IPOS FOR ENHANCING THE MARKET SIZE
There should be incentive for listing the companies
SHABBIR H. KAZMI
Nov 26 - Dec 02, 2007
Pakistan is often included in the list of best performing markets, which is substantiated by companies enjoying enormous earning potential, substantial dividend payout history, potential for marking capital gains and ensuring regular inflow in the shape of dividend. However, it is also said that the market suffers from limited availability of quality stocks, least participation of investors and high volatility.
The drift of investors from other options to equities market is culmination of efforts of the government and the brokerage houses. In an attempt to contain the debt servicing government gradually reduced the return on National Savings Schemes.
Simultaneously, the government also followed the policy of "Privatization for People, when Dr. Hafeez Sheikh was Minister for Privatization and Investment. Under this strategy shares of already listed public sector companies were offered to general public through secondary offerings. Also a number of state owned companies were listed and their shares were offered to general public through IPOs.
To create awareness among the general public about benefits of investing capital markets roads shows were held in different cities. The initial response was a bit slow but the number of applications received against IPO of Habib Bank created history, though most of the applicants were disappointed subsequently due to delay in bringing the scrip on ready board and manipulative moves by some of the brokerage houses.
A closer look at the new listing indicates that 9 open-end mutual funds have been listed during current calendar year and some of these are Islamic mutual funds. In total 32 open-end funds are listed, which include NIT the fund having longest history. While most of the funds have diversified investment portfolio, NIT's portfolio mostly comprise of equities.
It is on record that all the IPOs except one were oversubscribed. Only one Modaraba was listed. The listed capital of these 14 companies was Rs 57,240 million, whereas in 2006 9 companies with a total paid up capital of Rs 14, 790 million were listed. It may not be wrong to say that now only large cap companies are being listed.
It is also worth noting that during 2007 so far 3 debt instruments were listed with total value of Rs 6,500 million contrary to 3 listing in 2006 amounting to Rs 3,400 million.
Another interesting observation is that in 2006 total 652 companies were listed at the KSE with an aggregate capital of Rs 519,270 million. Despite new listing the number could not go beyond 654 due to the ongoing process of buyback. However, the listed capital increased to Rs 655,052 million.
According to some analysts, "Though more than 650 companies are listed at the KSE, a large number of these are of virtually no interest for the investors. Most of these have very small capital base, scrips are highly illiquid and tightly held by the sponsors. Therefore, the KSE management should ask sponsors of these companies to opt for buy back."
Analysts are also of the opinion that now there is no incentive for listing the company. In the past there was substantial difference in corporate tax applicable on private and public companies. However, over the years the difference is marginal, which encourage people not to go for listing. They also fear once the company is listed it will have to make many disclosures, which are against the interest of sponsors.
One of the objectives of Security and Exchange Commission of Pakistan and the three stock exchanges, is to broaden the shareholders base in the country. This could not be achieved without 1) encouraging the sponsors to get their companies listed by widening the corporate rate tax rate on private and public limited companies. 2) Sponsors should be allowed to retain up to 60% of total shares with them (directly or indirectly) and offer the remaining 40% to general public. 3) The maximum investment of the commercial banks in equities portfolio should be reduced to 10% of shareholders equity against prevailing permission of up to 20%. 4) The government should also list all the public sector companies and offer up to 20% of their shares to general public.
It is necessary to bring on record that the capital market crises have pushed the serious investors out of the market. They growing consensus is, "This market is dominated by the day traders and their endeavor is fully supported by the brokers as well as the regulators'. To substantiate this they refer to exemption on capital gains and tax on dividend income. In their view it should have been the other way round.
Investors also say that brokers virtually hold bulk of the listed capital either through direct holding or through mutual funds managed by them. This gives them the power to set market direction and exploit the small investors. This perception may not be correct but the successive crises and inability of the regulators to identify and punish the culprits supports this.
KSE AT A GLANCE
Rs in million
Total No. of Listed Companies
Total Listed Capital - Rs.mn
Total Market Capitalisation - Rs mn
New Companies Listed during the year
Listed Capital of New Companies - Rs.
New Debt Instruments Listed during the year
Listed Capital of New Debt Instruments - Rs mn
SOME RECENT LISTING
Allied Rental Modaraba
BMA Principal Guaranted Fund I
Arif Habib Limited (Offer for Sale) Rs. 90 premium per share
Hira Textile Mills Limited (Rs. 2.5 premium per share)
Oil & Gas Development Company Ltd.(2nd Iss.) (Offer for Sale) Rs. 100 premium per share
PaidUp Capital of the company is already listed i.e.43,009.284
PACE (Pakistan) Limited (Rs. 4 premium per share)
JS Bank Limited
JS ABAMCO Limited (Offer for Sale) Rs. 55 premium per share
Flying Cement Company Limited (Offer for Sale) Rs. 4 premium per share
Meezan Islamic Income Fund
Standard Chartered Bank (Pakistan) Ltd.
AKD Income Fund
KASB Stock Market Fund
Pervez Ahmed Securities Limited
Pak Oman Advantage Fund
Sitara Peroxide Limited
Faysal Savings Growth Fund
AKD Index Tracker Fund
Habib Bank Limited (Offer for Sale) Rs. 225 premium per share
Alfalah GHP Income Multiplier Fund
Dawood Islamic Fund
Dost Steels Limited