

iv.                Attach copy of federal or provincial government’s permission for setting up the project.

v.                  Give location of land indicating:

·         The name of Tehsil, District, Division and Province.

·         Classify the project location as Urban or Rural.

·         Give total area of land and its cost.

·         Identify land development charges.

·         Attach copies of land ownership documents.

vi.                Furnish details of the advantages that would be enjoyed by the project because of its location, in term of:

·         Communication

·         Availability of labour, raw material power, water & gas

·         Market

·         Tax holiday

·         Rebate in customs & excise duties.

vii.              State the amount of power, water & fuel that would be required annually.

viii.            Details of proposed building and civil works indicating the name of different sections and departments, their respective covered areas, rates of construction applicable and total cost of civil works.

ix.                Provide a comprehensive list of foreign machinery items required for the project.

x.                  Provide a comprehensive list of locally manufactured machinery items required for the project.

xi.                 

xii.              Incase the project proposes to install any second hand machinery item. Then following particulars about the machinery be provided:

·         Name of manufactures

·         Country of origin

·         Year of manufacture

·         Remaining useful life

·         Lost at which it has been acquired.

xiii.            Give a detailed description of the manufacturing process as well as process flow diagram.

xiv.            Give details of engineering and technical fees, in foreign as well as local currency being charged by the foreign/local machinery supplier.

xv.              Give an estimate of the time required to complete the project.

xvi.            Describe the environmental hazards that would be caused by setting up of the project. State the arrangements proposed to be made for disposal of plant affluent.

xvii.          Please give the details of the details of the manner through which the sponsoring Directors would be involved in efficient implementation and operation of the project.

xviii.        Give details of the project’s contribution to Pakistan’s gross national product (GNP) and the Number of new employment opportunities that it will create.

5.    Marketing

Company has to provide information about the market conditions for its product, covering the following points:

i.                    Description of markets

ii.                  Selection of customers and their location, needs and buying capacities.

iii.                Names and addresses of company producting similar products and their respective capacities.

iv.                Names and address of up-coming similar industries and their respective capacities.

v.                  Production within Pakistan during each of the last five years.

vi.                Imports during each of the last 5 years

vii.              Exports during each of the last 5 years

viii.            Local consumption during each of the past 5 years.

ix.                Estimated demand during each of the next 5 years.

x.                  Description of proposed marketing channels and distribution arrangements.

6. Company has to attach copies of the following documents:

·         Memorandum and articles of association

·         Certificate of incorporation.

·         Certificate of commencement of business.

·         WAPDA’s assuance for supply of power.

·         Relevent Authorities assurance for supply of water, fuel and gas.

7.      Any company who requests to get financial assistance from ICP has to pay an appropriate amount of processing charges (non-refundable) according to the following schedule:

8. If Company wants to get loan for the expansion or BMR expansion or BMR of an existing project, then it has to provide following information.

i.                    Date of incorporation.

ii.                  Date of start of commercial production.

iii.                Names of products being presently produced and their uses.

iv.                Their classification under the industrial investment schedule.

v.                  Their installed capacity and new capacity proposed to be added.

vi.                Capacity utilization in produced during the past 4 years and explain reasons for under utilized capacity (if any)

vii.              Attach past four years balance sheets and profit & loss accounts and explain reason of losses (if any)

viii.            Attach copy of memorandum & articles of association.

ix.                Statement of borrowings from other financial institutions and commercial banks.

x.                  Detail of existing land building

xi.                Detail of existing machinery, its make and age.

xii.              Number of persons already employed and their salaries and wages.

xiii.            Existing requirements of water and gas and additional requirements of water and its sources and gas.

xiv.            Detail of existing market channels and distribution arrangements being used for the present line of products.

