ISLAMABAD: The stock market crash in Pakistan has already hit one very unlikely institutional gambler, the Capital Development Authority (CDA), with a whopping Rs600 million, and if and when the market opens the loss may balloon to a billion rupees.

“Our investment in the stock market faces an erosion of 30 to 40 per cent if we sell our shares immediately,” Saeedur Rehman, CDA Member Finance, told The News.

But analysts say the CDA cannot sell any share as the market has been floored for the last three months and whenever it opens, it would immediately fall down by another 30 to 40 per cent, leaving the CDA with a loss of almost one billion rupees.

However, he said if the CDA holds its shares, getting the due dividend, waiting for the market to improve, it may be able to retrieve its investment. How long this may take is not clear. “It all depends on how long we can hold our investment,” another official said and added the CDA money was invested in the stock market more than a year ago when the bourse was witnessing a boom and investors were multiplying their money. Billions were lost when the market nosedived.

The CDA, which always used to have abundant funds at hand, is now in a financial crisis. While there are fears that major ongoing projects may be affected to some extent, the CDA may not be able to undertake any big fresh development in the near future.

There was a time when the CDA used to run its annual administrative expenditure from the colossal amount of interest, accruing on its deposits with banks. Saeedur Rehman admitted that the CDA was faced with the shortage of funds, but said not a single payment to contractors has been stopped for lack of money. He said the main reason behind paucity of funds was that the CDA did not generate money by auctioning residential or commercial plots over the past year.

Feeling financially tied up, the CDA will be auctioning plots later this month and hopes to generate a good amount of funds. “We expect to receive around Rs1.3 billion through this auction by the end of the current financial year,” Saeedur Rehman said. “We are selling just a small portion of plots available with us.”

However, the other view was that because of the depression prevailing in the market, the CDA may not fetch a good price for its plots.Another senior CDA official said the auditor-general of Pakistan has been asked to prepare a report on its investment in the stock market. He said it would be determined only after the receipt of the report.

The CDA made the investment in the stock market through its treasury department, which was established on the directive of the federal government, during the tenure of Kamran Qureshi, as member, finance, CDA.

When contacted, Qureshi told The News the CDA was getting a quarterly dividend of Rs11 million on its investment in the bourse, which it would continue to receive till the time it sells its shares.

He said after going through a long transparent process the treasury department was set up in April 2007 and the CDA, which had never invested in the stock market, went to the stock exchange. He said the treasury department earned a profit of Rs2 billion for the CDA in other heads since its creation.

But market experts said such investments by big institutions were always done in shady conditions and it was normal that if profits were made, the institution’s fund managers would pocket some or all of the profits in their own parallel personal accounts but if there were losses, the organisation would be debited.

According to one expert, the CDA must publicly reveal names of the brokers through which it carried out this stock trading and also disclose the Universal Identification Number (UIN) so that it could be ascertained whether any profits during the boom days of the stock market were siphoned off.

The CDA investment, Qureshi said, remained at an average of Rs700 million out of its total funds of Rs16 billion at the time, till July this year. During this period, he said, the CDA earned a profit of Rs161 million (meaning 23 per cent return) on its investment in the stock market. He said the finance ministry had instructed government departments that they should invest in the non-government securities.

Qureshi said after the establishment of the equity market fund by the federal government, the finance ministry directed government departments to make investment in the stock market and then CDA’s investment in the bourse went up to Rs1.5 billion in October 2007 where it now stands.

During the incumbency of the outgoing CDA chairman Kamran Lashari, a number of major projects, especially construction of avenues (expressways) dividing two sectors, underpasses and a cloverleaf, which were widely appreciated by the people at large, were undertaken and billions of rupees were spent on them. At the time, there was no complaint about shortage of funds.