PSX prepares for 'largish IPO' as high interest rates loom

MD says three to four companies in queue to raise equity from PSX

KARACHI:

The Pakistan Stock Exchange (PSX) is gearing up for a significant initial public offering (IPO) by Fast Cables, slated to take place within the next four to six weeks. This move comes as the market is awash with interest-free liquidity, offering companies an attractive alternative to costly bank borrowing.

Managing Director and CEO of PSX, Farrukh Khan, discussed this development with The Express Tribune, just as Pakistan’s central bank was expected to raise its benchmark policy rate substantially – potentially by up to 300 basis points, setting a new record high compared to the current rate of 22%.

Khan pointed out that “There is ample liquidity in the market. It is a good opportunity for companies to raise funds from the market instead of paying very high interest rate (on banks’ financing) right now.” He emphasised that it makes sense for highly leveraged companies to opt for interest-free equity from PSX instead of bearing the burden of 25-26% interest rates on bank loans.

According to Khan, three to four companies are in the queue to raise equity from PSX in the near future, offering shares to institutional investors, high-net-worth individuals, and retail investors. These companies represent various sectors, including electric cable manufacturing, cooking oil production, and logistics. Additionally, several more firms are in the process of planning IPOs later this year.

Fast Cables has already received approval from PSX for its IPO and book building process and is now awaiting clearance from the Securities and Exchange Commission of Pakistan (SECP). Khan described Fast Cables’ IPO as “the largish IPO” and suggested it may take place in the next 30 to 40 days.

Reports indicate that Fast Cables aims to raise between Rs3 billion and Rs4.2 billion from PSX, depending on the price investors are willing to pay for shares. The offering will comprise 83.5 million shares, equivalent to 25% of the company’s post-IPO shareholding, priced between Rs36 and Rs50.40 per share.

Khan also mentioned that Soya Supreme, a cooking oil manufacturer, is planning an IPO. Although discussions have taken place between the company and PSX officials, an official application for the IPO has not yet been submitted.

In recent years, some firms, including Soya Supreme, postponed IPO plans due to unfavourable macroeconomic conditions. These firms are now reconsidering IPOs in light of improved macroeconomic indicators.

PSX has undertaken a comprehensive review of the IPO process in collaboration with SECP, involving stockbrokers and consultants. The aim is to streamline the process and reduce the approval timeline to 30 to 40 days, with an additional 60 days for companies to hold IPOs, depending on market conditions.

The exchange has also launched an electronic portal for IPOs, with PSX, SECP, stockbrokers, and consultants working together to enhance transparency and efficiency.

The PSX MD noted that “we have done extensive work to build up IPO robust pipeline in the past two years.” However, IPO plans were temporarily shelved when market valuations dipped over the last six to eight months. With improving macroeconomic conditions, companies are once again exploring IPO opportunities.

Meanwhile, financial experts are closely watching Pakistan’s central bank for its policy rate decision, with expectations of a rate hike ranging from 50 basis points to 300 basis points, as the bank grapples with inflation challenges amid rising petrol and diesel prices and power tariffs.

Inflation, which has remained high at an average of 27.8% during the first two months of the fiscal year 2023-24, has been a persistent concern for the country’s economic growth prospects. The government is also considering further increases in power and gas prices, adding to the inflationary pressures.

Published in The Express Tribune, September 14^th, 2023.

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