Profit 31-October-2011

profit.com.pk Monday, 31 October, 2011

Sino-Pak relations – an exhaustivesymbiosis Page 4-5

KARACHI gHULAM ABBAS

ATlAs Honda ltd (AHl), which isexporting thousands of motorcycles toBangladesh and Afghanistan, foreseesCentral Asian markets for exports

during the next few years. The Japan basedPakistani company has exported over 12000motorcycles during the last five months,exceeding the same exports made during thefinancial year 2010-2011.The company is currently looking to iranianmarkets for exporting the products. The plans toreassemble the motorcycles in Bangladesh,where the company is already exporting itsmotorcycles, are also under consideration; AHl

general Manager HR, Admin and CorporateAffairs Razi ur Rahman said this during arecently held media briefing at the company’ssheikhupura plant.Besides the export and trade of localisedmotorcycles, the company has also contributedover Rs7 billion in duties and taxes on a sale of544331 units during the last financial year.According to Razi, together with other Atlasgroup companies, the company contributesalmost Rs19.38 billion towards nationalexchequer which is around 2 per cent of thecountry’s total revenue collection. Moreover thesemanufacturing plants in Pakistan are providingjobs to thousand of skilled and semi-skilledlabour of the country. Atlas also expects toproduce almost 0.7 million motorcycle during the

current financial year. Besides, the AHl is alsocommitted to the development of localmotorcycle industry and move towards 100 percent localisation. Talking about the new entrants,Razi said that though his company has noobjection over the introduction of new companiesin this sector but the proposed policy for the newentrants specially ‘Yamaha Motors’ of Japan wasunjustified. government was trying to accept thedemands of zero import duty rates for five years,made by Yamaha. The policy, if approved for thenew company, would be disastrous for theexisting companies. The government, instead ofthis, can offer land and other facilities to the newcompanies but the lifting the whole import dutywould definitely affect the existing companies ofthe auto sector. in reply to a query, he said that

the company has already recommended Ministryof Commerce to include the motorcycle industryin the negative list of trade with india, as theimport from huge markets of the neighbouringcountry would damage the local industry. AHlgeneral Manager R&D and Projects AfaqAhmed said on the occasion that the motorcycleindustry is likely to become the second largestindustry of exports after textile. While talkingabout the increased prices of motorcyclesdespite the localisation of the industry, he said,“The Company did not compromise on qualityand standard of its products, therefore theexisting prices of various kind of motorcyclesis reasonable against their costs”. Thecompany’s products which include CD70,CD100, gC 125 and Cg 125.

Atlas Honda foresees export to Central AsiagMotorcycle industry opposes import from India g Zero import duty for Yamaha dangerous g Motorcycle industry should be in negative trade list

PTCL may buymobile carrier toboost pricing

LAHoRe

MOniTORing dESk

RECEnTlY talking toBloomberg, PTCl CEo Walidirshaid stated that he did not

rule out an acquisition by thecompany, further adding that PTCl isnot selling but rather buying. it washighlighted that Ufone aims to acquiretargets as the company is now focusingon fixed line, high-speed internet alongwith television services which hashelped expand the customer base toapproximately one million, and hascontributed 20 per cent to total sales.Mobile phone subscriptions accordingto him have surged to more than 100million in the country, explaining thatthe cellular rates in Pakistan werecheapest in the world. “This can’tcontinue. This market has toconsolidate, otherwise this will be alosing proposition for every operator,”irshaid said. PTCl, he indicated maybuy another service provider as fallingrates have dampened industryearnings prior to a planned thirdgeneration bandwidth auction thisyear. The government has notindicated how many licenses would beat stake for the five mobile serviceproviders of the country. “There can’tbe five 3g operators when the revenueper user is too low,” irshaid said. Profit Decline: The company’sprofit dropped 33 per cent in the firstquarter from a year earlier to 1.4billion rupees ($16 million), accordingto a statement. net income fell 28percent from a year earlier to 8.4billion rupees in the 12 months endedJune 30, down from 30 billion rupeesin 2004, the year the governmentderegulated the telecom market,ending the company’s monopoly. Cashand equivalents rose to 23 billionrupees as of the three months endedMarch 31, from 19 billion in theprevious quarter, according to data.Telecommunications Corp., has builtup its infrastructure to handle as manyas 2 million broadband customers,irshaid said. The capacity may help thecompany compete with rivals PakistanMobile Communications ltd., WaridTelecom ltd., Telenor AsA and ChinaMobile Communications ltd. Annualnet income will probably increase thisyear, irshaid said, without giving amore specific forecast.

KSE witnesses bearish trend over the week Page 6Have a blast till you last! Page 3

KARACHISTAFF REPORT

Dissolving PEPCo without eliminatingroot causes of its inefficiencies andforming CPPA to work with similarinfrastructure and processes would be a

complete failure on the part of government whichwill continue to hurt the country in the years to come.

PEPCO DISSOLUTION LIKELYAccording to sources, Ministry of Power and Wateris likely to announce dissolution of PEPCo nextweek and set up Central Power Purchasing Agency(CPPA) under its power sector reforms which will

take over the duties of PEPCo. The governmentlast year announced to dissolve PEPCo after

eliminating the demand and supply gap but the gapis widening even at the start of winter and somecities are experiencing 8-10 hours power cuts daily.The government deadlines, plans and differentcommittees formed to resolve power crisis could notpropose any roadmap to eliminate the power crisisin the country, sources added.

PEPCO, A SCAPEGOAT?sources said that it seems that PEPCo is being used as

a scapegoat to put the onus of power crisis over it.“Though PEPCo has played a part in this power

crisis but its share may be only 25 per cent butother inefficient bodies like nEPRA, WAPDA

and its distribution companies and even theministry itself are hiding their

inefficiencies and lack of planningabilities behind it,” they added. The

political masters as well asnEPRA, the regulator,

continue to play the game ofmake-believe as nEPRA

prescribed a target of16.5 per cent as

cumulative linelosses of all its

distributioncompanies

(DisCos)in

FY2010-11; but the actual losses were 19.6 per cent,with a “healthy” growth of 7.2 per cent in PEsCo, 5.8per cent in HEsCo and 3.35 per cent in MEPCo.sources said that after having lost one fifth of this veryvaluable resource to theft, the remainder is billed andthe DisCos fail to collect 11.5 per cent of that billedamount also, leaking more than 30 per cent of theirrevenue in total. Moreover, government owned powerplants are highly inefficient as their average thermalefficiency is about 25 per cent to 30 per cent with someplants having efficiencies as low as 15.64 per cent and itwould be a daunting task for any management to bringtheir efficiency level to acceptable limits, they added.

IPPS TO OPERATE IN PEAK HOURSAccording to sources, in private sector, averageefficiency of a gas based iPP is 51 per cent while theaverage efficiency of furnace oil based iPP is 45 percent which is more than twice of the governmentowned power plants. They said that these iPPs wereasked to operate in the peak hours only tosupplement the public power plants but now theyare operating round the clock to help thegovernment meet the electricity demand but eventhen the demand and supply gap is widening. Eventhough these iPPs are a major contributor to powerproduction in the country, they are constantlysuffering at the hands of government as mountingcircular-debt issue is stressing them out, sourcesadded. They said that the amount payable by PEPCoto independent Power Producers (iPPs) in operationhas reached almost Rs300 billion and approximatelyRs24 is billion being added to it every month due toinefficiencies of power high-ups.

INEFFICIENCIES GALOREWhen PEPCo fails to make payments toindependent Power Producers, they find themselvesunable to pay for furnace oil, having alreadyexhausted their borrowing limits with banks. “if theoperating companies backed by private investorshave been in the financial quagmire then how willnew investors come to invest money in differentprivate and public sector power generation projects?”they questioned. The inefficiencies of PEPCo and thetwo associated ministries have failed to attractforeign and local investors in the power sector andeven existing investors are looking to offload theirstakes in the power producing units. They said thatinvestors are hesitating due to this ballooningcircular-debt as well as inconsistent policiesregarding fuel supply and recovery inefficiencies and

line losses of PEPCo and DisCos which inturn hurt iPPs as they are not getting

their overdue amount intime.

