High connections: David Miliband joins Pakistani private equity firm

KARACHI: In what appears to be a coup for the fledgling Pakistani private equity industry, Indus Basin Holdings has managed to get Britain’s former foreign secretary David Miliband on board as a senior adviser.

“We are delighted to be able to bring on board the expertise of Miliband who knows the region and its challenges well,” said Indus Basin founder and CEO Aamer Sarfraz, according to a press release issued by Miliband’s office. “He shares our conviction that investment in Pakistan’s agricultural sector can have substantial long-term impact on the country’s poorest farming communities.”

“I am delighted to be advising Indus Basin Holding, a company that is investing in Pakistan’s future at a time of such fundamental importance,” said Miliband in a press statement. “I care deeply about Pakistan, the development of its economy and its future in the wider region. IBH is committed to developing an agricultural sector which has huge potential, but currently lacks investment. I look forward to working with IBH in building support and investment in Pakistan’s agricultural capacity and productivity.”

Officials at the company say they had been trying for the past year and a half to secure the contract with Miliband, who served as Britain’s foreign secretary between 2007 and 2010. He also served as Britain’s secretary of state for the environment, food and rural affairs previously.

Some of the largest private equity firms in the world are known for employing high profile non-serving statesmen on their advisory boards. This practice was made famous by the Washington-based Carlyle Group which employed both former US president George Bush Senior and former British prime minister John Major on its various advisory boards. More recently, former Pakistani prime minister Shaukat Aziz joined the advisory board of the US private equity firm Blackstone Group.

The purpose of employing such high profile people on a company’s advisory board is two-fold. Firstly, their experience as statesmen gives them extraordinary macro-level insight in terms of the opportunities that exist around the world. Secondly, their connections both in governments as well as amongst large corporations and wealthy individuals often make them a valuable resource in opening otherwise inaccessible doors and closing deals.

Indus Basin Holdings is only a relatively recent entrant into Pakistan’s nascent private equity and venture capital space but already began to attract a lot of attention for the kinds of big-name investors it was able to attract in its fund, which is focused on capitalising on opportunities presented by raising productivity levels in Pakistani agriculture.

The company’s investors include Tim Draper, the famous American venture capitalist known for being an early investor in Skype and Hotmail, and Baron Lorne Thyssen-Bornemisza, a Swiss aristocrat whose family owns the ThyssenKrupp, a German technology conglomerate with over 670 subsidiaries and 200,000 employees worldwide.

Indus Basin’s investments currently include Agroventures, a Faisalabad-based breakfast cereal manufacturer, and Rice Partners, a company that is focused on contract farming and marketing Pakistani rice directly to North American and European retailers.

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Finance minister to visit KSE today

KARACHI: Federal Minister for Finance, Economic Affairs, Revenue and Statistics Dr Abdul Hafeez Shaikh, accompanied by the Chairman of Securities and Exchange Commission of Pakistan (SECP), Mohammad Ali, would visit the Karachi Stock Exchange on Saturday (Jan 21).

The minister would exchange views with the members at 3:30 in the afternoon. There was a rush of blood as the announcement was made at the KSE on Friday morning.

Equities all across the board galloped with the KSE-100 index running up 367 points to highest 11,516, but pulling back 100 points and close at 11,775.

The investors were enthused by the hope of a change of heart on the part of Federal Board of Revenue (FBR) in regard to thelong held grievances of investors in equities over the Capital Gains Tax (CGT).

The Friday’s announcement at the Exchange pointed to a possible solution. “The reason for the visit is to appraise members of the Exchange about the progress made between the SECP and the FBR with regard to CGT as well as other important issues related to capital markets,” the KSE said.

To fuel the fire of optimism, investors noted that the visit was following on the heels of the Jan 13 letter written by the SECP tothe FBR.

A copy released at the stock exchanges, stated, in brief, that there was “a general consensus in discussion between the SECP and the FBR that: “maintaining status quo on CGT was not in the interest of the economy as it had adversely impacted tax revenue collection as well as trading volume at capital markets (CM).

Besides CGT had adversely affected investor’ sentiments, capital formation and overall functioning of the CM.

SECP proposed revamp of CGT regime in a manner which not only addressed issues as well as met the overall objectives of FBR, SECP and CM.

In Pakistan, securities trading had remained exempt from CGT for 36 years, since 1974 till June 30, 2010.

Imposition of CGT from July 1, 2010 had not only impacted the tax revenue (less than 10 per cent of figure three years ago) but it had also reduced average traded value to the lowest level during the last ten years.

The adverse impact on price discovery; withdrawal of investors; business viability; capital formation and resource allocation were also explained by the SECP.

