Why do companies delist in Pakistan?

KARACHI: Shield’s baby feeders are a common household essential for many families. Considering Pakistan’s high population growth rate, one might expect the business to be thriving. However, recently, Shield Corporation has decided to delist, joining the ranks of companies like Gillette and Philip Morris.

In the 1980s, Pakistan offered a 5 per cent tax advantage to firms that listed on the stock exchange, explains Ali Farid Khwaja, CEO of Oxford Frontier Capital and Co-founder and Chairman of KTrade. That incentive drew dozens of family-owned textile mills and others to the PSX.

That incentive no longer exists. Once the tax break went away, many firms had little interest in public shareholders. They quietly bought back shares, shrank the free float, and continued operating like private family businesses. This explains why many listed companies today have negligible trading volumes.

Some delist simply because public ownership is insignificant. Philip Morris fits partly into this category: its free float was 5pc, small enough to make the listing meaningless while still inviting regulatory scrutiny.

“When you’re listed, you become transparent. If you delist, these requirements go away,” says Asad Ali Shah, former managing partner of Deloitte. Being listed increases visibility, reporting obligations, and tax scrutiny. It also limits the ability to operate in the “grey zones” common in Pakistan’s largely undocumented economy and can make competition harder when non-listed peers are less constrained.

Multinationals often prefer to book profits in lower-tax jurisdictions. Listing complicates this because shareholders can question intercompany transactions, import pricing, margins, and royalties. Pakistan’s regulatory apparatus does not meaningfully oversee transfer pricing. “Not a single transfer pricing case has been pursued to conclusion,” notes Mr Shah. Through transfer pricing, profits can be kept in low-tax jurisdictions while the local listed entity shows thin margins or even losses, he explains. Those losses can then be carried forward for years as tax shields. Once listed, all this becomes visible.

Listing also helps families manage inheritance across generations. “For large family groups with multiple sub-families, a listed structure makes it easier to distribute wealth while keeping the business intact,” notes Mr Khwaja.

Sayyid Babar Ali writes about this in his autobiography, Mr Khwaja points out. In family-driven businesses, listing provides liquidity, inheritance planning, and the ability to monetise a small portion of shares without giving up control.

Being part of a family business holding shares in a listed company can also generate windfalls. Even selling a tiny fraction of shares at a high price brings cash, and when prices fall, you can buy back. Notices on the PSX often show independent directors, family members, mothers, sisters, and aunts selling small percentages and buying them back. Some families also strategically let prices fall and rise again to maximise returns.

Delisting is expensive. Public shareholders must be bought out at a premium, sometimes many multiples of the share price. Pak Suzuki Motors’ stock illustrates this: from around Rs100 before its delisting notice in April 2023, it shot to Rs900 on January 11 2025. Eventually, Suzuki Japan set a minimum share price at Rs406, but the PSX ultimately fixed the buyback at Rs609. Similarly, when Gillette’s delisting news broke, the stock climbed from Rs212 on October 1 to Rs605 by October 16, before settling at Rs340 by last Friday’s close.

M. Farid Alam of AKD Securities adds that delisting also affects price discovery and competitive pressures. In Pakistan, most listed companies are tightly held, with sponsors owning 90-95 per cent of shares, unlike global markets where 10-20pc is often sufficient.If tax rates remain high, more large companies may eventually consider leaving the stock market. Yet delisting is complex and costly, so many companies remain listed by default, even if it is no longer their preference.

Published in Dawn, November 23rd, 2025

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