RS 15.7 BILLION MOBILIZED THROUGH ELEVEN IPOS IN 2007
SHABBIR H. KAZMI
Dec 31, 2007 - Jan 06, 2008
During 2007 eleven Initial Public Offerings (IPOs) worth Rs 15.7 billion were made compared to only five worth Rs 1.9 billion in 2006. Reportedly all the issues were heavily oversubscribed fetching a total amount of Rs 27.1 billion from the investors.
Historically, 2005 and 2004 were the best years in terms of number of IPOs. A total of seventeen IPOs were made in 2005 for raising an amount of Rs 9.2 billion, while fourteen IPOs were issued in 2004 to raise Rs 19.7 billion. Massive oversubscription was witnessed in both the years with Rs 35.6 billion and Rs 79 billion received from investors in 2005 and 2004 respectively.
After witnessing just five IPOs in 2006, equities market witnessed listing of eleven new companies in 2007. Similarly, the KSE-100 index daily trading volume and market capitalization registered one after another records. The buying spell was fueled by influx of millions of dollars in Special Convertible Rupee Accounts (SCRAs). All these factors exhibit the resilience of Pakistan's stock markets, rightly termed the best performing market of the region.
The year 2007 has witnessed the largest ever IPO in Pakistan's capital markets history. Habib Bank IPO has been in the limelight ever since it emerged as the largest ever IPO with respect to both value and number of shares offered. The government offered 34.5 million shares with a green shoe option of additional 17.25 million shares in case of over subscription, taking the total offering to 51.75 million shares. The offer price was set at Rs 235 per share, inclusive of a premium of Rs 225 per share.
The Privatization Commission received a total of 428,831 (426,736 local, 2,095 oversees) applications worth Rs 18.6 billion for the IPO, against the offered amount of Rs 12.2 billion (including green show option). The IPO was oversubscribed by 1.52 times. As a result, OGDC's offering of Rs 6.9 billion in 2004 now rests at a distant second in value terms.
The keen investor interest in Habib Bank IPO could be attributable to the strong profitability in the banking sector over the last few years amid mergers and acquisition transactions.
In addition to Habib Bank, major investors' interest was witnessed in Dost Steel as its IPO received a subscription of Rs 1.8 billion (6.8 times the size of IPO). This excitement in a steel company can be attributed to high construction activities in the country, resulting in higher consumption of steel. In addition, rising steel prices are likely to have a positive impact on the profitability of the steel sector.
Sitara Peroxide was another heavily oversubscribed IPO, receiving a subscription of Rs 1.4 billion (5.7 times the offering size). Hira Textile Mills was the only company, whose IPO remained undersubscribed as it was able to receive Rs 38 million subscriptions against an offer of Rs 313 million.
The other salient features of the year were focused attention of investors in the scrips of commercial banks, oil and gas exploration and production companies, cement and insurance companies. Investors" interest was due to earning potential also substantiated by periodical reports.
According to some analysts hike in prices of all the quality scrips was mainly due to booking of capital gains by the institutional investors expecting end to this exemption by June 2008.
Some of the analysts were a little skeptical of the move because if the purchases were recorded at such high any possible decline in the future would require provisioning against diminishing value. However, the overwhelming consensus was that the quoted prices are still much below the break up values and any reduction in quoted prices would be of no consequence.
One of the concerns is that while equities market is booming bonds market remains at nascent stage despite existing for decades. In the recent past a number of term finance certificates (TFCs) were listed at the local stock exchanges but the preference for private placement dampened prospects for new listings.
Another factor responsible for the slow down in TFCs was lower interest rates. For most of the blue chip companies the effective borrowing rate was even lower than KIBOR. Therefore, such corporate preferred to borrow from the banks rather than taking the hassle of completing the formalities for issuing the TFCs.
A major milestone was achieved by flotation of GDRs of some of the companies in the global markets. It was a good omen and paves way for the issue of GDRs by other listed companies. The response of OGDC and MCB Bank GDRs has been encouraging and shows the confidence of overseas investors in these scrips as well as economy of Pakistan.
One of the most items on the agenda of SECP is demutualization of stock exchanges. The SECP believes that the demutualization should be completed before end of year 2007 and if delayed would not attract the attention of global investors.
IPOS IN 2007
Allied Rental Modaraba
Rs 161 million
Rs 150 million
BMA Principal Guaranteed Fund
Rs 51 million
Rs 50 million
Rs 1,084 million
Rs 550 million
Rs 2,532 million
Rs 1,300 million
Flying Cement Company
Rs 525 million
Rs 140 million
Pervaiz Ahmed Securities
Rs 543 million
Rs 250 million
Pak Oman Advantage Fund
Rs 260 million
Rs 250 million
Rs 1,429 million
Rs 250 million
Rs 18,600 million
Rs 12,200 million
Rs 1,868 million
Rs 275 million
Hira Steel Mills
Rs 38 million
Rs 313 million