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June 17, 1997


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Poor resource mobilisation affecting country's growth: experts

May was the second month in a row that the primary market saw a very low level of mobilisation through public issues, with just Rs 720 million being aggregated during the month. In April too, just Rs 730 million was mobilised.

This is a big drop from from Rs 11.32 billion in March, Rs 8.26 billion in February and Rs 16.51 billion in January, most of which was raised by financial institutions.

The number of issues too slid to a low of nine in May, a big drop from the 34 in January. There were 24 in February, 16 in March and 15 in April. In sharp contrast, there were 73 issues last May and 122 in May 1995.

Poor resource mobilisation is increasingly affecting the country's industrial growth, specially in new projects, according to experts. According to the latest reports, the fiscal year 1996-97 will end up with a meagre seven per cent industrial growth, compared to 12 per cent in the previous year.

The public issues of 1992-93 had helped finance industrial projects worth Rs 159.23 billion. This rose to Rs 332.29 billion in 1993-94 and then again to Rs 381.82 billion in 1994-95. Such growth was possible because the primary capital market was steadily growing.

However, the continuing depression in the capital market that began in 1995 and kept investors away caused promoters to shelve any adventurous plans.

So projects implemented through public issues in 1995-96, fell to 63 per cent of that in 1994-95 where Rs 140.40 billion was mobilised. It fell further by another 51 per cent to a meagre Rs 69.25 billion in 1996-97.

Significantly, most of the money raised from the primary market in the past two years went to the finance sector, not to manufacturers. In contrast, the manufacturing sector raised 83 per cent of the total funds was raised in 1994-95. This fell to 47 per cent in 1995-96 and then to 32 per cent in 1996-97.

The resources raised by the finance sector may ultimately find their way to the manufacturing sector through long- or short-term debt or through leased assets. However, the private sector will continue to seek equity.

Of the total mobilisation of Rs 116.48 billion in fiscal year 1996-97 through public issues, over 60 per cent was debt. Equity mobilisation has been taking a consistent beating, down from Rs 133.12 billion in 1994-95 to Rs 88.82 billion in 1995-96 to only Rs 46.71 billion in 1996-97. In 1996-97, the private sector's share hit a rock bottom at Rs 29.19 billion. In 1994-95, the private sector had raised Rs 125.21 billion in equity which had then fallen to Rs 66.63 billion in 1995-96. The decline in 1996-97 was an alarming 57 per cent over the last year and 77 per cent compared to 1994-95.

The poor state of secondary market has also slowed down listed companies's plans to raise capital. Not surprisingly, only 27 such companies, compared to 73 the previous year, went public during the entire year. Moreover, funds mobilisation through rights issues has also taken a beating, falling from Rs 126.30 billion in 1992-93 to only Rs 27.24 billion in 1996-97.

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