Investment Corporation of Pakistan Introduction: The Investment Corporation of Pakistan (ICP) was established through an ordinance passed by Pakistan National Assembly in February 1966. It was established as a development financial of the Government. ICP came in to being as a result of the advice of Professor Louis Loss from Harvard engaged as a consultant by the Government of Pakistan. With the nationalization of the banks and Insurance, ICP was brought within the formal ambit of public sector. Its major interest was to support the development of the capital market in Pakistan. ICP was established for small and medium investors to make investment in the different scheme of ICP. Up to 1994 the overall performance of ICP was excellent. But after 1994 has stopped project- financing SBP was not ready to extend credit line. Because of depressed and bearish market condition and trends overall performance of ICP is not well / satisfactory over the last three or four years. History: WHY ICP WAS ESTALISHED? During the second five-year plan (1960-65) investors lost their confidence. In the regime of Gen. Auyb Khan 1965 Government was working on the Green Revolution at the same time it was also thought that Pakistan also needed a support of industrial infrastructure therefore the Government of Pakistan invited Professor Louis Loss from Harvard University to investigate the real causes of the lack of depth in the capital market. He found that there was merchandising mechanism o shares and debentures for reaching upper middle class and middle class of people whose number were increasing. Thus he suggested that there should be an organized investment banking institution for strengthening the capital market. In the middle of 1965 the organized a committee of officials for further examined the situation. The committee observed that existing pattern of share holding was such that 75% of shares of most companies listed on stock exchange were held by only 19 person, 20% shares were held by institutional investors including NIT and remaining 5% shares were in hands of public. The committee also mentioned that underwriting function performed by the existing institution were inadequate to meet the growing demand for understanding by the industries. ESTABLISHMENT OF ICP According to the recommendations of the committee the Investment Corporation of Pakistan was established by a presidential ordinance on February 22, 1966. Objective of ICP The Ultimate Objective of Investment Corporation of Pakistan is to strengthen the Economy of Pakistan. The objectives for the establishment of corporation as given in the ordinance are: 1. To encourage and broaden the base of investments. 2. To develop the capital market through: Underwriting Investment equity Secondary market operations 3. To mobilize the savings through 4. Individual/institutional investors 5. Mutual funds 6. To promote industrial development in Pakistan. 7. To provide professional counseling. 8. To speedup economical growth in Pakistan. Buying and selling shares on the stock market with a view to provide strength to the stock exchange and help in maintaining stability in the shares value. Functions of ICP At present the corporation is performing the following functions in order to fulfill its objectives: Investment Accounts ICP opens and maintains investment account with a view to broadening the base of share ownership in the country. Underwriting The corporation through its underwriting operations are significantly contributed towards encountering sponsors to offer their shares to the public for subscriptions particularly in its initial years when sponsors were finding it difficult to raise money from the market. Equity Investment ICP also is providing financial assistance to the institutions by using equity investments. Mutual Funds ICP is floating and managing close-end mutual funds for providing benefit of pooled investment to investor, since 1967, the corporation has floated 26 mutual funds including State Enterprise Mutual Fund (SEME). Term Deposit Account ICP also open and maintain Term Deposit Account. The corporation accepts deposits for a period of one year to a maximum period of five years at different rates of profits. Maintaining Portfolios ICP is maintaining three types of portfolios 1. Investor’s portfolio 2. Mutual fund’s portfolio 3. ICP’S own investment portfolio. Resources of ICP The resources of corporation consist pf its authorized capital, Paid-up Capital, long term loans, funds raised through issues, debentures deposit scheme, mutual funds etc. As on June 30th, 1999 Authorized capital: Rs. 200.00 million Issued subscribed and Paid-up Capita: Rs. 200.00 million Long-term loans and financing: Rs. 