Five IPOs expected on the KSE by end of 2013

KSE MD turns more optimistic on IPOs this year.


Kazim Alam May 25, 2013
PHOTO: FILE

KARACHI:


At least five companies from different sectors of the economy are expected to go public in the second half of 2013, Karachi Stock Exchange (KSE) Managing Director Nadeem Naqvi told The Express Tribune in a recent interview.


Defined as the first sale of stock to the public, an initial public offering (IPO) helps a company raise funds through the stock exchange.

“We have a number of listings coming up this year. They are in the power, technology and engineering, real estate and construction, packaging, and oil marketing and distribution sectors,” Naqvi said. “They are reasonably sized IPOs of between Rs250 million and Rs1 billion,” he added.

The number of IPOs on the Karachi bourse has declined in recent years. There were only three IPOs in 2012, namely, Next Capital, TPL Trakker and Aisha Steel Mills. According to the KSE website, the only company to get listed in 2013 so far is SFL Limited. However, it has been listed without a public offering – meaning no IPO – after the demerger of Sapphire Fibres Limited under special arrangements sanctioned by the Sindh High Court. There were only four IPOs in 2011, five in 2010, three in 2009, 10 in 2008, nine in 2007, five in 2006 and 14 in 2005.

Naqvi says the reason for the declining number of IPOs is poor economic conditions in recent years, as fewer companies considered it viable to raise capital through a public offering. “There’s also pressure from the (KSE) board to increase the number of IPOs because it creates depth in a stock market. We joined the International Monetary Fund programme after the 2008 crisis. Our industrial growth suffered and there was no appetite for investment, which resulted in fewer IPOs,” Naqvi stated. He added that the declining trend in IPOs is not Pakistan-specific. Rather, it is a global phenomenon, he said.



According to Bloomberg, a financial news service, the number of IPOs in 2012 slumped to the lowest level since the financial crisis, as signs of economic slowdown curbed demand and prompted companies to push back sales. In its report reviewing IPOs in 2012, Bloomberg said concerns about China’s economy helped cut proceeds in Asia by almost half. “The annual global IPO tally declined for a second straight year... In Asia, the biggest region for IPOs, proceeds fell 43% to $46.7 billion,” it said.

Besides overall poor economic conditions, the establishment of a more stringent regulatory framework through a number of initiatives, most recently in the shape of a corporate governance code, played an important role in scaring away at least a few companies that wished to go public. “Although I’m strongly in favour of stringent regulations, the fact is that better regulations scared some people,” the KSE MD said.

According to Ernst and Young (E&Y), a financial consultancy firm, the Asian IPO market is off to a slow start in 2013. Based on data from the first quarter, E&Y estimated that the slow start was because of a halt in listings on Chinese exchanges since November 2012.

Naqvi says tax rates in Pakistan are also skewed towards non-listed entities, which discourage companies from going public. “Publicly listed companies should be taxed at a rate lower than the rate of non-listed companies,” Naqvi said. The current corporate tax rate for both listed and non-listed companies in Pakistan is 35%.

Published in The Express Tribune, May 26th, 2013.

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COMMENTS (1)

awais | 10 years ago | Reply

"Naqvi says tax rates in Pakistan are also skewed towards non-listed entities, which discourage companies from going public. “Publicly listed companies should be taxed at a rate lower than the rate of non-listed companies,” Naqvi said. The current corporate tax rate for both listed and non-listed companies in Pakistan is 35%."

i'm confused, if the corporate tax rate is the same at 35%, then how is it skewed towards non-listed entities?

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