PEPCO dissolution no answerPOWER CRISIS

Pages: 8

g CPPA expected to take over dutiesg Inconsistent polices hindering

investment in power sector g Linelosses reached 19.6pc instead of

NEPRA’s prescribed 16.5pc

02-Profit 31-10-2011_Layout 1 11/2/2011 11:19 PM Page 1

Monday, 31 October, 2011

news02

First Pakistan, Germanyworkshop on Field Robotics

lAHore: The first Pak-german workshop on FieldRobotics is being held at the lUMs school of scienceand Engineering (ssE) over the course of two days -october 28-29, 2011. This event has been organisedby lUMs ssE in collaboration with University ofKaiserslautern, germany. The theme of the workshopis to introduce new and exciting areas of research infield and off-road robotics. PRESS RELEASE

TCP awards tender forimport of 215,000MT urealAHoRE: Trading Corporation of Pakistan (TCP), inresponse to its international gallop tender noticepublished on 21st october, 2011, issued award lettersfor a total of 215,000 metric tons (MTs) of Urea atprice of $538 per metric ton (PMT), on the lowest bidbasis, to four different bidders. in all, ten responsivebidders participated in the tender and quoted pricesranged from $538 to $559. PRESS RELEASE

Muslim Aid Pakistan committedto provide education to alliSlAMABAD: DFiD Head of basic services groupMr Martin Dawson said, ‘though the developmentsector is far beyond the achievement of MDgs by 2015but we cannot stop the struggle. in fact we need toincrease our efforts to attain this goal”. He wasaddressing the participants of an event organised tomark Muslim Aid Day. He strongly emphasised onquality education. PRESS RELEASE

BISP seeks CCHF’s partnership to launchtechnical training programmeiSlAMABAD: Pakistan and brother neighboringcountry China have tremendous scope to worktogether for improving the lives of the poor segment oftheir population and to enhance mutual cooperation inthe social sector. Both the countries can benefit fromeach other’s experiences, especially in the area ofvocational and technical training programme. Thisconsensus emerged on the occasion of a meeting of adelegation of CCHF with federal minister andchairperson Benazir income support Progarmme(BisP), Madam Farzana Raja. PRESS RELEASE

Samsung GALAXY S and GALAXYSII reach 30 million global saleslAHore: samsung Electronics Co., a leading mobilehandset provider, has announced that its samsunggAlAXY s and gAlAXY sii smartphones haveachieved a combined total of 30 million global sales.gAlAXY sii has set a new record for samsung,generating more than 10 million sales - quicker thanany device in samsung’s history. PRESS RELEASE

FAiSALABAd: Mr Haseeb Adrees, Mr Faiq Javed, Mr Azharparacha and Mian Anees on the launching ceremony of‘Accessorize’ at Sitara Mall. PRESS RELEASE

LAHORE: Evacuee Trust Property Board (ETPB) ChairmanSyed Asif Hashmi handing over a check of Rs500,000 tothe medical superintendent (MS). PRESS RELEASE

LoNDoN REUTERS

EURo zone leaders are asfar as ever from finding alasting solution to thebloc's underlying prob-lem of economic diver-

gence, despite their latest progress inmanaging the symptoms of its debt cri-sis. The complex agreement reached inBrussels in the early hours of Thursdaylends credence to the view that the eurozone will somehow muddle through.But it is not the grand Plan that opti-mists had hoped for: what was the 14thsummit in less than two years to tacklethe crisis will not be the last.

"This is another step in theright direction, but it is not enoughto get us to the end game," saidstephane Deo, chief Europeaneconomist at UBs. "it buys time butit does not address the fundamentalproblem of the sovereign debt cri-sis." European equities and the eurorallied after the summit exceededmarkets' modest expectations. Banksagreed in principle to a 50 percent re-duction in the face value of theirgreek bonds and leaders said they in-tended to increase the firepower oftheir financial rescue fund to 1 trillioneuros (876 billion pounds).

But nearly 35 percent of greek

bonds is in the hands of public insti-tutions such as the European CentralBank (ECB) and is not subject to themooted writedown. As a result,greece's debt would still be an eye-watering 120 percent of gross domes-tic product in 2020 -- exactly the levelof late 2009. And even that assumesdecent economic growth and ambi-tious structural reforms includinglarge-scale privatisation of state as-sets. "From the macroeconomic pointof view, if it's purely a 50 percent'haircut' on the nominal bonds, with-out an extension of the maturity anda reduction of the coupon, i'd still bereasonably suspicious about the sus-tainability of greek debt," Deo said.

REASONS FOR SCEPTICISMgreece, however, has become

something of a sideshow. investorslong ago judged that it was not justilliquid, but insolvent. Much morecritical is what the euro zone coulddo to prevent the debt rot fromspreading to bigger, systemically im-portant but stagnant economies, no-tably italy. Markets will have to waitfor details as to how the European Fi-nancial stability Facility will be scaledup; whether the likes of China will topup the bailout fund; and how opera-tionally it will enhance the credit ofmember states' new bonds. But someanalysts are sceptical. Economists at

Royal Bank of scotland said they ex-pected markets to reprice sovereigndebt across the euro area given thesize of the losses imposed on greece.Expressed as the "net present value"of the bonds, the proposed loss will beclose to 70 percent, much more thanthe 40 percent hit that banks had vol-unteered to take, RBs said.

What's more, the EFsF will be toosmall to offer help to any country thatmight need it for any length of time.And a promise by governments tohelp banks regain access to long-termbond market funding implies they willhave to assume extra contingent lia-bilities, thus adding to their debt bur-dens. "We find no convincingarguments in the new policy responseto suggest that sovereign bondspreads in the euro area will tightenmeaningfully vis-a-vis-germany,"RBs said in a note. italian 10-yearbond yields did in fact fall 11 basispoints on Thursday to 5.81 percent.But they were still around 30 basispoints higher than in early octoberwhen the leaders of germany andFrance promised a far-reaching solu-tion to the debt crisis.

ECB ROLEYet another source of doubt in-

volves the European Central Bank.Economists interpreted commentsmade on Wednesday by MarioDraghi, who takes over the helm ofthe ECB on november 1, as indicat-ing that the bank will continue tobuy spanish and italian governmentbonds in the secondary market ifneed be. But investors, as ever, aredemanding greater certainty.

if the ECB hands over its bond-buying responsibilities to the EFsF,there will be concerns that the rescuefund is not big enough for the job, saidKaren Ward with HsBC. "Ultimatelythere are only two options for creatinga firewall: the ECB's balance sheet, orthe german balance sheet. if the ECBis not the backstop, it is unlikely thefirewall can be big enough to be cred-ible," Ward said in a note to clients.Having the ECB act as a fully fledged

lender of last resort, just as the U.s.Federal Reserve did during the 2008financial meltdown, is anathema togermany, which fears it would rewardfeckless debtors and sow the seeds ofinflation. But in dodging the question,euro zone leaders had squandered thechance to get ahead of the market, saidnicholas spiro, managing director ofspiro sovereign strategy, a londonconsultancy. "They have not fixed theissue that investors care the mostabout: can you put in place a credibleand durable and effective backstop foreuro zone public debt?" spiro said.

"We're not talking about workingmonetary union work. That's for themedium term. We're talking aboutcontaining the contagion. And theyhaven't been able to do that yet," headded. "Credibility and confidence inEurope are all, and this has yet to berestored as far as i can see."

