Enquiries are being received whether pursuant to the promulgation of Central Depository Act, 1997 and induction of Central Depository System (CDS) providing book-entry transfer of shares / securities, any change / amendment in the existing foreign exchange regulations with respect to purchase/sale and transfer of shares and securities to the non-residents, is necessary. Since under CDS rules the members / shares holders record at the Central Depository Company (CDC) would be an extension of members /  share holders register of the company concerned, no major amendment in the existing foreign exchange regulations governing issuance, transfer and export of shares / securities in favour of persons resident outside Pakistan are warranted. However, certain procedural changes have become necessary for proper reporting and effective monitoring of foreign investment. Sub-para (C) of Paragraph 7, Chapter XX of Foreign Exchange Manual is therefore amended and replaced with the following:

Procedure for issue of shares

(c) I-After registering transfer of shares in favour of a non-resident as permitted vide sub-paragraphs (a) and (b) of paragraph 6, the company concerned shall send within 30 days of such registration, an intimation by letter (in duplicate) to the designated banker showing the name, nationality and address of the non-resident shareholder and the number of shares registered in his name alongwith its face value. The letter should be accompanied by proceeds realization certificate, showing the amount of sale price received in Pakistan, certificate of the transferee as applicable and practicing Chartered Accountant’s Certificate of break-up value of shares in case of Private Limited or unlisted Public Limited Companies. The designated bank will retain a copy of the letter for its record and keep the second copy alongwith the proceeds realization certificate, certificate given by the transferee, and practicing Chartered Accountant’s certificate of break-up value if applicable for onward submissions to the Foreign Exchange Department (Investment Division), State Bank of Pakistan, Central Directorate, Karachi in the consolidated form before remittance of dividend with a copy of Appendix V-59 and/or alongwith application for issue and export of bonus / right shares as above, as the case may be. the designated Authorised Dealer, before passing on the documents to the State Bank, will ensure that the following particulars of the inward remittance have been further certified by the concerned Authorised Dealer (issuing bank) under his signature and seal on the bank of each proceeds realization certificate:-

1. Amount of Foreign Currency

2. Date of receipt

3. Rate of exchange applied.

4. Rupee equivalent

5. Page No. Item No. reference of schedule and period of monthly exchange returns under which the transaction has been reported to the state bank.

Special Instructions regarding shares transferred under Central Depository System (CDS) of Central Depository Companies.

II (i) General

a) Separate account or sub-account will be opened & maintained at CDC for each non-resident investor eligible for investment in registered shares/securities quoted at stock exchange in Pakistan

b) It must be ensured that all transactions at CDS i.e., deposit into or with drawl from the account/sub-account of a non-resident is supported by actual movement of funds. In other words, there should not be any netting / adjustments and payment/receipt in respect of each purchase / sale should be settled independent of other transactions of the non-resident. In case the investment by the non-resident is made/routed through his Special Convertible Rupee Account( SCRA) maintained with an Authorised Dealer in Pakistan, the SCRA should never show an overdrawn position.

(ii) Initial transfer in the name of CDC

While approving the initial / first-time transfer of shares / securities purchased/held by non-residents, in the name of CDC for deposit into CDS the company concerned will ensure that the shares are already registered in its record on repatriable basis inthe name of the non-resident concerned. If the shares are not already so registered, the company will obtain requisite documents issued in the name of investor concerned, i.e., broker’s memo, proceeds realization certificates (PTCs)’ for cost of shares purchased and transfer stamp duty, or where the shares have been purchased from another non-resident sharehodler against payment outside Pakistan, Transferee Certificate alongwith PRC for transfer stamp money.

(iii) Subsequent transactions i.e., deposit/withdrawal at CDS.

(a)   Where investments are madet hrough SORS, the Authorised Dealer concerned will continue to ensure that complete / proper record of all transactions is kept at their end and the annual statements of SCR’s is furnished to the State Bank as usual. as at present documents involving such investment would not be required to be submitted to the company at any stage.

