KARACHI: Pakistan on Tuesday introduced a new framework to ease investment exit rules for venture capital firms and foreign direct investors, who dither investing in the country with disinvestment...
KARACHI: Pakistan on Tuesday introduced a new framework to ease investment exit rules for venture capital firms and foreign direct investors, who dither investing in the country with disinvestment constraints.
The State Bank of Pakistan (SBP) introduced the new mechanism to enable companies in Pakistan to conveniently remit out disinvestment proceeds to their foreign shareholders.
“The goal of this initiative is to make Pakistan a more attractive place for investment by increasing investors’ confidence and support ease of doing business,” the SBP said in a statement.
“This initiative of the State Bank will increase the investors’ confidence and would facilitate the local companies in particular the start-ups to attract more foreign investment for their businesses.”
Mohammad Sohail, the chief executive officer of Topline Securities said foreign investors can take out money with ease now in Pakistan without the central bank’s permission.
“(This) will help in restoring foreign investors’ confidence,” Sohail said in a message on the tweeter. “More such steps (are) needed to increase investment in Pakistan.”
The country has received a growing response from venture capital firms in budding tech ecosystem amid social distancing restrictions related to COVID-19. Alone in the first six months of 2020, the country secured $18 million, according to an estimate.
Although the amount is small compared to the inflows in other countries and is even equivalent to the investment in a single firm, the interest of foreign investors demonstrate the potential that needs resources to unravel.
Usually, the exit is not easy for tech investors who prefer infrastructure setup outside Pakistan to avert problems they may face in the country at the time of offloading equity.
Under the previous mechanism, a designated bank required prior approval of the State Bank 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,” said the SBP.
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 will be in accordance with the size of the transaction.
There are two alternative sets of documents required for disinvestment proceeds exceeding or not exceeding the market value / break-up value.
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 (or equivalent in other currencies) during a span of six months, the applicant will also submit an independent review of the buyer’s valuation, from a chartered accountant that will be assessed by the designated bank without needing to send to the SBP.
For disinvestment proceeds not exceeding the market value / break-up value, the required documents will now include copy of share purchase agreement, broker’s memo in case of quoted shares/break-up value certificate of a 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.