ALL EYES ON ITALYThe country most at risk of con-

tagion is italy, where anaemic eco-nomic growth and falteringconfidence in Prime Minister silvioBerlusconi are compounding the dif-ficulty of servicing a debt-to-gDPratio of nearly 120 percent. Underpressure from his euro zone part-ners, Berlusconi gave a raft of reformcommitments at the summit, includ-ing raising the retirement age by twoyears, to 67, by 2026.

not only do such deep-seated pol-icy shifts take years to have an eco-nomic impact, they are highlycontentious politically. Postponing theretirement age is so fiercely opposedby Berlusconi's ally the northernleague that it could topple his coali-tion government, Royal Bank of scot-land said. And, as with greece, theeuro zone is proposing that the Euro-pean Commission, the EuropeanUnion's executive arm, take a more ac-tive role in monitoring the implemen-tation of italy's reforms. italy's biggesttrade union, Cgil, wasted no time inpledging to fight the reforms andurged smaller unions to unite against"targeted attacks" on italian workers.

Euro zone debt dealtackles symptoms not cause

CORPORATE CORNER


As much as the recent announcement of aretail TFC offering coming to the marketis heartening for investors, it is that muchof a point which financial institutionsshould be pondering upon. interest rates

remain high despite the last 150bps cut, which makesbank borrowing unattractive either because it is an ex-pensive proposition or to put it mildly ‘restrictive’.Banks are averse to lending anyway; a lot has alreadybeen said about how private sector credit has been

crowded out by publicborrowing. But when in-vestment opportunitiesexist and companies wantto borrow, one wonderswhat avenues do theyhave left? The high cost ofbank borrowing and thecovenants that accom-pany makes them thinktwice and sometimes

thrice about that recourse. Equity markets are de-pressed owing to liquidity issues and general investorpessimism. Foreign investment is scarce on the backof the negative perception tag regarding security in thecountry. The answer: tap the retail market.

KEsC’s intended offering of a Rs2.0 billion retailbond follows in similar fashion to Engro’s RupiyaCertificate which was able to raise Rs8.0 billion forthe company at a 14.5 per cent rate under two sepa-rate issues. it has to be kept in mind that this ratewas offered at a time when interest rates were hov-ering around a similar mark themselves. As per mar-ket expectations at that time, this rate was also lowerthan what other instruments issued to institutionalinvestors were yielding. The Rupiya Certificate is-sues, which were fully subscribed both times, wereable to reduce the company’s borrowing costs: on adebt quantum of above Rs100 billion, even a slightreduction in rate of return implies significant bene-fits for the issuing entity. Even now when the inter-est rate has been cut, the instrument still costs lowerthan what banks would offer after adding spread on

top of KiBoR. The offering by KEsC also seems toreflect the same reasoning, although this dependsgreatly on what rate the instrument is issued at.

so is financial cost saving the only reason for is-suing retail TFCs? Certainly not as they also provide amuch sought after characteristic in the form of in-vestor base diversification. The subscribers of retailTFCs are mostly the general public. These commonlycomprise those who are seeking a good return on theirsavings and are usually not highly rate sensitive. Peakreturns offered by Term Deposit Certificates thesedays are around the 11-12 per cent mark or 12.68 percent to be exact by Defense saving Certificates andthese too for a holding period of five years or more. itis likely that retail TFCs would be offering a higher ratefor there to exist an incentive to invest for the commonman. Effectively companies are saving the spreadspaid to banks by bypassing the financing medium al-together and investors are getting a better return thanwhat they would have if they had put their money inmore traditional avenues. This makes for a win-winsituation for both.

However, retail investors more than the in-stitutional creed, are sensitive to reputation andbrand recognition. This perhaps is the major im-pediment that restricts the management of cor-porations from taking such an initiative, apartfrom thinking out-of-the-box naturally. logicdictates that although the public would want ahigher return, at the same time would be con-cerned with the soundness and safety invest-ment, comfort on which is dictated by theirfamiliarity with the company’s name. negativeperceptions about the company would certainlybe a factor, which is where the credit quality ofthe instrument on offer comes into play; highcredit quality would act to placate concerns.Moreover, the reputational consequences of fail-ing to meet commitments as promised is anotheraspect entities should be concerned about.

Having said this, retail TFCs certainly open upavenues which were previously left unexplored byPakistani corporations. given the liberal capital flowenvironment, they make reasonable economic senseas far as feasibility is concerned provided proceedsare utilised for funding appropriate investment op-portunities. is this new fashion going to gain popu-larity with others is a question that only time willtell. But from the perspective of the investor and aproponent of developing the paltry bond market,this is certainly a positive development.

The writer is a financial analyst with PakistanCredit Rating Agency (PACRA)

AnAlYsTs rightly worry whenthe financial press lamentsover government borrowing-induced liquidity trap, whilequoting sBP officials regarding

another impending rate cut on the sameday. Though credit easing was urgentlyneeded to trigger private sectorinvestment, the manner of the sudden,and ambitious, 150 bp cut raised eyebrowsbecause of already double digit inflation, arupee nosedive and erratic oil prices in theinternational market. Criticism coming thenew governor’s way, of the cut benefitingthe government even as the economyflirted with runaway inflation, seems tohold weight now that the government’saddiction to debt has been confirmed.Despite the risk of compromising the riskymonetary easing, islamabad could notovercome its dependence on easy money.And now we have the classic liquidity trap.

The official argument is self-defeating. While shifting from centralbank borrowing to advances fromcommercial banks is the lesser evil, it is

not so in this particular case. Catering toofficial demands again crowds outprivate sector participation, defeatingthe very purpose of the cut. Whatanother reduction will achieve is notclear, other than further reducing thegovernment’s burden. Also, whateverlittle percentage points the exerciseshaves off the inflation number, oilfluctuation in the international marketcan easily trigger agflation by upsettinginput prices across the board.

it is yet more unnerving that whileinflation trends and liquidity traps haveeconomic remedies, they cannot beeffective till the central bank has completeautonomy. Machinations at play so farreveal a disturbing erosion of thatindependence. going by the trend so far,we can expect a generally loose monetarystance, with private investmentcontinuously ruled out, and thegovernment adding to the debt burden, atleast till continuous rupee weakening andrising inflation necessitate yet anotherembarrassing, and painful, u-turn.

The liquidity trap

Is financialcost saving the onlyreason for issuingretail TFCs?

Retail Term Finance Cer-

tificates in vogue?

Aahyan Mumtaz

Worth of QR codes

The advertising and marketing gurusshould take note of this. i have noticedQR codes from supermarket groceryitems to articles in the Harvard BusinessReview. it seems more and more infor-mation is being pictorially representedusing -if i may borrow your words -those "black and white squares". Thatsimple phrase shows the beauty of these- holding massive information yet so tinyand fragile in its truest sense. i bet thephenomena would pick up in Pakistan -it's just that no body has noticed themyet here for some reason. The age oldmaxim that a picture is worth a thou-sands words has just been redefined.

RAfAy bIN ALILAHORE

A new financial model

“The development of alternative is-lamic financial institutions with afocus on societal improvement”, this isthe bedrock of an islamic financial sys-tem that should seek to enhance eco-nomic welfare through equitablehuman development. i like the idea ofhaving unique islamic Foundations.great care should be taken in definingthe investment parameters and objec-tives of these foundations and estab-lishing an appropriate regulatoryframework to govern their operations.And all of this requires the full com-mitment and will of sBP officials, sit-ting in AC rooms for policy making.

MobAsHeR ZeIN KAZMIkARACHi

E D I T O R I A L

Have a blast till you last!

EvEn the most patrioticamongst us, especiallythose who have never beenshipped across the border,would in the heart of

hearts admit that incredible india hasmanaged to imprint itself as a glam-orous destination with values and cul-ture acquired from the rajas andmaharajas of yester centuries. Andmuch to the dismay of those who valueprosperity in material terms, the‘Hindu growth Rate’ is now the epito-

mical way to go although skepticswould gladly point out that the fruitsof indian growth are distributedamong many and that too unevenly!