(b)   In case of investments not involving SCRA, the original documents as listed at (ii) above will be submitted as usual to the respective company by the ‘Participant’ concerned alongwith a certificate that the shares are in the name of CDS and have since been deposited into / withdrawn from the respective non-resident’s account at CDS. the company after making necessary entry in it's record to update CDC’s non-resident holding, will furnish the same to it's designated Authorised Dealer. The Authorized Dealer will keep these documents in its record for onward submission to State Bank in the prescribed manner alongwith returns pertaining to dividend / bonus or right issue and will as usual make the remittence of disinvestment proceeds of such shares subject to the prescribed drill / rules.

(iv) Dividend Payment / allotment of bonus or right shares:

CDC will issue to the respective company a list of beneficial non-resident shareholders certifying their individual holding as on Ex-date of dividend / bonus / right as per attachment of this Circular. Before issue of dividend warrant or allotment of bonus / right shares the company will verify the holding of non-residents not involving SCRs from its record including interalia as mentioned in sub-para (iii) (b) above and for the non-residents investing through SCR’s, it will obtain an undertaking-cum-certificate from the authorised Dealer concerned on the attachment II of this Circular, and on the basis of this undertaking-cum certificate it will certify Appendix V-59 & V-96 and V-96A for such shares. The aforesaid list provided by CDS will invariably be attached by the company to the aforesaid returns.

 

 

2. For the sake of clarification and avoidance of doubt the following further amendments are made in the Foreign Exchange Manual:-

1. The words "as per procedure out lined in Para 13(b), Chapter XIV" may be inserted after the words "disinvestment proceeds: appeared in line ten(10) of sub-para (a) of Paragraph 7, Chapter XX.

 

 

2. The following may be added to item (i) Sub-para (d) of Paragraph 13, Chapter XIV as well as item (i) of sub-para III (b) of paragraph 7, Chapter XX:-

   "Where the companies / auditors have not accepted the entitlement in respect of some shareholders, the application may be certified with their reservation and entitlement of others released pending reconciliation. Entitlement in respect of un-resolved cases may be realeased through a supplementary consolidated application after the matter is finalized."

 

 

3. The first line of Sub-para (a) I of Paragraph 6, Chapter XX may be replaced with the following:-

   "Issue of shares/Modaraba Certificates / Trust & Fund Units out of new public offers including right issues, on repatriable basis"

 

 

3. The words "including right shares" may be inserted after the word "shares" appeared at the end of 1st line of second proviso of sub-para (a) I of Paragraph 6, Chapter XX.

 

 

ATTACHMENT - II OF
F.E. CIRCULAR NO. 7/98

UNDERTAKING-CUM-CERTIFICATE REGARDING SHARES HELD AT CENTRAL DEPOSITORY COMPANY (CDC) ON REPATRIABLE BASIS BY NON - RESIDENTS MAINTAINING SPECIAL CONVERTIBLE RUPEE ACCOUNTS (SCR’s):

We hereby certify that our below-mentioned non-resident clients maintaining Special Convertible Rupee Accounts (SCR’s) with us hold shares of as indicated against each at Central Depository Company on repatriable basis and that he/they was/were eligible under Foreign Exchange Regulations to make investment in Pakistan. It is further certified that the requirements of Foreign Exchange Regulations of State Bank of Pakistan including those of F.E. Circular No.7 dated 28-3-1998 have been fully complied with and that we are in possession of all the original prescribed/required documents regarding investment in these shares:-

2.  We undertake that in case any discrepancy is subsequently detected by the State Bank of Pakistan, CDC or the company/its auditors in the aforesaid shareholding, we shall forthwith on demand by the State Bank of Pakistan, arrange for repatriation of the relative amount to Pakistan through normal banking channels.

• Statement of Shares/Securities Deposited at Central Depository Company (CDC) :(Attachment of F.E.Circular No. 7/98)