Regarding “The Issues in CGT implementation and Objectives of Stakeholders,” the Regulator had stated that since the CGT had remained exempt for past 36 years, it had created an anomaly in shape of un-documented gains accrued through transactions in the CM during that period.

Even though the requirement of filing of tax returns was there, yet it was neither followed by CM nor implemented by FBR.

This led to a situation where CM investors ended up with legitimate but undocumented gains.

Abrupt change from exempt regime without factoring this anomaly had forced investors to withdraw funds from CM. The other issue was the cumbersome calculation and documentation requirements embedded in CGT regime.

Prior to CGT imposition, CM was under the presumptive tax regime under which tax was deducted and deposited by the Exchanges. And lastly continuation of withholding tax (WHT) after CGT was double taxation, i.e. taxing both turnover and net income. Equity demanded that with imposition of CGT, WHT on turnover should be done away with.

SECP recommendation on measures in CGT regime that could address the issue and achieve objectives of all stakeholders included the following: As the documentation was not available to substantiate the gains made from CM transaction during the exempt period, SECP proposed that applicability of Section 111 of Income tax Ordinance 2001, requiring unexplained income or assets may be deferred for funds invested in CM till June 30, 2014; and to freeze CGT rate at the current rate applicable for year 2011-12. To simplify calculation and ensure timely deposit of tax revenue generalised collection mechanism at National Clearing Company of Pakistan was recommended. The apex regulator also discussed advantages and disadvantages of its proposed ‘way forward’.

The SECP nonetheless highlighted “The tax collection by the Government from CGT and other income, for all times to come once an investment is made and documented will be far greater than one time upfront charge.” “The ‘way forward’ would not only retain overall spirit of CGT regime but also achieve various stakeholders’ objectives and revive CM”, the chief regulator concluded.

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Free trade: ‘Pakistan, India both violating WTO rules’

ISLAMABAD: Like Pakistan, India too is violating World Trade Organisation (WTO) rules by opting for a discriminatory investment regime against Islamabad but the policymakers are not interested to push New Delhi to amend its rules before doing the same themselves.

In a briefing to the media here on Friday, Commerce Secretary Zafar Mahmood said India has Pakistan-specific non-tariff barriers to restrict trade in services and block investment from Islamabad. He, however, said New Delhi did not have non-tariff barriers for trade in goods.

He said he had discussed this issue with his Indian counterpart but the government would not push for resolving the issue before establishing a non-discriminatory trade regime, commonly known as the most-favoured nation status.

Pakistan is not complying with the WTO regime and has added Annexure G to its Export Policy Order that restricts import of Indian goods to only 1,958 items.

The cabinet has authorised the commerce ministry to negotiate with India normalisation of bilateral trade.

“Pakistan will first negotiate outstanding issues on goods and then matters relating to services will be taken up,” said Mahmood while responding to a question.

Commerce Minister Makhdoom Amin Fahim, who was also present during the briefing, dispelled the impression that Pakistan was dragging its feet on trade normalisation with India under pressure from military circles and said “all stakeholders are on board for trade normalisation including the military”.

He said Indian Commerce Minister Anand Sharma would visit Pakistan from February 13 to 16 in an effort to push forward the trade normalisation process. A delegation of Indian businessmen will accompany the minister and will take part in the “Made in India” exhibition.

Fahim said the ministry has moved a summary to Prime Minister Yousaf Raza Gilani, seeking his permission to allow India to display even those goods that could not be imported from India presently.

During the visit, Pakistan would negotiate three pacts with India to ensure a level playing field for its exporters before implementing the free trade regime, said Mahmood.

First is customs cooperation agreement to address Pakistani exporters’ complaints about high taxes in India, second is mutual recognition agreement for standardisation of quality standards and third is grievances agreement to address consumer protection issues.

In September last year, Pakistan decided to replace the positive trade list comprising 1,958 items with negative list by February 2012. However, Fahim said the negative list, containing items that would not be traded between the two countries, would only be implemented after ensuring protection to the local industry.

He said Pakistan may impose quotas on Indian imports under safeguards policy, duly recognised by the WTO.

However, the minister urged pharmaceutical and automobile manufacturers to increase their competitiveness instead of seeking protection.

WTO waiver

Fahim announced that the WTO would likely give a waiver to the European Union package for duty-free access to export of 75 items from Pakistan. He said the WTO’s Committee on Customs Valuation of the Council for Trade in Goods would meet on February 1 as all opposing countries have withdrawn their objections.

However, the commerce secretary said to address the concerns of competing countries like Bangladesh, Brazil and Peru the EU has proposed imposition of quotas on duty-free exports. He said the quota would be 20 per cent higher than average exports made to Europe in the last three years.

The EU had offered duty-free exports in response to the devastating floods of 2010 but the matter has dragged on in the WTO due to opposition from India and other countries.

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