2,436.oo million Borrowing Power 1. With the prior approval of central government, the corporation may for its purpose, raise finance by A. Issue and sale of bonds and debentures carrying interest at such rates as may be approved by the central government. B. Borrowing moneys from commercial banks and other institutions and sources with or without the pledge of shares held in its portfolios 2. The bonds and the debentures of corporation may be guaranteed by the central government as to repayment of the principal amount and payment of interest at such rates as fixed by the central government at the time bonds and debentures are issued. ICP Investment Portfolio Classified By Groups No. Of Holding as at 30-06-98 Holding as at 30-06-99 Groups Percent of Percent of Companies Total Cost Total Cost Covered Mutual Funds - 667,236 22.0 667,468 23.1 Banks, financial Institutions - 249,052 8.9 249,052 8.0 Federal Inv. Bonds - 546,328 13.6 546,328 14.5 Cotton textile 155 373,089 13.3 373,089 12.5 Woolen textiles 6 1,133 0.1 1,133 0 .0 Synthesis and rayon 16 72,872 2.8 72,872 2 .4 Jute 8 7,956 0.4 7,956 0.2 Sugar and allied 27 73,680 2.6 73,680 2.3 Cement 14 121,082 4.3 121,082 4.1 Tobacco 627 0.0 627 0.0 4 Fuel and energy 453,630 13.6 453,630 15.8 23 Engineering and construction 11,924 0.4 11,924 0.4 39 Auto Allied engineering 52,806 1.9 52,806 1.7 - Cables and electrical goods 13,550 0.5 13,550 0.4 - Transport and communication 36,649 1.1 36,649 0.9 4 Chemicals and pharmaceutical 208,482 7.6 208,482 8.5 35 Paper and board 48,150 1.1 48,150 1.6 12 Vanaspati and allied 12,832 0.5 12,832 0.4 9 Leather and tanneries - 7,020 0.2 7,020 0.2 Food and allied - 8,537 1.9 8,537 0.3 Glass and ceramics - 15,256 0.6 15,256 0.5 Miscellaneous 49 65,154 2.6 65,154 2.2 Total 401 3,047,045 100.0 2,892,029 100.0 Authorized Business Of ICP ICP opens and will maintain Investors’ Deposit Accounts. ICP purchases and sells shares to and from Investors over the counter. ICP is engaged in the business of debentures and disclosing of debentures. ICP is authorized to issue ICP Mutual Funds. ICP manages investment portfolios on behalf of individuals or institutions. ICP provides professional counsel regarding investments ICP promotes industrial development in Pakistan. ICP is a member of Stock Exchange in Pakistan. ICP is acting as an agent in matters relating to investment in securities. ICP is performing the function of under managing and distributing the issue of stocks shares, bonds, debentures and other securities either directly or through or jointly with one or more of its constituent institution or other investment or financial institution. ICP can sell and realize all property whether movable or immovable, which may in any way come into possession of the corporation in satisfaction of its claims. ICP acts as trustees in respect of ICP Mutual Funds and any debentures, debenture’s stock or other securities or obligation and to execute any trusts. PROCESS OF ISLAMIZATION OF ICP’S OPERATIONS The process of Islamization of ICP’S operations commenced in July 1979 when the investments of all ICP Mutual Funds were made entirely in non-interest bearing securities. The financing operations were also Islamized by the introduction, from January 1,1981, of a new investment of financing called the participation term certificates (PTC’S) through which short term and long term funds are provided to Industrial Projects. Following the Islamization of ICP ‘S operations, investors deposit scheme is also working on the interest free basis. By opening a sharing / non-sharing account in ICP, an investor gets profit / return on his investment portfolio. There is no concept of interest in sharing / non-sharing scheme / accounts was introduced after Islamization of ICP’S operations. The term deposit scheme of ICP ensures regular income to the investor with handsome rates of profit and this scheme is also free from the element of interest. Branches of ICP The head office of ICP is in Karachi. The corporation had established ten branches of ICP in: 1. Karachi 2. Lahore 3. Rawalpindi 4. Islamabad 5. Peshawar 6. Quetta 7. Faisalabad 8. Multan 9. Hyderabad 10. Sukkar The corporation has closed its seven branches out ten branches because of depressed market conditions and loss. Now only three branches are running that are situated in: 1. Lahore 2. Islamabad 3. Karachi The accounts of closed branches are transferred in these three branches and they are dealing in these accounts. Part II MANAGEMENT SYSTEM 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. Mirza Khurshid Baig Secretary-ICP SENIOR MANAGEMENT Managing Director: Mr. Asadullah Khawaja Deputy Managing Director: Mr. Behram Hasan Executive Vice President: Mr. Abdul Latif Uqaili Portfolio Wise Organization Chart 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 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. Maintains separate registers for Head officer sale Head office purchase Local sale Local purchase Recording of confirmation of sale / purchase orders. Recording of cancellation of sale / purchase orders. Recording of debt and credit vouchers against purchase and sale orders. 