TIPS ON PROJECT FINANCING AND UNDERWRITING

Procedure:

1. Borrower submit an application on prescribed from alongwith prescribed processing fees (which is non-refundable) to the ICP.
2. For the ICP technical committee, a preliminary examination of loan / underwriting is prepared. Meetings of this technical committee are held every week.
3. Technical committee decides either to admit the case for detailed appraised or to reject the request.
4. If the technical committee admit the case for detailed apprasal, sponsors are requested to provide additional information and deposit project examination fee of ½ of one percent of financing required.
5. After receiving examination fee, technical committee get detail information from the company and prepare memorandum for MD / Executive committee / ICP board of directors for sanction of funds.
6. If the project involves consortium financing then the memorandum is placed in ICP staff technical advisory committee.
7. MD / Executive / ICP board of directors approve the memorandum.
8. After receiving the commission and legal documentation fee from the company, ICP issue sanction letter.
   • Commitment charges are charged at 1 ½ % per annum, payable on quarterly basis.
   • The underwriting commission is charged at 2 ½ % for one time.
   • The legal documentation fee is charges at ¼ of 1% for financial assistance and 1/8 of 1% for underwriting cases.
9. Sponsors have to accept the sanction letter within 15 days.
10. After the acceptance of the sanction letter, the financing agreement is signed by the sponsors and ICP / ICP-led consortium members.
11. ICP consultants evaluate the building civil work, machinery, land etc. All draft contracts agreements, performance bond etc. are approved by ICP consultants before execution.

Conditions Prior To Disbursement

Fulfillments of following conditions prior to disbursements are necessary:

a)      An escrow account is open for the deposit of equity by the sponsors and funds to be disbursed by ICP.

b)      Auditors certificate regarding utilization of equity by the sponsors, whenever applicable.

c)      Underwriting from a commercial bank for meeting working capital requirements.

d)     Satisfactory credit-reports from all banks/DFIs.

e)      Underwriting from relevant authorities to meet gas, electricity and water requirements.

f)      Physical inspection of the project and inspection of books of accounts by ICP in order to verify utilization of sponsor’s equity and their other investments in the project.

Rules For Disbursements Of Funds

The important rules for disbursements of fund are given below:

a)      In case of LMM – financing, the disbursement is made to the manufacturers/ suppliers of machinery directly.

b)      In case of TFC financing funds are deposited in the escrow account operated by

ICP.

SECURITY CONDITIONS FOR PROJECT FINANCING

Major security conditions of ICP to secure its loan are:

a)      First mortgage on all the present and future movable and immoveable properties of the project / company.

b)      First floating charge on other assets including current assets.

c)      Pledge entire shares of the project sponsors with the ICP.

d)     Deposit TFC as per arrangements of the trust deed.

e)      Deposit irrevocable general power of attorney in favour of ICP for each loan and financial assistance separately.

f)       Promissory notes.

Other Conditions

a)      Modify the memorandum and articles of association of the company where necessary.

b)      The management of the company has to obtain insurance policies from a first class insurance company approved by ICP.

c)      The management of the company has to obtain no objection certificate. “NOC” from the existing senior creditors.

d)     The company can sell his share and assets after obtaining ICP’s approval.

Operations Department Advice For The Borrower

a)      The borrower should first thoroughly understand ICP standard loan application form.

b)      The borrower should meet the dealing officer and find out ICP’s procedure regarding sanctions, disbursements and normal time involved in these activities.

c)      The borrower should fulfill ICP’s requirement of information, documents charges etc.

d)     The borrower should thoroughly read and understand the ICP’s sanction letter.

e)      The borrower should also find out from the dealing officers about the following:

·         Timings of the deposit of various fees / charges etc.

·         Issuance of ICP sanction letter.

·         Escrow account opening, its operation etc.

·         Pre-disbursement formalities.

·         Security conditions etc.

RECOVERIES OF LOANS

The Investment Corporation of ICP has stopped project financing since July 1994. After that the corporation stopped up its effort for recoveries of its outstanding loans and finances. A special task force has been constituted, monitoring department has been reorganized and the process of recovery has been decentralized. This has resulted in achieving a significant increase in recoveries. The corporation has recovered RS. 271.9 million in 1995-96 and RS. 360.5 million in 1996-97. So, this shows an increase of 32.6% in 1996-97 as compared to 1995-96.

During the 1996-97, a good number of stuck up either projects having large exposure have either been settled fully or have been rescheduled / restructured after receiving substantial down payment form the borrower. This has increased the recovery of dues / overdue on the one end on the other, which caused very positive effect on the financial statements ICP for the year 199697.

Recovery Of Loans In Default

Regarding loans in default, the state bank of Pakistan offered an incentive scheme to loan defaulters on June 5, 1997. The objective of this incentive scheme is to retrieve maximum possible rupee component in the shortest possible time for the revival of economy.

Under the Incentive scheme, all the defaulters have been provided opportunity to made full and final settlement of their outstanding liabilities by repayment and per incentive provided i.e.