Foreign investment: Repatriation of profits stronger and higher

Amount repatriated as profits/dividends far exceeds the net foreign direct investment in first eight months of 2013-14

KARACHI:

Total repatriation of profits on foreign investments amounted to $728 million in the first eight months of 2013-14, up 32.8% from the corresponding period of the preceding fiscal year, according to data released by the State Bank of Pakistan (SBP).

In February alone, the repatriation of profit from companies operating in Pakistan to their stakeholders based in foreign countries amounted to $124.5 million, up a massive 214.4% from the repatriation of $39.6 million recorded in February 2013.

It should be noted that the amount repatriated as profits/dividends in the first eight months of 2013-14 far exceeds the net foreign direct investment (FDI) that the country received over the same period. FDI amounted to $606.3 million in July-February, which is roughly 83.3% of the profits repatriated during the same period.

Similarly, net FDI during February was $79.2 million as opposed to the profit repatriation of $124.5 million in the same month.

A major chunk of total repatriation came from the payment of profit on FDI as opposed to foreign portfolio investment (FPI). Out of the total repatriation of $728 million, profits on FDI constituted about 82.9%, or $604 million, during the eight-month period.

In order to encourage investment in the country, the government allows 100% foreign ownership of businesses and unrestricted repatriation of profits.

The repatriated profits of the thermal power sector in July-February were $122.7 million, up 167.9% from the corresponding figure recorded in the comparable period of the last fiscal year. Similarly, the oil and gas exploration sector repatriated a total of $91.3 million in July-February, which was 140.2% higher than the corresponding eight-month period of 2012-13.

Other sectors that recorded substantial repatriations in the eight-month period were petroleum refining ($59.8 million), food ($51 million) and transport ($36 million).

However, financial businesses repatriated the largest amount to their stakeholders in foreign countries in the first eight months of 2013-14. With the payment of $162.1 million profits in July-February, the year-on-year increase in the repatriated amount for financial businesses remained 22.3%.

The increase in the repatriation of profits can be in the form of either dividends or liquidation of foreign holding.

Speaking to The Express Tribune, Sherman Securities Head of Research Farhan Mahmood said the higher level of profit repatriation in the financial sector should be attributed to the dilution of foreign holding in a few banking-sector companies.

He said a major foreign fund liquated its substantial stake from Faysal Bank in the first half of 2013-14, which substantially increased the overall repatriation level in the first eight months of the current fiscal year.

“Growth in the repatriation of profits is good if it is achieved by higher corporate earnings and increased dividends. It reflects international investors’ confidence in the country’s economy and its prospects in the long run,” he said.

Mahmood added that although core earnings of Pakistani banks with foreign holdings were modest in 2013, their top lines remained stable due to reduced provisioning against non-performing loans. “This resulted in attractive dividend payouts and increased profit repatriation,” he said.

Published in The Express Tribune, April 1^st, 2014.

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