The federal government is considering paying maximum dividends to shareholders from the profit made by state-owned companies listed in the Pakistan Stock Exchange (PSX).
The proposal is being considered with an aim to bring down the soaring circular debt and boost the stock market that has underperformed for several years.
Speaking in this regard, the Adviser to Prime Minister on Finance and Revenue, Shaukat Tarin, said that if energy companies are unable to pay dividends to shareholders due to circular debt, they can use higher dividends received from state-owned entities and reduce the circular debt.
The circular debt stands at Rs. 2.5 trillion. If this strategy can help pay off the circular debt of around Rs. 300-400 billion, then it will be deemed a successful strategy.
He added that the government doesn’t need the dividend income and energy companies can use it to decrease the circular debt. The government will still earn higher dividends regardless of whether it transfers the dividends to the exchequer or uses this money to reduce the circular debt.
The state is the biggest beneficiary of the profit that state-run companies make because it is the majority shareholder in almost all of these firms listed in the PSX.
It was forced to cut down dividends of other shareholders due to circular debt and liquidity crunch. This made the shares of state-run companies unattractive, not only bringing down their stock prices but also crashing their market valuation.
For instance, Pakistan Petroleum Limited (PPL), a state-owned petroleum company, used to give 55% of its profit in dividends to shareholders several years ago. However, PPL is only offering 18% of its profit in dividends to shareholders now.
This strategy not only will increase the market valuation of these companies that are considered heavyweights in the stock market but will also encourage investors to increase their stakes in these companies.
Commenting on this development, Chairman Arif Habib Limited (AHL) Arif Habib lamented that the state lowered the dividend payment to shareholders of state-run companies, adding that a higher dividend payment can certainly ease the circular debt.
He added that low dividend payments caused the stock prices of state-owned companies such as the Oil and Gas Development Corporation Limited (OGDCL), Pakistan State Oil (PSO), and the National Bank of Pakistan (NBP) to plunge to a historic low.