Coming back to the mess onboard, if Pakistan were to follow theindian example, it wouldn’t needmuch tutoring. growth in the servicessector has already proven to be theeconomy’s talisman in the previousbout of ‘high’ growth years while cur-rently, in 2011, contributing morethan 50 per cent to the gDP. Andmuch to economists’ glee, correlationscould be drawn between high growthrate and FDi in the services sectortrickling down on the manufacturingsector, which grew by rates as high asnine per cent in the midst of thedecade ending in 2010.

The paradox, however, ariseswhen the economy registers a mere$5.5 billion of exports in services, andan overall deficit of more than $2 bil-

lion. Why has Pakistan not been ableto positively brand itself, one mayask. Did it wish to? And did Pakista-nis internationally ever possess faithenough to deploy resources and in-vest back home?

Dissecting numbers and highlight-ing positives first, exports from thecomputer and information services(iCT) industry have grown by morethan an impressive 200 per cent oversince FY06, registering an average an-nual growth rate of 25 per cent. Thetotal value of exports from this seg-ment stood at $217 million in 2011.While this may be considered laud-able, the $50 billion indian counter-part does little to soothe one’s littleheart. And this excludes BPo exports!

Moving onto other less main-stream components, the economyearned about $350 million throughtravel and tourism in FY11. globally,the tourism industry generated about

$500 billion duringthe same periodwith an average an-nual growth rate ofnine per cent. of this, about $70-90billion is attributed to mountaintourism. only if the land of the purehad been projected as the land of sce-nic purity, there would have beenlots of beneficiaries, some of themwho live today without a chance topersist beyond subsistence.

on the services import front, asopposed to what we earn throughtourism, Pakistanis spend thrice theamount or $971 million travelingabroad. Moreover, once iCT imports($177m in FY11) are taken in to ac-count, the net amount indicates an al-most zero net benefit to the economy,further reinstating its lows in compar-ison to the neighbour.

At this point, there just might bevery little for the economy to fall

back on and it is def-initely too late tostart over. There islittle hope of jump-

ing on the industrialisation band-wagon with China boasting ofeconomies of scale and scope, and alabour force that is at a 96 per centdiscount to the cost of labour in theUs; it may not possible to go lower.

it is hopeless to blame policymakers for not thinking about tradein services, when they could not careabout ensuring consistent availabilityof power! one can only imagine thatif provinces other than Punjab weregiven a chance to endorse themselvesand their culture to the world atlarge, may be this war of egos wouldnever have started!

The writer is an economic researcherand freelance financial journalist. She can

be reached at [email protected]

Sakina Husain

For comments, queries and contributions, write to:

Email: [email protected] Ph: 042-36298305-10 Fax: 042-36298302 Website: www.pakistantoday.com.pk

BABUR SAGHIRCreative Head

HAMMAD RAZALayout Designer

SHAHAB JAFRYBusiness Editor

ALI RIZVINews Editor

MUNEEB EJAZLayout Designer

M o n d a y, 3 1 O c t o b e r, 2 0 1 1

Why has Pakistan notbeen able to positivelybrand itself?

KUNWAR KHULDUNE SHAHIDSub-Editor


Monday,31 October,2011

I have a great dream that Chinesecan travel to Pakistan without apassport and Pakistanis cantravel to China without passports

President Asif Ali Zardari 04debate

1950

Pakistan becomes the thirdnon-communist country,and first Muslim one, torecognize the People’sRepublic of China.

1951-63

Beijing and Karachi establishdiplomatic relations.1963 - Pakistan cedes the Trans-Karakoram Tract toChina, ending border disputes.

1970-78

Pakistan helps the US arrangethe 1972 Nixon visit to China.1978 -The Karakoram Highwaylinking the mountainousNorthern Pakistan with WesternChina officially opens.

1980s

China and the U.S. provide support throughPakistan to the Afghan guerrillas fighting Sovietoccupational forces.

1986-96

China and Pakistan reach acomprehensive nuclear co-operation agreement.1996 - Chinese President JiangZemin pays a state visit to Pakistan.

1999

A 300-megawatt nuclear power plant, built with Chinese help in Punjab province, is completed.

2001

A joint-ventured Chinese-Pakistani tank, the MBT-2000 (Al-Khalid) MBT iscompleted.

2002

The building of the Gwadar deep sea port begins, with China as the primary investor.

stratEgic alliancE

Pakistan-China Friendship is

higher than mountains, deeper

than oceans, stronger than steel

and sweeter than honey

YUSUF RAzA giLLAni Prime Minister

Diplomatic options

They (the Pakistanis) are

trying to use their diplomatic

options as much as possible to

defuse pressure on them. They

hope China will help them in

this crisis

HASAn ASkARi Rizvi Security Analyst

Exploring opportunitiEs

Pakistan is very keen to

expand its links with China in

the field of education and to

increase the exchange of

students and teachers

between the two countries

MASOOd kHAnPakistan’s ambassador to China

KuNwAR KHuLDuNe sHAHID

TRAvERsing any turmoil is made allthe more arduous, sans the presence ofa helping hand. And since we, as a na-tion, have been profoundly reliant onexternal assistance for just about any-

thing every man and his dog can put a finger upon,affixing ourselves to a foreign power has become ournational ethos. Hence, an ally that has a brawnystature around the globe and can influence matterspertaining to economy, trade and security is of para-mount significance. However what makes the help-ing hand a necessity, in our neck of the woods, is theparanoia that we attach with every maneuver fromthe eastern vicinity. And if the aforementionedglobal powerhouse has a geo-strategically pictureperfect site on the map to boot, an unyielding bondbecomes indispensable – China fits the bill seam-lessly.

SINO-PAK FRIENDSHIPWith China, unlike most other nations, we get thenearest thing to a symbiosis – economic or other-wise – that we can conjure up on the internationalstage. Both nations tout themselves as “all weatherpartners” and the need for companionship is felt inboth countries simultaneously – justifiably so.While the indian presence, historically, has been acause of apprehension for both the countries, theburgeoning Us influence in the region is one thatalarms China in particular. And hence having islam-abad on their back is pivotal for Beijing.

During the entire osama Bin laden soap opera,China defended the Pakistani government thoughthe U.s continued to haul over coals, and blamedour hierarchy – left, right and center – for the exac-erbated situation of terrorism. standing firm in thesupport of its ally, in what in all honesty was aprodigiously tricky scenario – it was a major state-ment of support from Beijing.

After Pakistan enunciated its desire to have aseat on the Un security Council at the 66th generalAssembly session in september, the bid was backedby China extrovertly. since China visualises Pak-istan’s importance in the maintenance of globalpeace and security, it did not withdraw any decibelsin echoing Pakistan’s voice.

CHINESE ASSISTANCEChina’s help in the construction of gwadar Port has beenwell documented, and while it aids Chinese aspiration ofopening up an energy and trade corridor from the gulf, itgoes without saying, that the potential boost to our econ-omy is massive. China has also helped us in building ourprincipal nuclear power generation facility at Chashma,another 330 MW unit has commenced last month as well,and a couple more projects are in the pipeline at the sameopulent spot. China national nuclear Corp has said that itwas also in talks over the construction of another 1-gi-gawatt atomic plant in Pakistan. China is also the key sup-plier of conventional arms and has also supported ournuclear weapons programme in the past – also providingus with military gear that includes fighter jets and frigates.Amidst the nuclear proliferation and safety clamour, this,undoubtedly, is a strapping move from Beijing.

Chinese aid for flood relief purposes was anotherfeather in the cap of sino-Pak friendship. China hasdonated $4.7 million, with another $5 million prom-ised by liu Jian – Chinese Ambassador to Pakistan, inaddition to the $18 million donated last year. Chinahas also supplied 7,000 tents for the flood victims, an-other laudable contribution in easing out the pain ofthe multitude of people that suffer.

