Brokerage house acquired for Rs213.4m

A group of six buys 78% shares in Invest & Finance Securities

Kazim Alam November 06, 2015
A group of six buys 78% shares in Invest & Finance Securities. PHOTO: FILE

KARACHI: Not every so often does the ownership of a brokerage house change hands in Karachi.

More unusual is a change in the ownership of a brokerage that is not only a going concern, but also a listed entity that pays handsome dividends to its shareholders.

The latest of such few-and-far-between transactions is the acquisition of Invest & Finance Securities (IFS). One of the few listed brokerage houses in Pakistan, IFS had a new board of directors effective November 3 after a group of acquirers, led by veteran stock market analyst Muzammil Aslam, bought the majority stake in the company.

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What sets apart IFS from other brokerages of the country, according to Aslam, is its status of a listed entity, history of impressive pay-outs, and clean record in terms of the regulator’s penalties and warnings.

The transaction

Halima and Sohail Dayala owned 15.6 million shares, constituting 78% of total paid-up capital of IFS. They sold their stake to the group of six acquirers led by Aslam for Rs13.67 per share. This translates into a deal that is worth roughly Rs213.4 million.

Aslam now owns 18% shareholding in IFS. Along with the new chief operating officer Asim Ali who owns a 7% stake, the duo now has management control of IFS. With the rest of the four acquirers, they control 78% shareholding between them. Remaining 22% shares constitute the free float of IFS on the Karachi Stock Exchange (KSE).

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So is the figure of Rs213.4 million truly reflective of the going rate for a majority stake in a typical, mid-size KSE brokerage house? The answer is negative, according to Aslam.

In a recent interview with The Express Tribune, he said a run-of-the-mill brokerage licence should cost a lot less than the price tag that he had negotiated with the Dayalas.

The proverbial ‘card’

The sale and purchase of the brokerage licence, which is often referred to as the ‘card’ in common parlance, is expected to gather pace in the next few years. With the upcoming integration of the three stock exchanges into a single Pakistan Stock Exchange (PSE), brokers of Lahore and Islamabad exchanges will automatically become Trading Right Entitlement Certificate (TREC) holders of the PSE.

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It means the establishment of the PSE will increase the number of brokers on the bourse currently known as the KSE. It is in this backdrop, Aslam says, a KSE TREC currently costs somewhere around Rs4-5 million.

But the real value of a KSE brokerage lies not in TREC, but the accompanying shareholding of the KSE.

There are 200 brokers of the KSE, and each of them controls four million shares in the bourse. Although current brokers of Lahore and Islamabad exchanges will become brokers of the PSE free of initial cost, they will not gain any shareholding in the KSE as a consequence of the integration of the three bourses.

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Therefore, TREC along with the KSE shareholding is currently worth at least Rs45 million.

“We did not just buy the card… we bought the whole company, which owns the trading rights on the KSE and Lahore bourse. It has commodities brokerage business and is actively involved in money market and foreign exchange market,” Aslam said while explaining the reasons for the price he paid for IFS.

“Getting your company listed on the KSE alone may cost up to Rs50 million these days,” he said, adding the listed status of IFS also hiked up its price tag.

Way forward

As its chairman and CEO, Aslam plans to focus on the brokerage business of IFS initially. He says the retail clientele of IFS consists of more than 2,000 customers. It is also on the panel of at least 100 institutional clients, he says.

“We have no exposure in foreign business for now, but we have already begun (cultivating) our relationships,” he noted.

IFS is not currently disseminating stock market research. Aslam has already started hiring people for its research department. “I am allocating Rs1 million monthly budget for research alone,” he said, adding the house will soon re-commence its investment banking operations.

Published in The Express Tribune, November 7th, 2015.

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