A general note on Issuance of Shares of a State Owned Company

1. Issuance of shares of a state owned company can mean its conversion into a joint owned company if shareholders are treated as owners (participating in company decision making).

2. This need not be so and shares may be issued representing shares in profits/losses of the company without participation in company management.

3. The justification must therefore be as to whether the Islamic government wants to itself own and manage the company or whether it wants to convert it into a joint venture.

4. The size of the share issue (as well as the value of the individual shares) should be determined on the basis of (a) an approximately accurate valuation of the net assets (assets minus liabilities) of the company and of planned net addition to net assets (b) the forecast of expected profits of the company over a given time period (say a year).

5. If non ownership shares are to be issued it must be decided what proportion of expected profit is to be distributed to shareholders, what proportion of profit is to be retained by the company and what proportion of the expected profit is to be obtained by the government (taxes).

6. The shares (both ownership and non-ownership types) may not be continuously tradable. This must be so to prevent the establishment of a capital market and its associated speculative and forward trading transaction forms in the Islamic Emirate (since gharar in forbidden in Islam).

7. However, shares may be revalued after a given period (say a year) and their price reevaluated on the basis of new estimation of the net assets of the company and new forecasts of its expected profit status.

8. Shareholders (both owners and profit shares) may be permitted to buy/sell shares they have held for the previous time period at time of the new evaluation of net asset value and forecasted profits of the company.

9. The new valuation will also be for a fixed time period and during this period the shares (both assets and profit related) will be non-tradable.

10. If the issue is under subscribed (not all shares are sold at time of issue) the sale may continue at approximately discounted rates at fixed time periods so that for example the profit/loss share of those who purchase the shares after six months of initial issue date will be half that of those shareholders who buy the shares at the time of initial issue of a one year duration.

11. If shares are to be sold only to employees of the share issuing company then shares may be a part of the salary of its employees (with his consent). When salaries are increased a part of the increase can take the form of shares (this is a form of the traditional ESOP (employee share ownership scheme).

12. In our (WGAE) opinion it should be appropriate to limit shares issued by a particular company to its own employees only. For the general public and all employees of the Islamic government (public sector) it would be more appropriate to issue an “Islamic Tamveeli Certificates” the value and rate of return of which should be linked to the performance (output growth) of a particular program (say a national program for rehabilitation of selected closed industries) or the economy as a whole (rate of growth of GDP). The Islami Tamveeli Certificates (ITC) should be non-tradable with fixed maturity dates a term so that a capital market is not created in the Islamic Emirate Afghanistan.

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