(For readers not familiar with CFS, it is a form of 'margin financing', a short-term loan using net-cash as collateral)
- It is probably incorrect that CFS stake in market today is Rs 11bn. KSE alone had around Rs 20bn CFS stake on Aug 26 when market was suspended. Add to that the stakes in LSE and ISE (appx at some billions scale).
- Basically this move means that CFS financers are taking risk on their shoulders to save market biggies from going bankrupt. As long as they are private entities, its their choice (but normal private entities do not do this).
The problem is that a large number of CFS financers are public money, either significantly govt owned entities or mutual funds. If they are doing this irrational move against interests of their public shareholders, some of these managements may have been bribed (at 10%?).
- From another perspective, this move obviously weakens financial positions, and more importantly weakens business confidence in entities involved in this network, like many major banks, some mutual funds, most brokers and biggies.
One may want to stay away dealing with these entities, at least until the dust settles.
- This also means that shares supported by CFS system (PTCL, OGDC, NBP, FFC, DGK Cement, PSO, Pak PTA, POL, PPL, SNGPL, BoP, MCB, Fauji Cement, Hubco) may face some additional selling pressure until gambling positions are cleared.