Delisting signals lack of faith in market.

Byline: Dilawar Hussain

AkzoNobel Pakistan Ltd, a listed chemical company, announced last week that its foreign majority shareholder - ICI Omicron BV - intends to buy back 11.2 million shares comprising 24.19 per cent of the company's paid-up capital from minority stakeholders and go for voluntary delisting.

In doing so, the company affirmed, the majority shareholder intends to obtain full ownership of the Pakistan subsidiary.

The company was created in April 2011 when ICI Pakistan Ltd split into two listed entities: AkzoNobel Pakistan (comprising the paints business) and ICI Pakistan comprising all other businesses of the pre-split entity.

Over the years, many large profitable subsidiaries of multinational companies have parted ways with public stakeholders. Some noteworthy examples are Philips, Gillette, Novartis Pakistan (formerly Ciba Geigy) and Novartis Pharma (formerly Sandoz). In February 2016, Amsterdam-based parent company sold its entire stake in Singer Pakistan.

The market is looking at a much higher bargain price in the case of AkzoNobel's delisting

But perhaps the most spectacular share buyback and voluntary delisting took place in April 2013. Unilever Pakistan, one of the biggest fast-moving consumer goods companies (FMCG), left the public domain as the UK-based parent entity bought back shares held by the public at Rs15,000 each. This was the biggest share repurchase transaction in the country's history.

A blue-chip company opting to exit is never good news for the stock market. Securities and Exchange Commission of Pakistan (SECP) Policy Board Chairman Khalid Mirza calls it a signal from the company about its 'lack of faith in the market,' which should be a cause for concern.

He affirmed that in many markets companies have developed a penchant for turning private from public, although it is more often for business reasons. A company's decision to seek delisting, Mr Mirza says, can be for a number of motives. It can go for delisting for business reasons or having no faith in the market. The company may believe that it is not getting the value it deserves for being listed and is unable to raise capital from the market.

The SECP Policy Board chairman stressed that the stock market is doomed to failure unless there are multiple exchanges to ensure competition, noting that monopolies ought to be broken.

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