April 30 (Bloomberg) -- Pakistan’s corporate regulator will introduce an insolvency law by July to enable companies hit by the economic downturn to be revived or taken over.

“There’s a national emergency,” Salman Ali Shaikh, chairman of the Islamabad-based Securities & Exchange Commission of Pakistan, said in an interview in Karachi yesterday. “Growing closures in the industrial sector and increasing non- performing loans in banking make it imperative to act.”

Pakistan’s textile makers and engineering companies are losing business as the nation’s economy grows at the slowest pace in eight years, global demand declines and the government struggles to combat al-Qaeda and Taliban militants along the border with Afghanistan. South Asia’s second-biggest economy had a total of 52,643 registered companies as of Dec. 21, according to the commission.

Under the so-called Corporate Rehabilitation Act, the judiciary will approve plans filed by debtors or creditors on how to revive a troubled company. The law, which provides for the setting up of a resolution trust corporation, was modeled on the U.S. Chapter 11 procedure and Mexico’s insolvency law, 2000, Shaikh said.

“This law will help companies survive in difficult conditions,” said Iqbal Ebrahim, managing director of al-Karam Textile Mills Ltd. in Karachi. “Existing laws make it even harder for companies which are already in trouble.”

Non-Performing Loans

Non-performing loans at Pakistani banks rose 30 percent to 325.4 billion rupees ($4 billion) in the six months ended Dec. 31, according to the central bank.

“Instead of resorting to a default culture, we need to have structures to enable troubled companies to get a soft landing,” said Shaikh, 56, who worked at the regulator as a commissioner for four years before being appointed chairman on April 13. “We need this law now because non-performing loans will rise by July.”

The law was developed after consultations with textile, cement and car makers, engineering companies and industrial units in the North West Frontier Province, Shaikh said. The NWFP, which borders Afghanistan and is the stronghold of Taliban militants, has been plagued by fighting and violence.

Pakistan’s central bank lowered its benchmark interest rate on April 20 for the first time since 2002 to spur lending. Bank loans to companies declined to 48 billion rupees in the nine months ended March 31, from 345 billion rupees a year ago, according to the central bank.

International donors meeting in Tokyo last week pledged more than $5 billion to help Pakistan shore up its ailing finances and fight terrorism.

Reference: http://www.bloomberg.com/apps/news?pid=20601087&sid=a_SwTCuoWfgA&refer=home

April 30 (Bloomberg) -- Pakistan’s stock market regulator may consider trading limits on the benchmark index and replace curbs on individual stocks to lure investors.

“This plan is on the table because it would allow easier entry and exit,” Salman Shaikh, chairman of the Islamabad-based Securities & Exchange Commission of Pakistan, said yesterday in an interview in Karachi.

The plan may change the current restriction, where shares worth more than 20 rupees (25 cents) can’t rise or fall more than 5 percent in a day and those trading below 20 rupees are limited to gains or declines of as much as 1 rupee.

Pakistan is seeking to boost investments after the benchmark Karachi Stock Exchange 100 Index fell 22 percent since the end of trading curbs on Dec. 15, making it the worst performer among 85 key stock measures tracked by Bloomberg. The exchange had restricted shares from falling below their Aug. 27 level in a bid to stem a decline in stocks.

The new plan to impose the trading limit on the index rather than shares “is in line with international practices and it is prudent,” said Shehzad Chamdia, a stock broker in Karachi. “It will help provide an exit mechanism in case of drastic declines.”

Pakistan’s stock index, which fell to a four-week low yesterday, declined a further 1.6 percent to 7,151.78 at 10:11 a.m. local time after 25 people were killed in political violence in Karachi.

Angry Investors

Investors stoned the exchange in July after a first attempt to impose limits failed to halt the share slump that threatened to undo a six-year rally. Overseas investors dumped $587 million of Pakistani stocks in the past 12 months, more than 13 times as much as in the same period a year ago, according to the National Clearing Co.

The law to convert the Karachi Stock Exchange into a company may be approved by the parliament in June, Shaikh said, paving the way for a share sale. The so-called demutualization process was approved by a panel of lawmakers last month, he said.

“Demutualization will improve governance, reduce conflict of interest by segregating ownership from trading rights and enhance confidence,” Shaikh said.

Demutualization is a process where a company owned mutually by members is converted into one owned by shareholders.

The Karachi, Lahore and Islamabad stock exchanges will be demutualized within 119 days after the parliament passes the Stock Exchanges Corporatization, Demutualization and Integration Act, 2009, Shaikh said. After that, the Lahore and Islamabad exchanges will be “encouraged” to merge into one bourse, he said.

Reference: http://www.bloomberg.com/apps/news?pid=20601110&sid=aHsFG7MeqrpM