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 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. The process starts when investment officer makes sale / purchase orders either local of head office and precedes it to the transaction officer. The orders then come to computer operator for entering in computer. 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. The account department precedes this process to head office computer department, which completes the transaction and sends back to the ICP Lahore branch. 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 30th 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 1st 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 1st 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: Acquisition of shares and securities by subscription by original or right issue. Sale of shares and securities. Transfer of shares and securities. Collection of benefit including dividend and bonus. Registrations of Shares and securities. Purchases of shares and securities. 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 ICP receives an application about the withdrawal of shares from investor. Concerned investment officer checks investor’s holdings (account and shares). A requisition is prepared by the concerned investment officer The concerned investment officer and an officer of shares department jointly sign requisition. 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 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. 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. If there are three are more transaction in odd numbers, the middle price is taken as the matching price. 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: BIT (Branch Internal Transfer) 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 accountto 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): FOK order is suitable for a quick or urgent transaction. FOK order remains valid for three stock exchange working days from the date on which the order is placed with the stockbroker. FOK order is automatically cancelled on the expiry of three days. 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. ICP limit order is suitable for less urgent transaction. ICP limit order remains valid from seven calendar days from the days the order is placed with the stockbroker. Limit order is automatically cancelled on the expiry of seven days. 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 individualsmall 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: Professional management Diversification of managed portfolio Availability of diversified investment opportunities to common investors Collective sharing or profit Collective sharing of burden out of fund management Reduction in transaction cost 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 andannounces 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 MUTUAL PAID UP Year Face Mtd. Year of CAPITAL FUNDS CODE Ending Value Lot Listing (Rs. In Million) 1 st ICP Mutual ICP I June 10 500 50.000 1967 Fund ICP II June 10 500 2 nd ICP Mutual 50.000 1968 Fund ICP III 50.000 June 10 500 1969 3rd ICP Mutual ICP IV 50.000 June 10 500 1970 Fund ICP V June 10 500 4rth ICP Mutual 50.000 1972 fund ICP VI June 10 500 50.000 1973 5th ICP Mutual ICP VII June 10 500 50.000 1975 Fund ICP VIII June 10 500 50.000 1976 6th ICP Mutual Fund ICP IX June 10 500 50.000 1976 th 7 ICP Mutual ICP X June 10 500 Fund 50.000 1977 th ICP XI June 10 500 8 ICP Mutual 50.000 1978 Fund ICP XII June 10 500 th 50.000 1979 9 ICP Mutual Fund ICP XIII June 10 500 50.000 1982 10th ICP Mutual ICP XIV June 10 500 50.000 1983 Fund ICP XV June 10 500 th 50.000 1985 11 ICP Mutual Fund ICP XVI June 10 500 50.000 1986 12th ICP Mutual ICP June 10 500 50.000 1988 Fund XVII 50.000 June 10 500 1989 th 13 ICP Mutual ICP Fund XVIII 50.000 June 10 500 1990 14th ICP Mutual ICP XIX 50.000 June 10 500 1991 Fund ICP XX 100.000 June 10 500 1992 th 15 ICP Mutual Fund ICP XXI 200.000 June 10 500 1993 16th ICP Mutual ICP 200.000 June 10 500 1994 Fund XXII 400.000 June 10 500 1994 17th ICP Mutual ICP XXIII 400.000 June 10 500 1995 Fund 840.000 June 10 500 1980 18th ICP Mutual ICP Fund XXIV 19th ICP Mutual ICP Fund XXV SEMF 20th ICP Mutual fund 21st ICP Mutual Fund 22nd ICP Mutual Fund 