PSX to sell 20% stake to general public through book building

Management likely to offer shares at price higher than the one at which it sold stake to Chinese consortium

Salman Siddiqui February 26, 2017
The offer to the general public is part of PSX’s divestment process segregating management of the stock market from brokerage firms. PHOTO: FILE

KARACHI: Contrary to market expectations, the Pakistan Stock Exchange (PSX) is considering offering its shares to the general public at a price higher than the one at which it sold 40% stake to strategic Chinese partners in December 2016.

The PSX sold 320 million shares, amounting to a 40% stake, to a Chinese consortium at Rs28 per share through competitive bidding, translating into a sum of Rs8.96 billion (approximately $85 million).

The market was expecting that the PSX would offer the allocated 20% shares to the general public at the same price of Rs28 per share.

However, chairman of the stock market’s divestment committee, Shahzad Chamdia, said that the matter is “not yet decided…we may offer shares through the book building process.”

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The book building process allows share issuers to find a ‘strike sale price’ through open bidding from high net worth investors. The process begins with a pre-determined starting bid price (floor price) with a known number of shares on sale and ends at a given point in time.

The offer to the general public is part of PSX’s divestment process segregating management of the stock market from brokerage firms.

The offer would be made by June 2017; henceforth PSX would stand listed at its own trading platform.

“We would start working on the initial public offering (IPO) in 10-12 days,” Chamdia said. At present, they are pre-occupied with the opening of an ‘escrow account’ at a commercial bank to receive payment from the Chinese consortium that won the bid for 40% stake. “Hopefully, the payment would be made by end of this month (February),” he said.

Later on, the payment would be distributed among 200 member-brokers of PSX.

The chairman of the committee said that the Chinese consortium, through their nominee directors on the board, would have the right to nominate people for the posts of chief executive, chief financial officer and chief regulatory officer of PSX.

However, rights for appointment of people on the posts would remain with the full-board.

He said that the Chinese consortium may anytime nominate four directors on the PSX board, as regulators have made necessary amendments in the law to welcome them.

Prior to this, four nominee directors of the Securities and Exchange Commission of Pakistan (SECP), the apex regulator, will resign from the board. At present, there are as many as six nominee directors of the SECP.

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Later on, the board would be comprised of 16 directors, including four from the Chinese consortium, four elected brokers, and eight SECP nominee directors, he said.

Brokers have the right to elect four brokers on the board, as they retain remaining 40% stakes of PSX.

Published in The Express Tribune, February 26th, 2017.

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BrainBro | 5 years ago | Reply Book building is good for initial successful bidders - rich individuals who buy-in due to their connections with the underwriters e.g., large banks - who successfully sell off-load their stock on the first day of trading. It is not a very good method of evaluating the IPO, because in almost all the cases, the underwriter over-appraises the natural price of the issue.
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