The State Bank of Pakistan (SBP) has introduced a new mechanism to enable companies in Pakistan to conveniently remit out disinvestment proceeds to their foreign shareholders.
In a statement issued on Tuesday, the central bank said the objective of this initiative is to make Pakistan an attractive place for investment by increasing investors’ confidence and supporting ease of doing business.
“The new mechanism also incorporates feedback received from investors and other stakeholders,” it said.
Under the new mechanism, the bank designated by a 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 the central bank.
“The number of required documents would be as per the size of the transaction,” the statement added.
However, according to the previous mechanism, the designated bank required prior approval of the State Bank for the remittance of disinvestment proceeds above market value, for listed securities and, above breakup value, for unlisted securities. This requirement caused numerous constraints for investors.
The statement highlighted that for disinvestment proceeds not exceeding the market value/ breakup value, the required documents would include a copy of share purchase agreement, broker’s memo in case of quoted shares/ breakup value certificate of a QCR-rated practising 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.
Meanwhile, for disinvestment proceeds exceeding the market value/ breakup value, the additional required documents would include a detailed valuation/ transaction due diligence by the buyer showing the 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 shall also submit an independent review of the buyer’s valuation, from a QCR-rated practising chartered accountant, that shall be assessed by the designated bank without sending it to the SBP.
“This initiative of the State Bank will increase investors’ confidence and will facilitate local companies, in particular start-ups, to attract more foreign investment for their businesses,” the central bank said.
Published in The Express Tribune, October 28th, 2020.
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