23rd ICP Mutual Fund 24rth ICP Mutual Fund 25th ICP Mutual Fund ICP SEMF 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 MUTUAL 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 FUNDS % % % % % % st - 1 ICP Mutual 50 40 40 15 15 Fund 50 35 10 2 nd ICP Mutual 55 12 18 Fund 25 35 15 35 13 13 3rd ICP Mutual 50 90 20 Fund 40 45 35 - 60 55 25 10 10 4rth ICP Mutual fund 20 60 70 50 33 25 5th ICP Mutual 10 40 35 25 15 10 Fund 35 65 100 100 50 30 6th ICP Mutual 50 Fund 65 80 100 45 80 7 th ICP Mutual 10 60 65 40 25 20 Fund 15 8 th ICP Mutual 40 70 40 25 18 Fund 15 65 70 35 30 30 th 9 ICP Mutual Fund 25 45 65 70 40 40 10th ICP Mutual 10 30 40 25 20 18 Fund - 25 30 15 12 15 th - 11 ICP Mutual - Fund 18 18 12.5 12.5 12.5 - 12th ICP Mutual 20 25 14 14 14 Fund 10 - 18 16 17 10 13th ICP Mutual 10 40 Fund 17 18 20 10 - 18 14th ICP Mutual 18 10 20 10 - Fund - - - 16 13 - - 15th ICP Mutual 10 - - 16 15 Fund - - - - - - - 16th ICP Mutual - - - - 18 Fund - - 8 - - th 17 ICP Mutual 25 65 Fund 100 65 60 18th ICP Mutual Fund 19th ICP Mutual Fund 20th ICP Mutual fund 21st ICP Mutual Fund 22nd ICP Mutual Fund 23rd ICP Mutual Fund 24rth ICP Mutual Fund 25th ICP Mutual Fund ICP SEMF 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 12th 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: Financial Assistance Requested Processing Charges Upto RS. 5.000 million RS. 10,000/- From RS. 5.001 million to 10.000 million RS. 15,000/- From RS. 10.001 million to 20.000 million RS. 20,000/- From RS. 20.001 million to 50.000 million RS. 25,000/- From RS. 50.001 million to 75.000 million RS. 30,000/- From RS. 75.001 million to 100.000 million RS. 35,000/- Over RS. 100.000 million RS. 50,000/- 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. Period of default Incentives i. 7 Years and above Principal + 5% of the principal amount ii. 3 Yeas or more but less than 7 years Principal + 20% of the principal amount iii. One year or more but less than 3 years Principal + 40% of the principal amount (OR 75% of the accrued mark up Investor Account Services What is Central Depository System? Central Depository System is an electronic book entry system to record and transfer securities (such as shares; TFCs etc) electronic book entry means that the securities do not physically change hands – the transfer of securities from one party’s account to another is completed electronically. Central Depository System is maintained by Central Depository Company of Pakistan Limited. What is The Difference Between Settlement and Trading? Trading is the selling Trading is selling and buying securities through a stick broker, whereas settlement is the delivery of the securities bought and sold. The central depository system only settles securities electronically. In other words, you would continue to trade through a broker but the delivery of securities will be made through the Central Depository System. Why was CDS needed? The following problems prevailed in the old system: Lengthy delays in delivery, settlement and transfer of securities. Tedious procedure of verification of securities & transfer deeds. Considerable time involved in dispatching and issuing cash dividend and bonus securities. Serious problems associated with physical custody. Tedious procedures involved in pledging of physical securities. Central Depository System, by converting physical securities into electronic securities, has eliminated the risk of damaged, lost, forged and duplicate securities. The instantaneous delivery through electronic book entry has resulted in immediate transfer of ownership, which previously took almost 45 days. CDS has also reduced the cost of investors significantly. What is Investor Account Service (IAS)? Investor Account Service offered by Central Depository Company of Pakistan Limited allows investor to directly open and maintain accounts in Central Depository System for electronic settlement of securities. Earlier, to settle the securities through Central Depository System investor has to open client accounts (sub accounts) or group accounts with participants (brokers, financial institutions). Now with Investor Account Service, investor can also have direct access to CDC. What Are Benefits of Investor Account Service (IAS)? Operational Review Investor’s Scheme: The investor scheme was introduced in 1967 in Pakistan the corporation’s investor’s scheme has been very successful in fulfilling the objective of broadening the base of investment. In order to provide an incentive to small and medium investor for providing marginal loans. The credit facilities extended to investment account holders were provided at consessional rates in the ratio 3:1 in initial years and 2:1 thereafter. In 1980, ICP