BOL EXCLUSIVE: PSX to spin out real estate business into a subsidiary

Javed MirzaWeb Editor

30th Jun, 2021. 05:20 pm

KARACHI: The Pakistan Stock Exchange (PSX) has announced to spin out its real estate business into a wholly-owned subsidiary (PropCo) and transfer the PSX’s immovable properties and related arrangements to the newly-formed company. In return, PropCo will issue all its shares in favour of the stock exchange.

As per the latest valuation carried out by Iqbal A Nanjee and Company (Private) Limited, as of June 30, 2020, the fair value of the property and equipment and investment property to be carved out was Rs4.737 billion.

The valuation was carried out in accordance with the commercial rates for the sale of office spaces prevailing in the market. However, as per IFRS-05, the property is kept at the lower of cost or fair value less cost to sell.

“In continuation to the PSX’s earlier announcements dated February 23, 2018, and August 28, 2019, with respect to in-principle approval of the PSX’s board of directors regarding the proposed demerger of the PSX’s real estate from its operations, the board has resolved to form a wholly-owned subsidiary of the PSX for the purpose of demerger, instead of creating a sister concern owned by the PSX’s shareholders,” the bourse noted in a notice issued on Wednesday.

An official said the subsidiary company would result in maximising the return from the real estate assets, which presently were generating negligible earnings.

Ahmed Chinoy, a director on the PSX Board, said the stock exchange would now seek the approval of the Securities and Exchange Commission of Pakistan (SECP), as well as the approval at the annual general meeting.

“At present, the value of assets to be spun out is Rs4.7 billion; however, after the required approvals there would be a revaluation of the assets.”

“This would be a subsidiary company and the PSX might consider it’s listing on the bourse, going forward, but for now all the future plans depend on the SECP and other required approvals,” Chinoy added.

The PSX paid 10 per cent of the bid amount of Rs32.99 million to Pakistan Railways during the year ended June 30, 1993, as earnest money against the purchase of land. However, as a result of initiation of certain legal proceedings by one of the bidders, further action for the purchase of land could not take place.

Subsequently, Pakistan Railways cancelled the sale of railways land to the PSX (the then Karachi Stock Exchange) and requested the company to apply for the refund of the above-referred amount. The Sindh High Court has dismissed the suit on merit, which was filed by the above-referred bidder.

During the year ended June 30, 2002, based upon the legal advice obtained, the PSX filed a counter suit against Pakistan Railways for specific performance of the agreement, which, if decided in favour of the PSX, may require the company to purchase the land and pay the balance of the purchase consideration, amounting to Rs296.995 million. The said case is pending adjudication in the Sindh High Court.

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