PSX receives Rs8.96b against divestment of 40% stake

Payment from Chinese consortium received in an escrow account at Habib Bank Limited

KARACHI: The Pakistan Stock Exchange (PSX) has received Rs8.96 billion ($86 million) on Friday after it divested 40%  of its stake to a strategic Chinese consortium in December 2016, an official said.

"Technically speaking, yes, the payment has been received," PSX-Chairman Muneer Kamal confirmed to The Express Tribune.

He said the payment has been received in an escrow account at Habib Bank Limited (HBL), which is part of the consortium. "The payment is yet to be transferred to United Bank Limited where brokerage firms maintain their official accounts.

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“The payment would be equally distributed among 200 brokerage firms associated with the former Karachi Stock Exchange, which is now part of the integrated PSX.”

Accordingly, each broker should receive Rs44.8 million.

The PSX divestment committee, headed by Shahzad Chamdia, sold 320 million shares (40%) to the consortium though a competitive bidding process in December. The shares were sold at Rs28 per share, translating into Rs8.96 billion or approximately $86 million.

The objective of the divestment is to segregate management of the stock market from brokerage firms in line with international practices.

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The winning consortium comprises three Chinese exchanges - China Financial Futures Exchange Company Limited (lead bidder), Shanghai Stock Exchange, Shenzhen Stock Exchange - and two Pakistan-based financial institutions - HBL and Pak-China Investment Company.

The three exchanges together hold 30% stake, while two Pakistan-based institutions hold 5% each.

Now, the consortium may nominate four directors on the PSX board anytime, as the management has amended the required laws to welcome them on the board. The nominee directors would have a say in appointment of chief executive, chief financial officer and chief regulatory officer.

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Settlement of claims

Kamal said that not a single penny would go to the brokerage firms that have defaulted and, instead, will be utilised to settle clients' claims. The option would, however, be available only to the clients of brokers associated with the former Karachi Stock Exchange.

Brokerage firms that belonged to former Lahore and Islamabad stock exchanges (which are also now part of PSX) would earn nothing from the divestment. Hence, their clients' claims would only be settled through the traditional method.

The PSX has seen at least eight defaults since the 2008 market crash. Five of them belonged to Karachi and three of those have been settled. The other three out of the eight defaulted firms belonged to either Lahore or Islamabad.

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IPO by June

The receipt of divestment payment would not be followed by the divestment of another 20% (160 million shares) to the general public through Initial Public Offering.

"The IPO would be done by June {2017}," Kamal said.

Chamdia said the other day that the stock market was considering selling shares to the general public through book-building process.

The process would allow the market to sell shares at a comparatively higher price than at which (Rs28 per share) they sold the 40% stake to the Chinese consortium.

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