Karachi, March 15, 2023 (PPI-OT): Repatriation at all-time low – Dividend payables also reflect the trend

Repatriation has declined from average US$135mn/month during FY22 (total: US$1.6bn) to US$30mn/month during 7MFY23 over efforts to contain SBP foreign exchange reserves. In Jan-2023 alone, repatriation declined to all-time low at US$2.9mn.

The impact of the same is also reflected in rising dividend payables on listed companies’ books, especially that have material foreign shareholding. Tabulating data of 19 companies with material foreign shareholding reflect cumulative dividend payable increase of 4x in a year, reaching US$230mn. Adding Dec-2022 quarter dividends, the backlog may increase to US$353mn.

Securing IMF nod and unlocking fresh funding remains critical towards normalizing the repatriation flows as a prolonged backlog of the same would negatively impact foreign investor sentiment and dent prospects of future FDI flows.

Jan-2023 repatriation declines to US$2.9mn

With all efforts to improve State Bank of Pakistan’s (SBP) foreign exchange reserves position, a lot is also being done to contain outflows as much as possible. While administrative controls on imports, incentives to exporters and debt roll overs are doing their part to minimize any decline in reserves, another moving part – Repatriation, albeit relatively smaller than the aforementioned factors, is also apparently bearing the brunt.

Deferment of repatriation has provided some support to SBP’s foreign exchange reserves in the recent months, where repatriation has declined from an average of US$135mn/month during FY22 (total: US$1.6bn) to US$30mn/month during 7MFY23.

The same has however begun to create issues for foreign investors of Pakistan as for the month of Jan-2023 alone, repatriation levels stooped to all-time low in recent history to US$2.9mn, almost reflecting a halt in outflow of funds going back to respective home countries.

Dividend payables jump 4x

While among the key portions of repatriation is corporate dividends, we tabulate Dec-2022 quarter’s announced dividends of KSE100 companies that would potentially have material foreign shareholders, assessing an additional backlog and filter 19 companies.

Accumulated data for these companies so far report outstanding dividend payables of Rs52bn, a 4x increase from Rs13.8bn as at Dec-2021. At respective year-end PKR/US$ rates, the outstanding dividend payable amounts to US$231mn, 3x up from US$78mn even with 22% PKR depreciation during CY22.

Dec-2022 quarter dividends to add to the backlog

Moreover, dividends of these companies announced with Dec-2022 results accumulate to another Rs34bn. Adding Dec-2022 quarter dividends at current PKR/US$ rate (20% down since the start of CY23), outstanding dividends to foreign shareholders increase by US$122mn. For perspective, Dec-2022 quarter dividends would further increase the backlog by more than 50%.

External flows needed to secure investor confidence

These numbers are less substantial when compared to other scheduled payments such as imports and debt obligations due for the coming months that accumulate to billions in US$. Consistent delay in the smaller US$-based flows and piling of the outstanding dividend payables, however, reflects the graveness of the country’s external position, making timely nod from IMF and receipt of flows from other global lenders crucial than ever.

In addition to capital market investor confidence deteriorating from Pakistan’s weak external balance, the prolonged delay in allowing repatriation is also likely to impact prospective and existing foreign direct investments in Pakistan. The delay in flows from Pakistan is among the triggers for the recently announced exit of Virgin Atlantic airlines, within two years of running its shop in Pakistan.