PSX separates real-estate assets from core business

The Pakistan Stock Exchange (PSX) has advanced work on separating its core business of facilitating trade activities and real-estate assets under its management, to better manage the two businesses and improve earnings from both of them.

In a notification issued on Tuesday, PSX said that its board of directors has authorised it to enter into an arrangement with PSX Financial Centre – a wholly owned subsidiary of PSX – to demerge into two separate segments i.e. Demerged Undertaking (real-estate assets) and Continuing Undertaking (exchange operations).

PSX Financial will manage the real-estate assets, while PSX will retain the exchange operation segment, according to the notification. Later, PSX Financials’ shares will be allotted to PSX and its profit and loss will reflect into PSX profit and loss accounts.

The latest financial statement suggests that the stock market’s gross earnings from core exchange operations has dropped slightly, while rental income from investment in property improved in the six months ended December 31, 2022.

PSX officials told The Express Tribune that the real-estate assets are partially lying underutilised. The subsidiary will help develop the real-estate business, rent it out and increase earnings, going forward. At the same time, the separation of core exchange operations will enable the existing management to pay more attention toward trade activities, increase the number of investors, improve turnaround, and increase the number of investors at PSX.

The PSX Annual Report (2022) said that management is conscious of the difficult business environment and is focused on effective cost management. Total operating expenses of the PSX for FY 2021-22 amounted to Rs1.42 billion versus Rs1.37 billion in the comparative year. “Excluding the impact of depreciation on real-estate, due to a change in the accounting policy, expenses increased broadly in line with the rate of inflation.”

PSX share’s price increased 1.90%, or Rs0.14, to Rs7.50 with a meagre volume of 28,000 shares on Tuesday.

The notification added that the demerger shall be effectuated and carried out in accordance with the terms of a Scheme of Arrangement, prepared under the provisions of the Companies Act 2017.

The draft has been approved by the PSX board, subject to finalisation by authorised representatives of PSX, obtaining the approval of the Securities and Exchange Commission of Pakistan (SECP), the approval of the requisite majority of the respective members of the company, and sanctioned by the Scheme of Arrangement of the High Court of Sindh in Karachi, along with the fulfilment of related legal formalities.

PSX officials said they have continued to separate different operations to improve their working. In the near past, they had separated the stock market clearing and settlement business; creating the National Clearing Company of Pakistan Limited (NCCPL) and Central Depository Company (CDC) to improve functions.

PSX financials

The PSX profit and loss account states its gross rental income from investment property has improved 15% to Rs31.83 million in six months period ended December 31, 2022, compared to Rs27.67 million in the same period of the last year.

On the other hand, gross income from exchange operations dropped 21% to Rs268.12 million in the six months period under review, compared to Rs339.58 million in the corresponding period of the last year.

PSX net earnings (profit after tax) dropped 42% to Rs158.38 million during July-December 2022, compared to Rs272.36 million in the same six months of the previous year. The share of profit from associates at Rs178.85 million helped PSX remain profitable during July-December 2022. The share of profit from associates, however, declined significantly to Rs178.85 million in the six-month period, compared to Rs327.08 million in the same period last year.

PSX gross revenue – listing fee, income from exchange operations, interest income and rental income from investment property – slipped to Rs729.30 million compared to Rs749.75 million.

Its net income decreased due to a reduction in gross revenue, and increase in operating costs to Rs786.03 million in the period, compared to Rs696.27 million in the corresponding period of the last year. Other expenses reduced slightly to Rs21.69 million compared to Rs25.33 million last year.

Published in The Express Tribune, February 22^nd, 2023.

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