Pakistan capital market is passing through the worst situation as no initial public offering (IPO) has been witnessed during the last five months since April 2010 at the local market. Analysts believe that bad experiences by shareholders in last few offerings, record low volumes and weak economic fundamentals caused issuers to delay their offerings.
"The investors' bad experience in last few IPOs is the prime reason behind the delays especially when 4 out of 5 IPOs are trading at 22-60 percent discount to their offer price", Farhan Mahmood, senior analyst at Topline Securities said. He said new companies are not able to raise funds through public offerings at the local exchanges and as a result Karachi Stock Exchange witnessed last 5-months with no public offerings thereby affecting the development and depth of the local stock market.
"With depressing and dull activity at local bourses where volumes are already at nine year low level and investors are uncertain over the economic growth after the recent floods. He was of the view that the government can play a key role in the IPO market by offering shares of public owned companies especially of those companies, which are favourites of foreign fund managers.
This will not only increase the free float but will also provide the much-needed depth to the Pakistan stock market besides helping cash starved government to raise funds for financing its mounting fiscal deficit. So far in 2010, Pakistan stock market has witnessed 5 equity offerings with total size of Rs 3.5 billion.
Though the response from previous 5 IPOs has been encouraging except for Agritech that was undersubscribed, the share holders have not benefited as these stocks are now trading below their offer prices. Except for Amtex, 4 IPOs (Fatima Fertiliser, Safe Mix, Agritech and Wateen Telecom) are now trading below their offer price. Though the price discount is lower in Agritech (22 percent), Wateen, the largest offering of this year, is trading at 60 percent discount to its offer price of Rs 10.
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