SANGUINITY IN TRADElast year’s bilateral trade numbers depict a trade vol-ume worth $8.7 billion, which substantiated a 27.7per cent rise from the statistics in 2009. However thetrade flow is still skewed in favour of China, with theChinese exporting good worth $6.9 billion to Pakistanand Chinese imports were valued at $1.7 billion – 25.5per cent and 37.2 per cent rise from 2009, respec-tively. nevertheless there is a buoyant optimism onour side of the border that these numbers would am-plify precipitously in the near future, with bilateraltrade numbers as far as $15 billion being prognosti-cated. To further bolster the trade correlation betweenthe two countries, China has frequently assisted a lotof our major projects. Two of the most momentousproject are; gwadar Port in Baluchistan – lucrativesea route and the Karakoram Highway – linking west-ern China with the northern parts of Pakistan, and ifupgraded would provide a channel for energy importsin China from various other markets.

BOLSTERING ECONOMYEven though the two nations signed a free tradeagreement and five-year development pro-gramme on trade and economic cooperationin 2006, followed by the approval of theeconomic proposals of 36 projects worthmore than $13 billion last year, the bilateraltrade still doesn’t post up groundbreakingnumbers. The sino-Pak bilateral trade vol-ume of $8.7 billion last year doesn’t comeout on par, when compared with most othercountries. sino-Us trade volume posts gar-gantuan numbers – with a towering $380 billionlast year. sino-india trade in 2010 amounted to$61.7 billion and the number escalated further,crossing $35 billion mark in the first half of thecurrent year – a 16 per cent rise from the same timein 2010. Even China-vietnam the bilateral tradevolume was worth more than $10 billion in 2010!Considering our ties with China, and the univer-sally flaunted companionship, the diminutivetrade numbers – under situational juxtaposition– are absolutely unfathomable. if we are to bringto fruition the forecasted tally of $15 billion bilat-eral trade volume annually, and benefit from ourintimate political relationship in tangible returnswe have to streamline our approach.

instead of merely focusing on enhancing thetrade volume, we should look to ameliorate our in-dustrial base. China can lend a hand in this causeby producing goods for export in Pakistan and em-ploying local labour force. This would indeed beun-sailed waters, as far as approaches towards en-hancing bilateral economic ties are concerned.However a customary encumbrance is the securitythreat and the cultural differences. Chinese com-panies haven’t expanded their bases, from tip totoe, in terms of their presence in the Pakistani mar-ket, and a reassessment on the part of our Chinesecounterparts would not only bump up their marketexposure, but also fortify our industrial founda-tion.

EDUCATIONAL EXCHANGEAnother tool that has not been appositely utilised isthe educational exchange programmes, especially atthe university level. By allowing the cream of both thenations to blend, and acquire the positives from eachother’s repertoire would have been rewarding for boththe sides. Dr Muhammad Akram sheikh, formerdeputy chairman of the Planning Commission of Pak-istan raised this point at the China-Pakistan Coopera-tion Conference on Monday in Beijing.

He was of the opinion that a joint think tank be-

tween Tsinghua University of China and the nationalUniversity of science and Technology (nUsT) of Pak-istan should be established, hence setting off the hob-nobbing amongst the top two universities of therespective countries.

“sino-Pakistani cooperation must be underpinnedby a focus on knowledge, economics and technology-driven development. That’s why cooperation betweenTsinghua and nUsT is of paramount importance.”

His thoughts were staunchly backed by MrMuhammad Asghar, President nUsT, who agreedupon “leveraging education to deepen the Pakistan-China strategic partnership”, and futher stated; “We have to look east, to reorient our academic ap-proach. Tsinghua and nUsT can form a platform tocarry on related studies.”

READRESSING SECURITY CONCERNSChina has vehemently asked Pakistan to take no-tice of Uighur militants and undertake a robustaction against them. The Uighur militants origi-nate from the western Chinese region of Xin-jiang, but have penetrated inside the Pakistaniterritory, doling out their menacing in-

t e n t .on 5th July2009, the Uighurantagonism boiled over andviolence broke out between the Uighurs –essentially Muslims – and the Han Chinese inXinjiang, resulting in 197 casualties. A lot ofthem were Han inhabitants who were executed instonehearted assaults on the part of the Uighurmilitants. Pakistan categorically condemned theriots, receiving acknowledgement from China.

Another ghastly issue marring the sino-Pak-istan bond is the safety concerns regarding the well-being of the Chinese nationals working in Pakistan.numerous Chinese workers have succumbed to mil-itant attacks in the recent past hence resulting inthe plunge of the number of employees from Chinawilling to toil here. Most of them aren’t willing torisk their lives and rightly so.

Therefore, the security factor has got to be givenparamount importance to perk up our ties and en-sure that we get the assistance of the Chinese ex-pertise in enhancing our economical dynamics.Especially, considering the fact that our particulararea has unfortunately become a hub of terrorism,we need to counter this disparaging hazard to moveourselves – in all facades of national prosperity –forward.

COUNTERING DRUG TRAFFICKINGCross-border smuggling of drugs has been a causeof uneasiness for both the neighbouring countries.Chairman standing Committee on interior senatorTalha Mehmood recently expounded the increasingtrend of smuggling that has rung alarm bells in both

the countries. Talha Mehmood made our intentionsclear by announcing that paramilitary forces likethe Anti narcotics Force (AnF) and the Federal in-vestigation Agency (FiA) would be deployed to curbthis practice.

He also asserted that there was an underhandedinvolvement of “some foreign agencies” in gilgit-Baltistan and hence the reinforcement of the lawand order situation via strengthening law enforcingagencies is the need of the hour. The scheme is spoton; let’s hope so is the implementation.

CHINESE ROLE A PROPOAFGHANISTANBefore the ink dried on the india-Afghanistan strategic Partner-ship, signed earlier this month,the repercussions were unam-biguous for Pakistan. As indianhegemony looms and thepossibility of

Pakistan beingsandwiched in between indian influenced areas hangsover, it is China’s discernable yearn for Afghanistan’snatural resources that give the picture an intriguingshade.

China national Petroleum Corp (CnPC), recentlyattained the rights to explore oil fields in Amu DaryaBasin – with a potential of 80 million barrels of crudeoil – and China has also grabbed a massive tender forthe Aynak copper deposit. Pakistan, could look for an-other collaboration with China on the front, for whichwould not only shore up our economical side of things,but also foster our chances of increasing our influencein Pakistan. China’s development and exploration ac-tivities will not only have commercial upshots, but itwill also increase China’s in the Afghan political scene.This, hence, gives us a tailor-made opportunity of nip-ping the indian menace in the bud and also enhancingourselves as a geo-strategically influential and eco-nomically potent nation.

EPILOGUE

Prime Minister Yusuf Raza gilani recently de-scribed Pak-China friendship as “higher thanmountains, deeper than oceans, stronger than steeland sweeter than honey.” And while that may beover-the-top poetic lingo, one perceives the raisond’etre behind the couplet.

While the sceptics continue to downplay China’scontributions, citing Chinese lack of intent in 1965

and 1971, what is indubitable is the fact that this mo-ment – right here, right now – is the most signifi-cant chapter of the sino-Pak tale. The U.s animosityhas grown – following the osama bin laden debacleand the Haqqani network blame games – and so hasthe indian command over sub-continental matters.Hence Pakistan-China camaraderie is pivotal for usin this rickety epoch. And, since we aid China’s su-

periority in the region as welland have an imperative role

in China’s global expan-sion of clot; it’s not as ifwe are clinging on to awild-goose chase.

