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Pakistan's Stock Market Crisis: Why Major Firms Are Fleeing the PSX

Major companies are increasingly delisting from the Pakistan Stock Exchange, creating serious concerns about market efficiency. This trend began when Pakistan eliminated tax advantages that originally attracted firms to go public. Many family-owned businesses now prefer operating privately without public shareholders and regulatory oversight. The exodus includes prominent names like Gillette and Philip Morris, highlighting a broader market challenge.

Key Points: Pakistan Stock Exchange Delisting Erodes Price Discovery

  • Pakistan removed 5% tax advantage for listed companies that attracted firms in 1980s
  • Most listed companies tightly held with sponsors owning 90-95% of shares
  • Delisting limits regulatory scrutiny and allows operation in Pakistan's grey economy
  • Multinationals prefer booking profits in lower-tax jurisdictions when not listed
2 min read

Delisting from Pakistan Stock Exchange erodes price discovery, competitiveness: Report

Major firms delisting from Pakistan Stock Exchange erode price discovery and competitiveness as tax advantages disappear, according to new financial report analysis.

"Once the tax break went away, many firms had little interest in public shareholders. - Ali Farid Khwaja, CEO of Oxford Frontier Capital"

New Delhi, Nov 26

The trend of major firms delisting from Pakistan Stock Exchange is eroding price discovery and competitive pressures in the country, a report has said.

Pakistan removed tax advantages to listed stocks and if tax rates remain high, more large companies may eventually consider leaving the stock market, a report from The Star said.

In the 1980s, Pakistan offered a five per cent tax advantage to firms that listed on the stock exchange which drew dozens of family-owned textile mills and others to the Pakistan Stock Exchange (PSX), the report cited Ali Farid Khwaja, CEO of Oxford Frontier Capital and Co-founder and Chairman of KTrade as saying.

"Once the tax break went away, many firms had little interest in public shareholders. They quietly bought back shares, shrank the free float and continued operating like private family businesses," he said.

In Pakistan, most listed companies are tightly held, with sponsors owning 90-95 per cent of shares, unlike global markets where 10-20 per cent is often sufficient.

Shield Corporation’s recent decision to delist from PSX followed moves by companies such as Gillette and Philip Morris, underscoring the trend.

Some delist simply because public ownership is insignificant. Philip Morris delisted because its free float was five per cent, small enough to make the listing meaningless while still inviting regulatory scrutiny.

Being listed in the stock exchange limits the ability to operate in the “grey zones” common in Pakistan’s largely undocumented economy and can make competition harder when non-listed peers are less constrained, the report said.

Multinationals often prefer to book profits in lower-tax jurisdictions, which is complicated once listed as shareholders question intercompany transactions, import pricing, margins and royalties.

Meanwhile, International Monetary Fund's (IMF) new 186-page report has again highlighted an uncomfortable reality: Pakistan’s economic troubles are mainly the result of internal weaknesses, not outside pressure.

The report says corruption, weak institutions, and powerful vested interests have pushed the country to the edge of economic collapse, according to Pakistan Observer website.

- IANS

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Reader Comments

S
Sarah B
The high sponsor ownership (90-95%) is concerning. In India, we've seen how better corporate governance and wider public participation can strengthen markets. Pakistan's corporate culture seems stuck in family-business mode.
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Priya S
The "grey zones" mention is telling. Companies prefer operating in shadows rather than being transparent. No wonder multinationals are leaving - who wants regulatory scrutiny when you can operate freely elsewhere? 🤔
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Arjun K
IMF report correctly points out internal weaknesses. Corruption and weak institutions hurt any economy. Hope Pakistan learns from this and implements reforms. Strong neighbors make for stronger regional economy. 🇮🇳🤝
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Michael C
When big names like Gillette and Philip Morris delist, it sends a strong negative signal to foreign investors. Pakistan's stock market credibility is taking serious hits. Recovery will need major policy changes.
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Nisha Z
The 5% free float making listing "meaningless" shows how shallow their market participation is. In comparison, Indian markets have much better retail participation and corporate governance standards. We should appreciate our regulatory framework more.

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