The Pakistani stake in over 100 listed Indian companies

What do Tata Steel Ltd, Birla Corp. Ltd, Hindustan Unilever, ACC Ltd and Reliance Infrastructure Ltd have in common?

Besides being marquee names, all of them have a particularly interesting shareholder—the Custodian of Enemy Property for India. This office emerged as a bureau that takes into custody and maintains enemy property in India after the 1965 war between India and Pakistan. It today holds around $400 million in listed companies alone.

An analysis of the Custodian’s holdings, obtained under the Right to Information Act on an application filed byMint, reveals that the original owners—typically Pakistani or Bangladeshi residents—still hold stakes in at least 109 existing publicly listed companies. This is the first time that the list has been made public in the nearly 50 years since the Enemy Property Act came into being in 1968.

The original owners also hold stakes in an additional 468 companies which are not traded on the stock market. This takes the total to 577 companies on which information such as number of shareholders and total shares held is available.

At least one individual has claimed these shares in recent times. The claim is forRs.500 crore worth of Wipro shares, according to a 14 January report in The Indian Express. Wipro is only one of over 100 listed companies in which Pakistani (including those from erstwhile East Pakistan, currently Bangladesh) shareholders own a stake.

The biggest company in which stake is held is pharmaceutical company Cipla. A total of 34 declared ‘enemy’ shareholders hold stake worth Rs.1,468.38 crore (around 2.81% of its total market capitalization) in the company on 31 December. The second largest holding is in Wipro. Two shareholders hold Rs.1,042.40 crore (0.75%) worth of shares. Wipro and Cipla together account for 95% of the portfolio value. The third is ACC, in which they hold shares worth Rs.52.47 crore (0.21%).

The total value of the 109 listed companies for which price information is available was Rs.2,641.97 crore, or $399.37 million, as on 31 December. The listed companies are one-fifth of the total companies for which shares are held by the Custodian.

For comparison’s sake, here is what the near-$400 million figure is worth: It is four times what Pakistan allocated to health affairs and services in 2014-15, 15 times its spending on social protection and 20 times what it spent on housing and community amenities, according to Pakistan’s federal budget document. It is also 63% of Pakistan’s education budget.

The largest number of shareholders declared ‘enemy’ is 2,314 in United Credit Ltd, a West Bengal-based finance company. Auto company Hindustan Motors Ltd has 438 shareholders and Hindoostan Mills Ltd, 191.

An official at the Custodian’s office explained that the securities were acquired after the government issued a notification declaring such shares to be enemy property. Companies checked the addresses of their shareholders and got in touch with the Custodian whenever the shareholder was found to have a Pakistani address, after which such shares were taken over by the Custodian.

The President recently approved an ordinance to amend the Act in January which, among other things, said that the ordinance may restrict legal heirs of the original owners from accessing these securities.

“The ordinance has clarified that an enemy property once vested in the Custodian shall continue to be vested in it, regardless of the enemy ceasing to exist due to reasons such as death etc., the law of succession shall not apply to the enemy property,” said Tejesh Chitlangi, partner at IC Legal Advocates & Solicitors, a law firm.

How have these shares done?

Mint compiled an equally-weighted index of 69 of these stocks for which continuous price data was available at year-end since at least 2005. The stocks accounted for 63.03% of the companies by number and 98.8% by total portfolio value. According to the index, Pakistani investments in India were up 355% as of December. The benchmark Pakistani stock index KSE100 was up 528%. That said, the outperformance of the KSE100 was largely after 2012, when Pakistan had announced a tax amnesty scheme by which there would be no questions asked on the source of any money

invested in its stock market.

Apart from these shares, the Custodian also holds approximately 8,000 immovable properties, according to its response to the RTI application. This includes Chinese properties seized after the conflict in 1962, said the official cited above, who declined to be named.

Other securities include government securities worth Rs.150 crore and fixed deposits worth another Rs.170 crore.