For

commentsand queries

write to us at

[email protected]

Sino-Pak relations – an exhaustive symbiosis


05


debate

all wEatHEr partnErs

China and Pakistan are all-weather

cooperation partners. Under the

complex and fluid international

and regional circumstances, it is a

firm policy of the Chinese

government to further cement and

deepen the strategic partnership

of cooperation with Pakistan

WEn JiABAO CHinESE Prime Minister

Financial quagmirE

As a long friend of Pakistan,

China understands it is facing

some financial difficulties

Qin gAngChinese Foreign Ministry spokesman

upHolDing intEgritY

China categorically

supports Pakistan‘s efforts

to uphold its

sovereignty, independence

and territorial

integrity

MEng JiAnzHUCHinESE viCE PRiME MiniSTER


06

Monday, 31 October,2011

Markets

We have found adurable solution tothe Greece crisis

French PresidentNicolas Sarkozy

weekly review

LAHoReAAHYAn MUMTAz

PoliTiCAl strains and global economic uncertainty kept investor sen-timents down as the KsE-100 index ended virtually flat, gaining only36 points (+0.3% WoW). This is despite healthy corporate returns

which failed to stir investors at the start of the week. However, attractive val-uations finally lured investors during the last trading session of the week. Asa result, average daily volume declined 12.6% WoW to stand at 75 millionshares. Foreigners remained net sellers of ~UsD 8million as the global debtcrisis takes its toll on European countries. This was largely the key driver oflackluster market performance during the start of the week as profit takingactivity was generally observed. However, with growing consensus and agree-

ment over the $1.4 trillion bailout pack-age, investor confidence seemed

revitalised as seen by thesharp uptick in regional

markets as well. This,coupled with strong

news flows re-garding sectoralp e r f o r m a n c eand better thanexpected cor-porate results,strengthenedinvestor confi-dence as the

index saw asubstantial 278

point jump(+2.47%) during

the final trading ses-sion. This was also re-

flected in increased activityin the futures market.

Corporate results seemedhealthier thananticipated for mostcompanies. on theback of higherretention prices andhigher dispatchesduring 1QFY12, lUCKposted earningsgrowth of 107% QoQ,slightly above analystexpectations. Bankingsector heavyweightsMCB and UBl postedstrong profitabilitygrowth of 24% and36% on a YoY basisrespectively for9M2011. However,nBP – impacted byrising npl’s – reporteda flat bottom line. Theresults of FFBl wereannounced whichexceeded expectationsconsiderably asearning growth cameout to be 145% higherYoY. This is primarily owing to the exponential rise in DAP pricesseen during the period, supported somewhat by marginally highervolumes despite gas shortages. As a result of gas loadshedding,fertiliser stocks continued to be in the limelight, however,performed relatively better than other sectors.

STOCK SPECIFIC ACTIVITYThe final trading session of theday indicated the presenceof strong support levelswhich entice investors tobuy securities offering at-tractive valuations. Thistrend is expected to beseen in the coming weekas well driven by the con-tinuity of corporate re-sults as popular scriptentities such as FFC,EngRo, nCl, KEsC,and Anl are scheduledto announce their resultsin the coming week. As-sessment of flood dam-age to cotton crop is alsolikely to be releasedshortly. Again fertiliserstocks are expected to bein the main fray. The re-sults of FFC and EngRoare considered importantin this regard as they maycarry indications aboutthe severity of gas loadshedding experienced bythe sector during the pe-riod. Furthermore, withseemingly positive sentiments arising in global equity markets, thetrend of net foreign selling – which has continued for several weeks –may be expected to seize, at least in the upcoming sessions.

KSE witnessesbearish trendover the week

g KSE down on institutionalprofit-taking

g Pakistan petroleumannounces strongcorporate results

g Traded volume decreasesby 16pc

g Investors remainconcerned overuncertainty in Pak-USrelations

g Bulls storm KSE with 238 point gain

g Triple digit rate cut allowed thebenchmark to gain 3.3 per cent

g PTC led the turnover with HUBCO being the runners up

g Safer stocks attractedinvestors after denial by IMFon issuing LOC

g Bears return to market with139 points dip

g KSE witnesses a sustainableselling pressure

g Dumping by offshoreparticipants is observed

g MCB drops by 4.8pc at its lower circuitg Fatima becomes the volume leader

with trading of 9.17m sharesg Investors remain pessimistic due

to gloomy economic forecasts

g KSE gains 278 pointsg Oversold local equities stage

strong comebackg Fauji group stocks allows the

index to register intra-day gainsof 2.8pc

g High temperature on politicalfront questions sustainability ofthe current run-up

FORWARD LOOKING EXPECTATIONS

KARACHISTAFF REPORT

Moving towards the economy and stockmarket situation iMF has provided usa note of caution with their expectationof inflation at 14 per cent (With base ef-

fect 13 per cent to 13.3 per cent), fiscal deficit at 5.3per cent along with gDP growth of around 3.8 percent. During the outgoing week the benchmark wasin a bearish mood for the majority of the days exceptFriday. The KsE-100 index moved in a fast and furi-ous mood on Friday turning the weekly returns to-

wards the positive zone. The continual bearish trendwhich persisted over the past few days finally toneddown. The results of top tier stocks were more or lessin line with market expectation except ogDC, FFBl,and UBl beat analyst expectations.

Among the 100 benevolent stocks, 65 per cent ofthe companies remain in red zone while 27 per centended the week in the green zone. ogDC with its 163points contribution can be considered as the majortrend setter for the index. second tier banks includ-ing sCB and snBl outdid the index performanceafter better results. Fatima with its exceptional resultbreached the Rs25 per share mark while FFC re-

mained in a rock and roll mood. We believe the cur-rent jubilation following by global market perform-ance may fade away, said Bilal Asif at HMFs, addingthat but bearish trend over the past few days mayprovide investors with potential fundamental upside.Money MArket: Despite continual compressionin nFA, money supply contraction has decelerateddue to substantial rise in nDA. government borrow-ing for budgetary support has swelled by Rs242 bil-lion to Rs2.9 trillion for the week ending on october15, 2011. government borrowing from schedule bankhas risen to Rs288 billion whilst net outflow from thebanking channel ahead of Eid is likely to keep the liq-

uidity under strain. inflation for the month of octoberexpected at 10.5 per cent-11.0 per cent is likely stirsentiments on further monetary easing. Primaryyields despite tight liquidity as 6months KiBoR hasfallen by 6bps to 11.91 per cent. Despite widening ratedifferentials and looming debt payment, targeted in-tervention by central bank has also arrested depreci-ation of PKR against the green back to 0.96 per centsince the beginning of fiscal year from 1.8 per cent atthe end of 1QFY11. lower inflation expectation andstable market yields going forward are likely to per-suade investor for participation in longer tenor in thenext week’s treasury auction.


07


closing bell

A B C D E F G H

8

7

6

5

4

3

2

1

White to play: play and mate in 3 moves

MAd BRidgE PARTY

CHESS

sudoku solution

crossword solution

chess solution

Today’s soluTions

1.Qxh6+ gxh6 2.Be5+ Rf6 3.Bxf6# *

Have faith in

yourself -- it's all

you need in order to

get things done today. Your

energy is just right for making

big leaps and getting others

to do the same. You can do

this, no matter how it seems.

ariEsNow is the time

to start talking

up your pet project

-- whatever it may be! People

are definitely ready to hear

your words of wisdom, and

you may find that you can

get the wind at your back.

taurusYou need to try

new things today

in order to make a

difference. You aren't able to

figure out how it will all work

out until you try it yourself,

and a few failures just make

you stronger in the end.

gEmini

Your sense of

balance is

slightly disturbed today, which

could mean that you need

to deal with someone who's

off-putting, or that you need

to ease up on a new favorite

activity for a little while.

cancEr

Your energy levels

never seem to lag

today, and you should

find that you are able to

get as much done in 24 hours

as a normal person could

do in a week. Make sure

you rest up tomorrow!

