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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
  2. STOCK WATCH
  3. STOCK MARKET AT A GLANCE

The KSE Overview: Market fumbling to find a bottom

Updated on Oct 30, 2000

The market continued to be under pressure this week as sentiment remained subdued in the absence of any positive developments on IMF funding front and the Hubco dispute. The KSE- 100 Index ended the final session for the week at levels down 1.09% wow from its opening level of 1502.47. Volumes once again remained lackluster throughout the week with an ADV of 103.39 million shares versus 120.12 million shares last week. The high and low volumes for the week were 152.61 million and 69.37 million, respectively.

Trading for the week commenced on a mixed note and the immediate support of 1500 paved the way for technical recovery, which fizzled at intra week peak of 1527.09 level. In the absence of follow through buying, the sale on strength tactic of most jobbers eroded the immediate support which eventually faltered on the second last day of trading for the week, reinforcing the negative trend set over the last two weeks.

Hubco stole the limelight of the week, giving buoyancy to the market in the initial days. It surged to 19.30 levels on news of KAPCO tariff agreement but failed to sustain when market realized that its own dispute with WAPDA is more complicated. Engro was another favorite, which demonstrated strong price behavior on intra week basis as suggested by 10% increase in volume. Weakness continued to persist with PSO and its immediate support of 160 was breached, it eventually closed at 157, down by Rs 3.38%.

The textile sector simply behaved with the market while the synthetic sector was resistant to market weakness, with Dhan, Dewan and Ibrahim posting marginal losses. Last two weeks' favorites MCB, Nishat and Adamjee were hammered hard this week. The restructuring, announced by ICI did not appear to go down well with the investors and the price behavior remained mixed to weakish.

Foreign investors continue to remain on the sidelines and if any activity from them emerged, it was on the sale side but on very low volume. Retailers were active from both sides of the market but the jobbers and institutions remained decidedly on the sell-side.

The overall trend remains weak at the moment. The Index remains directed towards 1450 levels where support will emerge and a possible base foundation in the near term could take place.

Chemicals: ICI Restructuring

The restructuring announced by ICI to separate its PTA division into a separate corporate entity comes as no surprise to us. We had been anticipating that the large loss, despite a reduction in operating deficit of the PTA division due to very high financial charges and slower than expected turnaround in the regional PTA cycle, was putting a burden on the combined structure, that might become untenable.

While more details would be needed to come up with a reasonably accurate assessment of the fair values of the two separate entities, we have nevertheless, attempted to make sum estimates using a few basic assumptions:

According to the handout given by the company to the Karachi Stock Exchange, the following salient features of the proposed restructuring are highlighted.

• Share capital and reserves of the present ICI Pakistan are to be split between PTA and non-PTA companies in proportion of net assets.

• The non-PTA ICI Pakistan is to retain the following PTA debt: -ICI Plc loans of US$ 76mn, TFCs of US$ 163mn and running finance approximately $480mn. Put together, this means that ICI Pakistan will take on approximately PRs 5bn of debt pertaining to the PTA business. Further, the non PTA ICI Pakistan will continue to benefit from the unabsorbed income tax depreciation shield of PRs 10.4bn, relating to the PTA assets. However according to the company, the carry forward trading loss of PRs 2.5bn may be lost. Further, both companies will require conversion of short term debt to long term as well as revaluation of fixed assets.

•The demerger will result in two separate legal entities: —ICI Pakistan Ltd. comprising all non-PTA businesses — Pakistan PTA Limited, comprising of PTA business.

• The share capital of each of the other entities is to be reduced through adjustment of negative reserves. Furthermore, each entity will then be dividend payable from future profits.

• The company also stated that in order to enable sales-partnership of the PTA business, ICI Pakistan will acquire 25% of the shares of Pakistan PTA Limited from ICI Plc through issue of shares. Finally, the company said that the share exchange would be at market value.

So what does all this mean?

First, it is now clear that ICI Plc is effectively washing its hands off its PTA business in Pakistan. And while the parent company will most likely take some provisions and write-offs related to the accumulated losses of Pakistan's PTA business and move on in life, it is the minority shareholders in Pakistan that is likely to take the brunt of this 'mis- adventure'. The way we see it, it is entirely possible that for every share of the present ICI currently held by the minority shareholders, he/she is likely to end up with less than one share once the restructuring is done (depending on the methodology used for each one share of current ICI, he or she maybe eligible for 0.8 or 0.85 worth of new shares). Even here, this 0.85 would actually be in the form of a few shares of the currently profitable non-PTA ICI and proportionally greater shares of the loss making proposed Pakistan PTA limited. This is certainly not what investors bargained for when they took up the successive massive rise issued by ICI Pakistan Limited since 1995. To be fair to ICI Plc, the huge under subscription in the final rights issue last year, forced the parent to take up most of the shares so that currently it is estimated that the parent has around 75% of the equity of the present ICI Pakistan.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

6.96

6.89

-1.01

KSE 100 Index

1502.47

1486.06

-1.09

Total Turnover(mn shares)

600.59

516.97

-13.92

Value Traded (US$ mn.)

458.91

372.65

-18.80

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

120.12

103.39

-13.92

Avg. DlyT/O (US$ mn)

91.78

74.53

-18.80

MSCI Pakistan Index:

     

Pak Rs.

103.44

102.92

-0.50

US $

47.63

46.44

-2.50

.Source: KSE, MSCI, KASB


 
ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

3729.12

-28.04

-0.75%

Hong Kong

Hang Seng

14902.46

-93.78

-0.63%

Singapore

Straits Times

1961.04

+38.76

2.02%

Sydney

S&P ASX 200

3244.7

+5.00

0.15%

Tokyo

Nikkei

14582.2

-276.23

-1.86%

.


 
EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

6924.68

+156.78

2.32%

London

FTSE

6366.5

+64.20

1.02%

Paris

CAC

6268.93

+60.51

0.97%

Dow Jones

Industrial

10590.62

210.50

 

NASDAQ

Composite

3278.36

6.18