Dubious assertion: Axact’s billion-dollar claim unsubstantiated

SECP records indicate IT company’s authorised and paid-up share capital amounts to only Rs7m and Rs6m, respectively

KARACHI: Is Axact really a billion-dollar company? At least this is what its CEO has been claiming after the self-proclaimed ‘leading IT company of the world’ came under fire for allegedly selling fake academic degrees around the world.

But, like most statements, the company management has issued following the New York Times expose, the billion-dollar-company claim also remains largely unsubstantiated.

Pakistan is home to more than two dozen billion-dollar companies, but none of them belong to the IT sector, according to public records. More specifically, publicly available information about Axact suggests it is unlikely to be a part of that exclusive club.

In common parlance, a billion-dollar company is one whose annual revenue exceeds Rs100 billion. Typically, companies go for public listings as they grow big mainly because sponsors want ‘price discovery’ before cashing out their initial investments.

This did not happen in Axact’s case and the company is privately held to this day, with 99.9% shares resting with a dubious holding company registered under the name of Axact FC LLC in the Middle East.

The Securities and Exchange Commission of Pakistan (SECP), the apex regulator of the corporate sector in the country, makes it mandatory for even an unlisted company to submit its annual audited financial accounts, including the profit-and-loss statement, in case its paid-up share capital is Rs7.5 million or above.

But an inspection of the company’s regulatory filings with the SECP revealed that the authorised and paid-up share capital of Axact are only Rs7 million and Rs6 million, respectively. This means Axact is not required to submit audited financial statements to the SECP under the current regulations.

The rationale behind this law is that the regulator does not want to burden small companies with excessive compliance costs. As such, companies set up with less than Rs7.5 million of paid-up share capital are considered to be modestly capitalised and are exempted from filing audited financial statements to the SECP.

So while it is perfectly legal for a small company to generate huge revenues, Shaikh’s claim that he sits atop a billion-dollar company sounds incredulous.

Furthermore, one would expect Shaikh to be well-off personally after building such a successful enterprise as CEO since its incorporation in 2006. But taxpayers’ records released by the Federal Board of Revenue (FBR) state the long-serving CEO of the ‘billion-dollar company’ paid income tax of only Rs26 and Rs22 in the last two fiscal years, respectively.

Furthermore, the income tax paid by the ‘world’s leading IT company’ itself was less than Rs1.9 million in the last fiscal year.

Published in The Express Tribune, May 24^th, 2015.