introduced two types of investment accounts, which are: i. Sharing account ii. Non-sharing accounts Since 1967, the corporation through this scheme attracted thousands of new investors to make investment in shares of listed companies. The numbers of investment accounts being maintained by the corporation are over 17000. Salaried persons, professionals and middle class businessmen have opened most of these accounts. The corporation has mobilized sizeable funds for investment on the stock market through its investor’s scheme and the portfolio under the ICP investors scheme amounted to over RS. 1 billion at cost on June 30, 1997. FINANCING OPERATIONS The corporation was also providing financial assistance to sponsors for meeting their local currency requirements in establishment of industrial projects. The financial assistance for project financing was arranged through term finance certificates (TFCs) while funds for purchase of locally manufactured machinery (LMM) were provided under state bank of Pakistan’s sponsored scheme. The total financial assistance approved by ICP along with consortium members amounted to RS. 12.8 billion, of which ICP’S commitments stood at 5.0 billion including: RS. 2.3 billion against share issues RS. 0.7 billion for PTCs / TFCs RS. 0.5 billion for debentures RS. 1.5 billion for financing of purchase of locally manufactured machinery. The financial assistance approved by the corporation was provided to all-important sectors of the economy. But since July 1994 the corporation after in depth analysis of its activities and under the instructions of the government has stopped project financing. UNDERWRITING The corporation through its underwriting operations has significantly contributed towards encouraging sponsors of offer their shares to the public for subscriptions particularly in its initial years when new sponsors were finding it difficult to raise money from the market. The corporation till June 30, 1997 has approved applications of RS. 4.6 billion for underwriting of public issues of shares of which ICP’S commitment amounted to over RS. 2.8 billion. More then 100 companies have been listed on the stock exchanges in the country through ICP’S underwriting support, thus contributing in increasing the number of listings. During the year 1996-97 the corporation received only one application of RS. 560.0 million for underwriting compared to 11 applications for an amount of RS. 1146.7 million received in the preceding year. The corporation approved an application of RS. 560.00 million for underwriting as against 8 applications approved in the preceding year. The decline in the requests for underwriting assistance in 1996-97 is because of the depressed stock market. ICP MUTUAL FUNDS The ICP introduced closed end mutual fund in Pakistan. These funds, which provide excellent opportunities for pooled investment, have been very successful in broadening the base of investments. First ICP mutual fund was floated in June 1967. So far the corporation has floated 26 closed-end mutual funds including one state enterprise mutual fund (SEMF). Despite unfavorable stock market conditions for the last several years, the corporation has declared dividend on its funds, which voiced from 10-80 percent. The overall return for the year 1996-97 ranged from 10 percent to 65 percent. The overall performance of ICP mutual funds has been excellent compared to the excellent rates of dividend payments on mutual funds in previous years. ICP has earned a number of awards and has received KSE top companies awards for 10 funds in 1993 13 funds in 1994 13 funds in 1995 TERM DEPOSIT ACCOUNTS’ SCHEME The corporation has also introduced term deposit account ensures regular income with handsome rates of profit. The minimum deposit for opening the term deposit account is RS. 50,000. The total deposit mobilized under this scheme stood at RS. 773.7 million on June 30, 1997. The corporation accepts deposits for a period of one year, to a maximum period of five years at different rates of profit. The finds of the term deposit accounts are invested only under Islamic modes of financing. The profit earned and distributed would be completely free from the element of interest. INVESTMENT PORTFOLIO The investment portfolio managed by the corporation consist of: Shares acquired through underwriting take-ups Shares purchased from the market The portfolio is maintained in such a manner that it fulfils the twin objectives of providing strength to the stock market and become a major source of income for the corporation. Unfortunately, the corporation’s income from capital gains was badly affected due to bearish conditions on the stock market. The income from capital gains was Rs. 