In any life cycle of a business, in particular during its initial growing stage, access to capital is the most treasured factor to assist in its growth and expansion. Capital markets can help provide an alternative recourse to the funding needed by the enterprises. Through the initial public offering, the companies can find a non-debt source of raising capital.
In Pakistan, growing interest rates is the key factor that functions as a barrier to the companies especially the small-scale enterprises in seeking debt from the financial institutions. Local researchers have found 3.3 million small and medium size enterprises that are highly labour intensive as compared to the large-scale industries in the country. Out of this, only 7% of the SMEs seek loan from the banking sector and many others continue to struggle for enough funding to grow their businesses. If SMEs can somehow be encouraged to use the capacity of the stock markets for raining funds, then many of these SMEs can grow bigger and can contribute to the overall growth of the economy.
The capital gained to the company through offering its shares for the first time assists the company in the development of its factors of production, achieve economies of scale, undertake employment generation and enhance their outputs. IPOs also increase investor base in the capital market and contribute in building a stronger culture of participatory finance. The journey doesn't end here; once a company gets listed it further experiences internal improvements in its policies and frameworks through the adoption of the code of corporate governance. This facilitates the companies to improve its functioning create a goodwill for itself in the market. For any business, going public is an evolution and a transformation that widens the vision of the company where the valuation of the company is evaluated through the capital market regulatory framework that is relatively transparent, mature, standardised and promising as compared to the unlisted companies with limited resources and compromising financial documentation that is indeed unhealthy for the company's future.
IPO generates the supply of the capital; however, to create an equal demand, it is equally important that the first-day investors are transformed into long-term and loyal investors. This can be done if the companies regularly invest in the appropriate investors' relations functions within their organisations which focus on the wealth maximisation of the investors. Creating new investors to cater to the supply of the shares with equal force and volume will subsequently enhance the liquidity in the market. Besides the revenue generation at both the investor and the company end, IPO can bring an overall change in the corporate sector of Pakistan as listing brings guidelines/ framework to ensure corporate standards are met and maintained that further polishes the goodwill and risk management of the company. As a whole, the economy becomes more transparent and an active agent to the economic growth.
Since 2008 global market crises, the number of IPOs has shrunk. It has been studied that economies such as the American economy, known as the innovative economy has experienced 92% job growth through post IPO companies. The trend of equity public offerings at the market stands at a depressing point as Pakistan's equity market has seen only three initial public offerings in the year 2012 as compared to four in 2011. For a country like Pakistan, it is even more important to have more IPOs as Pakistan is a developing country. As the population in Pakistan faces a general disparity in the allocation of resources to various sectors of our economy, therefore increased public listing can not only mobilise savings in our economy and divert it for useful purposes but can also lead to wealth creation in our society. In the recent years, Pakistan's stock market has performed well as compared to some of the major world stock markets that experienced decline in the stock market growth. This has happened despite many challenges facing our economy.
The annual IPO Summit in collaboration with SAFE and LSE, is a result of joint efforts to design a platform that invites the unlisted companies to widen their understanding on the concept of an IPO and the benefits that it brings not just to the company but to the society and subsequently to the economy as well. Through this platform speaker from various backgrounds such as the sponsors of the listed companies, the capital market regulators and the market players of the capital market get an opportunity to share their experience and expertise on IPO that serves as a live example before the potential companies in promoting them to get listed on the country's stock exchange or exchanges. In order to boost the volume of shares and economic growth, it is imperative on the part of the local stock exchanges to realise the importance of marketing the IPO industry to serve the economic and social cause.
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