IPOs: hunger for corporate paper

Regulators must act on tax reforms, digitisation, enforcement to unlock listings

KARACHI:

The record-breaking, Rs5.8 billion and five-second subscription of the Service Long March (SLM) Tyres' 75% share in the IPO highlights the massive pent-up demand for quality corporate paper in Pakistan. Beyond this single success, regulators must aggressively incentivise more listings on the Pakistan Stock Exchange (PSX) to transform a struggling economy into a private sector-led $1 trillion powerhouse.

Key reasons to accelerate PSX listings

Driving documentation and transparency: Listing forces companies to open their financial accounts to intense public scrutiny, strict regulatory compliance and a moral obligation to protect minority shareholders. This transition brings hidden wealth into the formal economy, dismantling the parallel system of fake accounts used by undocumented sole proprietorships to evade legitimate taxes.

Providing unrivalled investor protection: The rigorous process of drafting and vetting an IPO prospectus provides an unmatched level of transparency regarding a company's financial history, risk factors and capital deployment strategies. Such open disclosure is virtually non-existent in private partnerships or unlisted businesses, giving investors a secure foundation to deploy capital.

Institutionalising professional governance: Listed entities generally transition away from centralised, sponsor-led management toward competent, independent executive boards. By embedding skin-in-the-game mechanisms like employee stock option plans (ESOPs) and performance-linked equity bonuses, public companies build resilient second-tier leadership and robust succession planning – sharp contrasts to stagnant, incentive-less private 'seth' organisations.

Historical precedent of fiscal incentives: A decade ago, tax credits initiated under the finance ministry offered vital fiscal breathing room for capital formation. These policies rewarded companies investing in plants and machinery, slashed corporate tax rates during their first few years on the board, and allowed salaried individual investors to claim tax credits on IPO investments. Reintroducing these exact mechanisms is critical today.

Diverting capital from dead assets to productive sectors: A broader equity market redirects national capital away from non-productive real estate speculation ('dead plots'), fraudulent Ponzi schemes, volatile currencies and risky crypto assets. Funnelling liquidity into progressive, transparent public companies fosters healthy corporate competition, enhances market efficiency and offers investors liquid, easily divestible assets.

Utilising the growth runway of the GEM board: The Growth Enterprise Market (GEM) board serves as a vital nursery for small and medium enterprises (SMEs). It provides a structured, accessible regulatory runway that prepares ambitious teams for eventual migration to the main board once they hit maturity and meet Securities and Exchange Commission of Pakistan (SECP) thresholds, linking corporate profitability directly to economic growth.

Slashing the cost of capital: Public listing builds institutional trust, offering lenders a transparent window into long-term corporate performance. This heightened compliance and verified creditworthiness substantially lower the cost of debt borrowing and equity financing, directly driving capital appreciation for the business.

Cultivating a culture of local innovation: A thriving IPO market inspires a new generation of young entrepreneurs to innovate, build and create local jobs rather than seeking low-paid employment or fleeing the country. Creating a visible path to stock market success secures and retains critical human capital within Pakistan.

Preserving multi-generational businesses: Global trends show that listing a family-owned conglomerate allows original sponsors to smoothly cede control to professional management. This institutionalisation protects solid businesses from failing if the next generation moves abroad or lacks interest, preventing the distressed asset liquidations common in private family handovers.

Broadening market depth to reduce volatility: Diversifying the PSX with fresh listings across technology, healthcare, agriculture and services expands the breadth of the KSE All-Share Index. A larger, multi-sector market naturally dilutes market manipulation, dampens volatility, attracts foreign institutional investors and showcases a resilient, multifaceted national economy.

Critical preconditions for a thriving listing culture

Wishing for an influx of IPOs is futile without establishing fundamental macroeconomic reforms. To effectively double the number of IPOs every two years and unlock sustainable growth for a population of 250 million, the government and regulators must secure the following baseline conditions:

Macroeconomic and policy stability: Ensuring predictable fiscal policies that protect long?term corporate planning. Fiscal reform: slashing prohibitive corporate and super taxes while reinstating direct tax credits for IPO companies and retail subscribers. Capital market digitisation: streamlining the onboarding, compliance and trading infrastructure for tech-savvy investors.

Levelling the playing field: launching aggressive clampdowns on tax evasion, smuggling, corruption and cash-based real estate speculation to strip the undocumented sector of its unfair advantages.

THE WRITER IS AN INDEPENDENT ECONOMIC ANALYST