18.8 million only in 1996-97 as compared to RS. 410.4 million in the preceding year. So, the profitability of the corporation in 1996-97 has been badly affected and the investment portfolio has suffered depreciation. The total investment in the portfolio in listed shares and government bonds stood at RS. 2.8 billion on June 30, 1997. The major holdings in the portfolio were in the shares of: Mutual funds Fuel & energy Federal investment bonds (FIBs) Cotton textiles Banks Financial institutions Chemicals & pharmaceuticals group These sectors together accounted over 79 percent of the total investments on June 30, 1997. The purchases and sales of shares for ICP’S investment portfolio mutual funds and on behalf of investment accountholders have been contributing significantly towards maintaining activity on the stock market. But ICP’S share in transactions on the market remained around one percent of the total turnover on the Karachi stock exchange in 1996-97. DISBURSEMENTS OF LOANS The corporation has stopped project financing since July 1994 due to depressed market conditions and due to instructions of government to stop project financing. After the July 1994, the disbursements are being made in cases, which were approved before July 1994. In 1995-96 corporation has disbursed an amount of RS. 27.0 million for six applications. In 1996-97 corporation has disbursed an amount of RS. 4.0 million only for one project in respect of locally manufactured machinery. RECOVERIES OF OUTSTANDING LOANS The corporation stepped up its efforts for recoveries of its outstanding loans / finances. A special task force has been constituted, reorganized and the process of recovery has been decentralized. This has resulted in achieving a significant increase in recoveries, which amounted RS. 360.5 million compared to RS. 271.9 million in 1995-96. This shows an increase of 32.6% over the preceding year. PRINCIPAL GUARANTEED INVESTMENT SCHEME ICP has played a pioneering role by launching this scheme for the investors in Pakistan. This scheme was for the medium size investor. This scheme was launched on the 5th August 1993 and is popularly known as “PRISM 96” The subscription was closed on November 30, 1993. MAIN FEATURES OF SCHEME Minimum investment RS. 200,000/- Extent of risk Principal guaranteed Duration of scheme Three years Expected return In the range of 15% and 25% per annum Loan facilities Subscriber will be entitled to avail a loan against his investment at 30% margin at prevailing market rates of mark-up to be announced by ICP on quarterly basis. If the rate of ICP market-up is not acceptable to subscriber then he shall be free to avail loan from any other bank on the basis of guarantee issued by ICP to the extent of 70% of the principal amount invested. The principal amount invested could also be used as collateral for projects both in ICP as well as any other institution. Collateral Withdrawal facilities would be available only after completion of one year. Withdrawal facilities The final account of the scheme will be prepared on November 30, 1996 when the principal along with profit earned on the investment will be distributed among the investors. This scheme was closed by the ICP because of crisis in the stock market. CENTRAL DEPOSITORY SYSTEM What is CDS? Central Depository System (CDS) managed by the CDC, is an electronic book entry system which records all securities transactions without any physical movement of certificates or transfer deeds thus obviating the need for counting verification and transportation of countless certificates. The centre is equipped with the most modern computers connected to CDS network through telephones and modems. A team of highly skilled and dedicated professionals is responsible for performing operational activities at the center ICP AND CDS ICP has the honor to be among the sponsors of Central Depository Company (CDC) of Pakistan and led in the enlistment of its 26 mutual funds with the CDC. BENEFITS OF ICP’S CDS BASED CUSTODIAL SERVICE ICP’S CDS based custodial services center offers the following benefits: No transfer deeds required, thus no transfer fee No physical handling of stocks Lower charge as compared to open market rates. No procedural bottlenecks Provide timely, effective custodial service to institution and retail level investors from Pakistan and abroad. PART – X CONCLUSION AND RECOMMENDATIONS CONCLUSIONS UNNECESSARY CENTRALIZATION There is unnecessary centralization of authority with the head office. Even branch managers are also helpless to decide upon ordinary matters. Because of this centralization, ordinary matters take a long time to be solved. So, I suggest that AVP/manager of branch to come out of the