All you need to know about the PSX divestment

Bids will be received today (Thursday) for purchase of 40% stake in PSX

KARACHI: Assets in Pakistan are up for grabs and everyone seems to be involved in the mega sale. From Engro Foods to Dawlance and K-Electric, investors are flocking to the South Asian country to see what else is on offer.

The Pakistan Stock Exchange (PSX), which was formed after the integration of the Lahore, Islamabad, and Karachi stock exchanges in January 2016, is likely to be the latest to see a foreign investor show interest.



The country itself is also on the investors’ radar, especially after the announcement of the China-Pakistan Economic Corridor (CPEC), and is also seeing major expansion plans of cement companies along with a host of auto assemblers vying for a place on Pakistani soil.

When it comes to the stock exchange, which has seen the KSE-100 Index - a benchmark for market performance - advance over 40% in less than 12 months alone, Nadeem Naqvi, the managing director and CEO at PSX, has said that the bourse’s divestment should increase investment base, upgrade technology, enable Pakistani companies to access international markets, and bring in more liquidity by introduction of derivatives.

The PSX is set to divest 40% stake to international strategic partner(s), and two foreign consortia have met all four parameters the PSX and its regulator, the Securities and Exchange Commission of Pakistan, have set, added Naqvi in his interview with Bloomberg a couple of days ago.

Danish M. Owais, an analyst at Invest and Finance Securities, also said in a note to clients that the sale would open a window for both local and foreign exchanges to access corresponding markets, meaning that investor base is likely to increase. For example, the Hong Kong and Shanghai Stock Exchange (SSE) connect initiative that aided local Chinese investors to trade via local Chinese brokers in Hong Kong listed companies and vice versa. The London Stock Exchange and SSE new connect initiative is another example.



Secondly, the technological developments is including introduction of newer trading platforms which would ensure faster trading execution and handling etc.

Thirdly, sales would also create opportunity of cross-listing opportunities for local companies.

And last, but not the least, the sale would see the introduction of newer financial products including options/derivatives which the country lacks in a big way.

A derivative/option performs a similar function like that of a stock. However, they carry high risk of investment and demand traders to gather a lot of information about the particular option they want to trade in. Derivative’s price is derived from one or more underlying assets. It is itself a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset.

Bids to be received Thursday

The PSX is to receive bids on Thursday from interested investors. It would officially announce name of the successful bidder(s) in a couple of days as per rules in place, said Shahzad Chamdia, chairman of the divestment committee.

The deadline for divestment of stakes is December 27, he said.

He said that KPMG has performed a valuation of PSX and the strategic sale has “a hidden base price”, below which the bids would not be acceptable as per law. It is learnt that a couple of leading consortia have sent their intention of interest to PSX which includes a Chinese group (Shanghai Stock Exchange and Shenzhen Stock Exchange) and a British consortium.



Besides, investors from US were also among those 19 parties that took part in the due diligence of the exchange. Among others were several foreign and local strategic investors including MCB Bank, Allied Bank Limited, Pak-Kuwait Investment Company and Pak-Oman Investment Company.

Haji Ghani Haji Usman, a former director on PSX (formerly Karachi Stock Exchange) board, estimated the bid price in range of Rs25-35 per share. Accordingly, the sale of 40% stakes (320 million shares) may earn $76-107 million to brokers.

Owais calculated the tentative bid price at Rs26.57/share, translating into sale of the 40% stakes at around $81 million.

Zeehan Afzal, an analyst at Insight Securities, evaluated bids price in range of Rs45-72 per share (total $140-220 million).

PSX trajectory

The PSX itself has breached through its own records, hitting ‘all-time high’ many times during the last couple of weeks and standing at a new peak above 46,000 points.

Published in The Express Tribune, December 15^th, 2016.

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