Forget your

own needs today

-- you've got to deal

with someone who's going

through something really big.

It may be a friend or a work

acquaintance, but your help

means the world to them.

lEo

Your energy is a

bit dissipated today

-- but you can feel it

ready to flood back with a

vengeance! Make sure that

you are finding new ways to

amuse yourself, as morale

is paramount now.

aquarius

Your love life

could use a

boost, and this is

the perfect night to make it

happen! Say something sly or

make a move -- your energy

is just right for moving

closer to someone you like.

virgo

An unexpected

assist from

someone you hardly know

comes as a pleasant surprise

-- and it could be one with

long-lasting consequences!

You may have just unlocked

a new ally in your struggle.

piscEscapricorn

Your ability to

manage authority

figures is waning today,

so see if you can deal with

those who are able to listen

to reason and put off the rest

for another day or two while

your energy recharges.

libraSomeone is in a

really good mood

today -- so much so

that they might help

you get your way on a project

or plan that you had nearly

abandoned as hopeless.

Show your gratitude soon!

scorpioYour financial savvy

isn't exactly off the

charts right now but

you do know enough to

try to save. Set aside some

for later in life, or even just

for a rainy day. You definitely

won't regret it!

sagittarius

BRidgE

CROSSWORd

Fill in all the squares in the grid so that each row,

column and each of the squares contains all the digits.

the object is to insert the numbers in the boxes to

satisfy only one condition: each row, column and 3x3

box must contain the digits 1 through 9 exactly once.

HOW TO PLAY

WORd SEARCH

ACROSS

7 Unfavourable qualifying terms omit B and E (7) 8 Tailor aspires mostly to drink posh port (7) 9 Half of Andersen's translated or all of him? (4) 10 With a little clothing, run well all of a sudden (2,1,6) 12 One of 5 seen swimming across sea (5) 13 impressive group here that includes short bird (3,5) 15 guy from dubrovnik hasn't got the right paint (4) 16 governor that entertained PM once (5) 17 Leader of Alaska's in power in Anchorage (4) 18 Weapon landed the wrong way during fight (8) 20 Forces cleric to shave round end of sideboard (5) 21 State of stupor in Spanish region banning Left for a short time (9)22 Her letters are primarily about usual nuptial troubles (4) 24 virtuous group here start to eat hot dog, free (3,4) 25 Winning girl entertains hundreds on ship (7)

DOWN

1 Adviser's first to finish plan (4) 2 Oddly blue nettle chewed as narcotic (5,3) 3 get Free French art, 23 (6) 4 golden match during interval (8) 5 Prefer grace's rent-free companion? (6) 6 i'd say trickle is current (4) 11 Time to brew tea for inspiring new cricket side (9) 12 Expedition leader that is lacking restraint (5) 14 Electrify a former prison (5) 16 Musical symbols in fashion turned into a novel (8) 17 Managed to keep one divine church relief (8) 19 Releases small blocks choking back street (4,2) 20 Harass capital, having changed sides (6) 21 Maybe marinate it in alcohol? (4) 23 Second half of porter's Scottish water (4)

abrasivE

antElopE

aromatic

carDinal

cHarcoal

cigar

cuDgEl

Dogma

EccEntric

EpisoDE

FramE

guarantEE

HockEY

inFEction

intEntion

invisiblE

knowlEDgE

manDatorY

marmalaDE

objEctivE

pacHYDErm

rivErboat

sHipsHapE

sHrub

situation

snakE

socializE

sounDlEss

spHErical

valEntinE

vElocitY

watErFall

CMYK

CMYK

SUdOkU

gARFiELd

diLBERT

CM

YK

“larry, do you

remember

where we

buried our

hidden

agenda?”



Sino-Pakistan cooperationmust be underpinned by afocus on knowledge,economics and technologydriven developments

Dr Muhammad Akram Sheikh

actionable

intelligence

08

AAHyAN MuMtAZ

THE recently announced results of UnitedBank limited (UBl) came above analystexpectations, with a growth in profit aftertax (PAT) of 36 per cent YoY and 24 per

cent on a QoQ basis. This bodes well for the bank,which is shaping itself to strengthen its position inthe industry, however, some concerns still remain.We present the key highlights of the analyst brief-ing held in Abu Dhabi on october 25, 2011.

Key takeaways from the analyst briefingnet interest income for the bank registered an in-crease of 18 per cent YoY to stand at Rs29.6 billionfor the 9MCY11. given that net performing ad-vances for the bank declined slightly to stand atRs326 billion at the end of the quarter, the increasein interest earned comes primarily on two ac-counts: (i) higher average 3month KiBoR whichhelped earning yield to increase by 60bps, and (ii)higher yields on investments led by government se-curities (+150bps) and corporate bonds (+110bps)on a YoY basis. Enhanced yields on advances aredriven by corporate advances, which naturally con-stitute the majority of the advances portfolio (59per cent). Adding to this, significant improvementwas seen with respect to consumer yields, reflectingpositively in terms of customer response to thebanks efforts to enhance its product range underthis segment. The other cause of increased markupincome comes from fattening of the investmentbook mainly sovereign securities – a trend that hascontinued to grow during this risk averse environ-

ment. However, with expectations of declining in-terest rates in the future as given by an invertedyield curve, the sustainability of this avenue beforebanks are forced to look towards lending again stillremains to be seen.

The jump in interest yields of 70bps YoY wasmuted somewhat by an increase in cost of funds by40bps YoY. However, on closer inspection, thisseems to be a deliberate strategy followed by thebank to grow the balance sheet through acquisitionof profitable, albeit higher cost of deposits. Averagedeposits increased by 18 per cent YoY over the cor-responding period last year and three per cent overthe previous quarter, led by growth in funds at-tracted from international avenues as the domesticmix remained largely the same. in this growth, thekey point lies in the maintenance of CAsA ratio at79 per cent. if the management philosophy is to bebelieved, the bank is positioning itself to capitaliseon growth opportunities in terms of future lendingavenues as and when they arise. The degree of suc-cess that the bank envisions versus the realisedquantum is a matter which only time will tell. nev-ertheless, for the time being net interest margin re-alised an increase of 30bps YoY.

The bottom line of the bank was also supple-mented by decent growth in non-markup income,up 24 per cent YoY. Frontrunners in this regardwere commissions earned, gains on foreign ex-change dealing, and derivative income. However,apart from fees charged, other sources of incomecan hardly be considered to be recurring avenuescasting significant doubt once again on the sus-tainability of this stream. nevertheless, one posi-tive to stand out was the result of cost controlmeasures adopted by the bank with operating costsremaining flat QoQ.

Another point of concern for the bank lies inasset quality. gross infection ratio for the bank hasseen a rise of 100bps to 14.9 per cent since Jun11only. it is claimed that this is the result of aging ofnPls rather than fresh infection. As the breakup ofclassified loans was not provided in the analystbriefing, it is difficult to certify this claim. Regard-less, concerns over the bank’s quality still remainwhich would lead to higher provisioning expecta-tions in the coming quarters.

Anlayst opinionThe scrip price of the bank stands at Rs55.27 asper the last trading session, trading at near low-est levels seen during the past 52 weeks. Thistranslates to a P/Bv of 0.95x which is compara-tively lower than other peer banks apart fromnBP. However, the P/E ratio of the bank standslargely at par with competitors except MCB, de-spite the sharp fall in share price seen for the lat-ter. Does this relative valuation indicate that thebank is undervalued? Maybe not, as the funda-mental analysis of the bank may suggest thatconcerns over future earning still remain. in-vestors seem privy to this and have not been at-tracted to the stock despite valuation. Anotherreason is a steady decline in cash dividend overthe years as the bank has preferred stock payoutsto the former, along with declining overall divi-dend yields. The one-month performance of thescrip has been similar to the general decline seenin banking sector stocks and little supports rea-son for a reversal of sentiments, at least in theshort run.

stANCe: HoLD

sHAHAb JAfRy

onE didn’t have to wait too long for a smalldose of rationality after last week’s land-mark euro-summit sweet-talked a two percent uptick in the single currency, spark-

ing risk appetite and bidding up commodity curren-cies. Yet the next day’s headlines sobered tradersposturing towards strategic longs as italy’s debtproblems resurfaced, vindicating my take that thetea leaves clearly signal a medium-term short on theeuro. Even oil pared earlier gains going into theweekend as European confusion combined with adecline in Japanese industrial output to renew fearsof weakening international growth.

