From stock brokerage to asset management and private businesses, Arif Habib has had a successful journey whereby he has turned many sick units into profitable ones.
Habib is the chairman of Arif Habib Corporation Limited, Pakarab Fertilizers Limited, Fatima Fertilizer Company Limited, Thatta Cement Company Limited and Arif Habib Dubai Multi-Commodities Centre. He also serves as a director in various companies, including Sui Northern Gas Pipelines Company Limited.
Having been elected as the president/chairman of Karachi Stock Exchange six times in the past, Habib is also the founding member and former chairman of the Central Depository Company of Pakistan Limited.
An ardent cricket fan, Habib started playing cricket in 1967 when he was 14 years old. Even today at 60 years of age, he still plays the sport. He believes that if he was not a businessman then he would have been a retired cricketer.
Other than cricket, he enjoys listening to ghazals, especially ones that have good poetry and his favorite poet is Habib Jalib. Despite the deteriorating law and order situation in Karachi, Habib loves to drive town alone, without any of his bodyguards.
Q. In an era of specialisation, Arif Habib Group has several businesses that are not related. How do you manage this?
A. We began as a brokerage firm and then we entered asset management business. Initially, the company invested in listed companies only and when there were adequate funds, private equity investment to non-listed companies was also offered. In this process, the company also participated in the government’s privatisation programme.
Some of the investment we made as private equity investors were successful as our model was to identify technical partners, invest with them and assist them in financial structuring, fund raising and for introducing corporate governance principles.
The entire process went well, however during 2008’s financial crisis, some companies faltered and some partners couldn’t contribute additional capital to support our company. Thus, we had to provide additional capital to support those companies, whereby we also had to take over management and create capacity within the Arif Habib Group.
Q. What are the group’s future investment plans?
A. The fertiliser business is doing well and the group is setting up a company in Indiana, USA. We will be acquiring 51 percent shares of Midwest Fertiliser Corporation for a total investment of $1.7 billion.
The government of Indiana has raised $1.26 billion loan requirement for the project at five percent interest rate and $44 million will be contributed by the group.
Other than that, we are also establishing Sachal Energy Development (Pvt.) Limited’s wind power project in Gharo, Sindh. With an investment of $130 million, the project will be completed in two-and-a-half years and it will produce 50 MW.
Q. What’s your take on Pakistan’s current economic scenario?
A.It is challenging mainly because of weak public finance. The government has not taken effective measures to contain the rising fiscal deficit and current account deficit. However, businesses in Pakistan are thriving and most economic sectors seem to be making profits.
A large chunk of our GDP does not contribute to taxation, which is why the tax-to-GDP is dismally low. In fact, agriculture and trading sectors account for 41 percent of GDP but they contribute only three percent to total tax revenue collection. There’s immense scope to increase tax revenue collection if the government takes serious steps to bring these sectors into tax net.
Q. What are the sectors that have high investment potential?
A. At present, foreign investors are reluctant to invest in Pakistan as it’s a high-risk region. This has an adverse impact on the country’s current account. However, if the law and order and energy situation are improved then there’s great scope for investment in Pakistan.
The agriculture sector has high investment potential. Despite being blessed with fertile land and favourable weather conditions, agriculture yield in Pakistan is low as compared to other countries. Hence, there is still room for improvement and a lot can be done to give a boost to this sector. It is pivotal to develop a corporate farming culture and bring in educated people to the agriculture sector in order to get good results in a short time period.
The oil and gas exploration sector is another sector where good profit margins are also available. Other sectors that offer high potential for investment include textile, real estate and retail.
The media has created a negative perception of Pakistan. Although there are several grave challenges that need to be adressed, there is also a lot of positive in Pakistan that should be highlighted by the media to attract foreign investment.
Q. The general elections are around the corner. Will a change in government help address Pakistan’s economic woes?
A. Things on the economic front will improve if the elections are held on time and the democratic process continues. However, the business community should understand that the economic situation cannot be changed overnight. It will take time like any other process.
Q. In the current scenario, are you bullish on Pakistan?
A.Despite all odds, Pakistan has a good track record of providing high profitability margins to investors.
In the last twelve years, the Karachi Stock Exchange has given an annual return of 35 percent to investors. Since 2001, the Pakistani rupee has depreciated by five percent per annum and the market has given a 29 percent return in dollar terms to investors. Such type of investment is not available to investors anywhere in the region. A lot of new developments, which have already taken place in other parts of the world, are yet to occur in Pakistan. This will provide further opportunities to investors and offer high returns to them.
Q. What are the major challenges faced by Pakistan’s business sector?
A. Deteriorating law and order, energy crisis and lack of good governance. The d law and order and energy situation are the results of lack of planning and mismanagement by the government. If the government is able to tackle these issues and revive investors’ confidence, both local and foreign investment would increase.
Q. Real estate is among your key businesses now. How do you view the sector?
A. Corruption in the regulatory framework and the existence of land mafia are challenges that impede the sector’s growth. Despite these challenges, there is enormous potential in low income housing projects and high-end property and the profit margins are also high in the real estate sector.
There is a need to form a department which would deal with the challenges faced by the sector. The government should endeavour to provide long-term housing loans to people.
The Arif Habib Group is in the process of launching Real Estate Investment Trusts (REITs). Once the REITs are launched, small investors will be given an opportunity to invest in real estate projects as the minimum rate of return will be 12 percent and more. In addition, REITs will also help to finance different real estate projects, which are otherwise difficult to launch by single investors.
Q. And the stock market?
A. The stock market is trading at price earnings multiple of seven, while regional markets are trading at price earnings multiple of fourteen. I still believe that the stock market has not reached an all-time high because last time when it was trading at price earnings multiple of twelve, it had reached the 26,000 level.
Author:Hina Mahgul Rind
Source: From rags to riches
From rags to riches
From rags to riches
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