Foreign, local investors kick-start evaluation process of PSX

Sell-off of 40% stake would channel in private foreign funding besides improving PSX operations, says analyst

KARACHI: Some 17 foreign and local strategic investors, including Chinese and US stock exchanges, have kick-started the evaluation process of the Pakistan Stock Exchange (PSX) to bid and buy a total of 40% stake by November 30, officials said on Wednesday.

“They would complete due diligence by end of this month (October). That will be followed by bidding to acquire 40% stake on sale as part of the demutualisation of the Exchange,” said a PSX official, who is part of the initiated divestment process and requested not to be named.



“We (officials, brokers, members and traders) have set ourselves a deadline of November 30 to sell 40% shares in PSX to strategic investors,” said another official.

In this backdrop, the officials of US-based global stock market NASDAQ, along with two UK-based funds are visiting the PSX today (Thursday).

Earlier, a delegation comprising officials of two Chinese bourses - Shanghai Stock Exchange and Shenzhen Stock Exchange, along with one more Chinese investor - visited Pakistan with regards to due diligence.

One of the two officials said the 17 strategic investors included local financial institutions like MCB Bank, Allied Bank Limited, Pak-Kuwait Investment Company and Pak-Oman Investment Company.

“Local financial institutions cannot bid for more than 5% stake in PSX as per the laws of the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP) and PSX,” he explained.

He said it was yet premature to say that the entire 40% (320 million) shares would be owned by a single entity or by a consortium. “It all depends on bids,” he said.



The Pakistan Stock Exchange, which reflects the ups and downs in the economy, would offer another 20% (160 million) shares to the general public within six months of the completion of the acquisition process by strategic investors.

Earlier in January 2015, three local bourses namely Karachi Stock Exchange (KSE), Islamabad Stock Exchange (ISE) and Lahore Stock Exchange (LSE) were integrated into the Pakistan Stock Exchange.

The integration was part of efforts to attract strategic investors, as it fulfilled the government’s vision of a fair, efficient and transparent market with one national stock exchange conforming to international standards.

Zeeshan Afzal, analyst at Insight Securities, said in a note that the sell-off of 40% stake to strategic investors would channel in private foreign funding in Pakistan besides improving PSX operations and introducing futures/derivatives products. “The selloff would also be the next big liquidity event for the local market after the Pakistan reclassification to MSCI EM Index,” he said.

He calculated that the selloff of 40% shares to strategic investors and another 20% to general public would earn brokers $137 million, who originally belong to Karachi Stock Exchange and do not belong to the former Islamabad/Lahore bourses.

He calculated the earning assuming the acquisition price to be three times of book value at Rs10 per share. “Assuming transaction price of 3-times of the book compared to global average of 3.8-times,” he said.

“We remain confident about Pakistan equities as inclusion in MSCI EM club, the China Pakistan Economic Corridor (CPEC) stimulus, improved security situation and government’s focus towards development spending ahead of General Elections 2018 would take KSE-100 index to 45,000-50,000 levels by June 2017,” he said.

“Pakistan finds itself in the path of the massive Chinese investment under CPEC. If the stock exchange deal falls China’s way, it could trigger large flows of private Chinese funding into Pakistan. Apart from that, NASDAQ delegation is also visiting PSX today (Thursday) showing the interest of the US Stock Exchange. Therefore, we cannot rule out interest from other companies,” he said.

At present, PSX is more than 80% cash market, offering limited future contracts and no options. The new foreign partner is likely to improve the functioning of PSX by streamlining operations and efficiencies.

“Furthermore, we also expect introduction of new products i.e. futures, options and other derivatives. This would improve the overall trading activity at the market while the confidence of foreign investors over market practices would improve with more renowned management.”

Published in The Express Tribune, October 6^th, 2016.

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