responsibilities so that he can perform his duties efficiently. LACK OF PROFESSIONAL SKILL There is lack of professional skill in the staff of ICP. So, ICP should arrange training programs for their employees about their jobs. ICP should also arrange different refresher courses about the investment. Management and finance for its staff. OLD RULES AND REGULATIONS The staffs of ICP Lahore branch are working according to the old rules and regulations. My suggestion is that ICP should change its infrastructure and rules and regulations according to current market trends. ICP has no brokerage house in the stock market. So it cannot play major role in changing the market trend. Selection of most of the employees of ICP Lahore branch is not based on merit. Most of the employees of ICP Lahore branch know only about their branch work. They have no knowledge about other operations of ICP that are performed in the Head Office Karachi. Project Financing is the major function of ICP but ICP has stopped it because of the lack of funds. ICP Lahore branch is not taking the advantages of computer technology. ICP is not using advertising campaign to introduce its products in the market. RECOMMENDATIONS As ICP has a large share in stock market it has ability to change market trends through its own portfolio. So, it should be given brokerage house in the stock market. SELECTION OF EMPLOYEES Selection of employees of ICP should be based on merits and certain qualification. So, that right person fills the right job. REVISION OF INVESTOR’S SCHEME ICP’S investor scheme is not going well. So, I suggest that ICP should revise its investor scheme with good incentives to investor’s scheme. RE-CONTINUE FINANCING SCHEME Before 1994, financing was a profitable operation of ICP. But the corporation has stopped project financing since July 1994 because state bank of Pakistan is not read to provide further credit line to ICP. The suggestion is that ICP needs more investments and funds to survive. So SBP should provide credit line to ICP for investment in new projects. EMPLOYEES INCENTIVE PLANS The corporation should provide more opportunities to their employees to rise. Employees should be given credit and incentives according to their performance and abilities. Management of ICP should arrange different lectures for its staff from time to time about current market trends and situations. Management of ICP should adopt this policy hat all the officers should be give chance to work in all departments of a branch. COMPUTER BASED SYSTEM Although ICP Lahore branch has been introduced computer but still most work is done manually. The suggestion is that most work should be done on computer so there will no / few chance of errors. INTRODUCTION OF NEW PRODUCTS ICP should introduce new products, ore mutual funds to avail the low price market opportunities and mobilize general public to make investment through mutual funds and other products. ADVERTISING There is a great need of large advertising and publicity campaign to attract more people to invest in ICP and it will help ICP in attaining its objectives and perform its functions. Unnecessary centralization of ICP branches should remove so that to some extent they can work independently and it will result to increase their performance. WORK DONE IN ICP The details of the new work that I have done in ICP during my internship period are given below: INVESTMENT DEPARTMENT I started my internship from investment department. During my period in the sharing department, I have posted sales, purchase, debit and credit vouchers in their particular registers. I have also prepared list for sale and purchase of share from different sharing accounts. ADMINISTRATION DEPARTMENT In administration department, I have prepared different drafts and some vouchers about payment and receipt of cash. Transaction And Shares Department Work done by me in T&S department is about: Posting of sale and purchase orders Posting of credit and debit vouchers Posting of confirmation and cancellation of purchase and sale order in their particular registers. Accounts Department I did a lot of work in account department including: Posting of debit credit vouchers and petty cash vouchers in their particular registers. Prepare cheques Posting of cheques received and issued in the cheque received and issued registers. Prepare different debit and credit vouchers Filing of vouchers Numbering of vouchers Prepare list of salaries of the staff of ICP From salary, deduct monthly installments for house allowance. Vehicle allowance rain allowance, emergency allowance and prepare list of all installments. Reconciliation of the bank statements and the branch books. Prepare bonus list for staff.