Research Head

Mar 26 - Apr 01, 2007

Realizing the potential of nationalized assets, Government of Pakistan sought innovative ways of offloading government stakes in nationalized entities. The Privatization Commission and Securities and Exchange Commission of Pakistan permitted listed companies satisfying the prescribed norms meet their growing appetite for capital within the country - and not scout for it outside by issuing GDRs.

Defining GDR - A GDR is basically a receipt or certificate given to non-resident investors (e.g. in US), against their purchase of ordinary shares or convertible bonds of a company located in, say, Pakistan. The receipt is created by the Overseas Depository Bank. The holder of a GDR does not have voting rights.

Advantages of GDRs - The advantages of GDRs are twofold:

*For the foreign investor: GDRs are an easy and cost effective way to buy shares in a foreign company, by reducing administrative costs and avoiding foreign taxes on each transaction.

*For the domestic company: exposure in International capital markets, enabling them to tap into the wealthy European/North American equity markets. In return, the domestic company must provide detailed financial information to the sponsor bank at the foreign country.


*Selection of merchant bankers.

*Maintaining investor - relation activities including road-shows etc.

*Regular dissemination of information to the shareholders to ensure there is always a high level of interest of the investors in the investee company.

GDRs develop their niche by making it possible for the local investor to tap the potential in emerging markets and earn relatively better returns. Moreover, the fear of capital market being exported is quite unfounded, if not chimerical, given the two-way fungibility of these instruments. GDRs are not issued only to beat time. They serve more profound purposes. First, they allow companies to access hard currency given the fact that they are denominated in foreign currency mostly US dollars and, second, they are often issued at a premium to the prevailing quotations. Investment through GDRs is facilitated by cross border trading, whereby existence of arbitrage opportunities provides the required impetus in investment activity.

Pakistan plan of issuing GDR was also based on the successful plans of Indians, who in 1990's raised lots of capital abroad through issuance of a Global Depository Receipts. Indian companies first began issuing GDRs in 1990's. Within two years there was a boom in Indian GDRs, with 42 new programs introduced in 1994 alone. Currently, India enjoys trading of more than 200 depository receipt issues on different bourses of the developed countries in fields as diverse as software, healthcare, automobile, construction, real estate, banks, utilities, oil & gas, pharmaceuticals etc. The total capital raised through issuance of GDRs since the start of the activity is US$ 8,585mn, which shows the amount of interest by foreign investors in Asian equities.


PTCL Vouchers: In Sep 1994, Govt. of Pakistan issued 5m PTCL voucher at a price of US$179.62 per voucher, where each voucher was equivalent to 100 ordinary shares. Prior to this international issue, the Govt. in Aug 1994 issued 1.0mn Vouchers at price of Rs3,000 per voucher (Rs30 per share) to local investors. This was the first GDR offering by any company in Pakistan.

Hub Power Company: HUBCO's GDR was issued on Oct 9, 1994. This GDR was offered at a price of US$10.825 per GDR and comprised of 404.6m shares. Out of the international offer, 69.28m shares were offered to the public in Pakistan. In this issue, one GDR consisted of 25 ordinary shares.

Pakistan Cement: The GDR of Chakwal Cement (now Pakistan Cement) was issued on Apr 25, 1995. One GDR was equivalent of 25 ordinary shares. The offer price for GDR was US$9 per GDR. Out of current 562.5m shares, 278m shares were issued by the company under GDR on Apr 25, 1995, whereas, local IPO for 60.3m shares took place on Nov 1, 1995. Shares were issued at par of Rs10 per share.

MCB Bank Limited: After a GAP of nearly ten years, MCB Bank issued its GDR in 2006. GDR was successfully listed in the London Stock Exchange in which the company raised US$150m (PRs9bn) through the issuance of 8.62m shares. The GDR issue attracted demand in excess of US$700m from over 50 investors globally.

Oil and Gas Development Corporation Limited: Following the overwhelming response of MCB GDR, government of Pakistan held the GDR issue of OGDCL. Earlier Government of Pakistan disinvested part of its shareholding in the company in November 2003. The said Offer was recorded as a landmark transaction in the history of Pakistan's capital markets. Then in December 2006, the Government of Pakistan divested a further 10% of its holding in the company through GDR. The Company is now listed on London Stock Exchange, where conditional trading of its shares commenced on December 01, 2006 and unconditional trading commenced on December 06, 2006. The offer price for this offering was set at US$1.89/share (Rs115/share). The offer was the largest ever equity offering of a Pakistani company abroad.


Government of Pakistan along with Privatization Commission has planned IPO of Habib Bank Limited (HBL) and GDRs of United Bank Limited (UBL), National Bank of Pakistan (NBP) and Kot Addu Power Company (KAPCO) and later HBL will also be offered with proper sequencing during the next few months and efforts would be made to complete the same by the end of the current fiscal year.