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SBP initiates mechanism for disinvestment proceeds

KARACHI: The State Bank of Pakistan (SBP) on Tuesday introduced a new mechanism to enable companies in Pakistan to conveniently remit out disinvestment proceeds to their foreign shareholders aiming to increase investor confidence.

The SBP in a press release said the goal of this initiative is to make Pakistan a more attractive place for investment by increasing investors’ confidence and support ease of doing business. The new mechanism also incorporates feedback received from investors and other stakeholders, it added.

Pakistan has been facing worst situation as far as foreign investment is concerned for many years as the size of foreign investment is lowest in the region. In the 1QFY21, the foreign direct investment (FDI) in to the country fell by 24 per cent. The total inflows in during the three months were less than half a billion dollars.

“Under the new mechanism, the bank designated by the company has been delegated the authority to remit the entire disinvestment proceeds to non-resident shareholders, upon submission of required documents, by following a convenient mechanism without referring the case to SBP,” said the central bank.

The number of required documents would be in accordance with the size of the transaction, it added.

As per the previous mechanism, a designated bank required prior approval of the SBP for remittance of disinvestment proceeds above market value, for listed securities and above breakup value, for unlisted securities.

“This requirement presented numerous constraints for investors,” said the SBP.

For disinvestment proceeds not exceeding the market value or break-up value, the required documents would include copy of share purchase agreement, broker’s memo in case of quoted shares or break-up value certificate of a practicing chartered accountant in case of unlisted shares, latest audited financials of the company, signed M-Form, and an undertaking from the buyer that in case the transaction is between related parties, the same has been concluded at an arms-length basis.

For disinvestment proceeds exceeding the market value or break-up value, the additional required documents would include a detailed valuation and transaction due diligence by the buyer showing basis, methodology and key valuation metrics used for valuation.

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