The euro may still have some topside elbowroom left, but hardly any intrinsic strength beyondstrong resistance at 1.4250. last week’s suggestionto leverage the brief post-summit rally for a strategicshort still holds as scrutiny into the euro’s biggestone-day rise in a year reveals loopholes in the bailoutmechanism. The EsFs expansion, the 50 per centbondholder haircut, bank capitalisation require-ments, though impressive as an exhibition of conti-nental solidarity, hardly amount to a fundamentaldeparture from what 13 other summits achieved in21 months. greece is in default, italy’s borrowingcosts are rising and nobody has the slightest ideahow banks will raise $120 billion in present marketconditions, except handing out stakes to BRiC andemerging market sovereign wealth funds at heavilydiscounted prices. Even if possible, how it will helpEurope, its banks, or the euro is still not clear.

Despite a serious aversion to conspiracy theo-ries, i cannot ignore rumours of germany printingdeutsche marks when they come from Dr PippaMalmgren, an enigmatic former White House andDeutsche Bank economist whose deep understand-

ing of financial markets fascinated me some yearsago in Dubai, as my first baby steps in the compli-cated world of financial markets coincided with thecrash of ’08. This, combined with the german con-stitutional court ordering a halt on a parliamentarypanel’s efforts to green-light bailout disbursement,strengthens my conviction that the euro might notsurvive in its present form. For now, look for thetrend reversal to short with abandon. if meetingafter executive-level meeting cannot prevent anothergreat slide, the market will have already priced in thedeath rattle of the euro, ending an enchanting era ofthe euro area’s romance with the free market.

Even as euro remains the central figure, yen un-certainty is still on the rise despite the BoJ’s best ef-forts to discourage safe haven inflows. But with theyen at 75.78, finance minister Jun Azume has nomore rabbits to pull out of the hat, and interventionmust come soon. Currency appreciation has seri-ously hurt exporters, and Tokyo will not be able tohold off big companies from breaking down its doorfor long. nintendo, for example, expects to record its

first loss in 30 years, a bad omen for an economystruggling with years of recession.

strangely, bets are still open for interest ratedecisions from both Europe and America. Analystsare pretty much split on a possible QE3 asBernanke & Co juggle improved quarterly growthand a stagnant job market. Most European com-mentators expecting Mario Draghi to cut, on theother hand, fail to notice that Trichet was not theECB’s chief hawk, but Bundesbank executives stillparanoid from the hyper-inflation hangover of theWeimer Republic’s collapse. interestingly, Eu-rope’s existential uncertainty is proving beneficialfor sterling-longs as Wednesday’s euphoria sub-sides and risk makes its way out of the marketagain. But discretion should be the better part ofvalour for serious traders, as volatility abounds andthe risk pendulum swings at the euro’s cue. in theimmediate term, dollar, yen, sterling, oil and com-modity currencies will all move with the eurozone’sheartbeat, especially if the union goes into cardiacarrest. The devil, as always, is in the detail.

currency Market focus

Devil is in the detail?outlook going forward

PAIRs outLooK MARKet CuRReNt PRICe suPPoRt ResIstANCe

PosItIoN

euR/usD bearish oversold 1.4146 1.4148 1.4191

1.4113 1.4227

GbP/usD bearish oversold 1.6120 1.6108 1.6158

1.6068 1.6199

usD/CHf bearish oversold 0.8631 0.8619 0.8648

0.8597 0.8669

usD/JPy bullish Neutral 75.79 75.72 75.98

75.54 76.17

UBL – Measuring realperformance

Market Watch Misgivings aboutthe gold rallyg Last week’s surge just didn’t feel

right, particularly because MainStreet and Wall Street are bothnervous. A guns-and-gold strategy?

oNLINe bARRoNs

soMETHing is amiss when a 375-pointstock market advance seems suspect. Butthat’s the feeling after Thursday’s massive

stock rally. such pessimism often presagesanother rally simply because investor sentimenthas gotten too negative. But the recent surgehigher seems unsustainable when comparedwith the whirlwinds of concern surrounding themarket. it is difficult to be anything butcautious. Buying bearish puts on the isharesRussell 2000 (ticker: iWM) that expire earlynext year seems more prudent than just tradingoff the back of hedge-fund managers desperatelytrying to catch up with benchmark indexes,favorable seasonal trends, corporate earningsand the news that Europe’s financial crisis isapparently now under control. Main street andWall street usually disagree, but their worriescurrently sound eerily similar. That in itself iscause for concern. on Main street, stories havebegun to reappear about doctors declaringbankruptcy, or unable to access bank financing.Dentists claim patients are opting to have teethpulled for a few hundred dollars because theycan’t afford crowns that cost several times that.And stock brokers have noted an uptick in clientcomplaints about fees, more account closing anda general reduction in risk-taking. sounds morelike the beginning of 2008’s financial crisis thanthe start of a major rally. on Wall street, thefourth year of a global financial crisis has manyof the well-heeled nervous. A hedge-fundmanager recently told me his neighbors insummit, n.J., an affluent Manhattan bedroomcommunity, are teetering on the edge ofinsolvency. Their $20,000 to $30,000 inmonthly expenses consumes all their income.Another money manager carries around apicture of gold bars he stores in UBs’s vaults inZurich. There’s even talk again of bankersbuying guns. Preparing for civil unrest would beeasy to dismiss, if buying guns and gold were notincreasingly mentioned by serious people. Bysome accounts gold would be $2,000 an ounce ifnot for John Paulson, the hedge-fund manager.He is believed to be selling gold to cover investorredemptions because his funds have stumbled.At a recent gathering of the World Federation ofExchanges in Johannesburg, major stock andderivatives exchange leaders privately expressedconcern about the inability of regulators toaddress the global financial crisis’ fallout. ofcourse, they mostly excused themselves fromresponsibility. Consider credit-default swaps thatare used to insure corporate debt. They adverselyinfluence stock and options trading because theslightest trading activity or price changes areviewed as a sign that bad things might happen toa corporation. The swaps influence bearish putvolatility and invariably pressure stock prices,but the swaps, which have no position limits, areeffectively ignored because exchanges do notwant to anger banks that make big money inunregulated oTC derivatives like a CDs. Thepublic suffers because banks are increasinglybusiness partners, customers and shareholdersof for-profit exchanges. Politicians are similarlyencumbered. one exchange leader said thebourses are only required to regulate their ownmarkets — not the overall market. That’s the jobof the securities and Exchange Commission andthe senators and representatives who oversee theagency and the banks. Yet, exchange leadersadmit the financial markets are too complex tobe understood by the sEC and politicians. Thesegrim views should make you uneasy. if you wantcomfort, buy gold bars and coins, a 12-gaugepump shotgun, and slightly out-of-the-moneyputs on the ishares Russell 2000 index thatexpire in February or April. Two to four monthsinto the new year should be about when thecurrent bullish mood wears off and the scleroticglobal economy again slows the financialmarkets. Hopefully, this skepticism is misplacedand you are left with a fine story about how, inthe fourth year of a global financial crisis, theworld’s problems seemed intractable just beforethe hardships ended.


Documents

Profit 31-October-2011