UK, Turkey, Qatar eying: Consortium may acquire 40 percent strategic PSX stake

A consortium of international investors may acquire 40 percent strategic stakes in Pakistan Stock Exchange (PSX) which is opening for trading later this month. So far, the bourses of United Kingdom, Turkey and Qatar have shown interest in the strategic sale of PSX which would formally be inaugurated by Prime Minister Nawaz Sharif in the second week of January 2016.
PSX, to have a strong sales force of 413 brokers or TREC holders, has secured the formal and in principal assent of the Competition Commission of Pakistan (CCP) and the Securities and Exchange Commission of Pakistan to start operation as the country's only national stock market. Friday saw the officials of KSE, NCCPL and CDC gathering at the KSE trading hall to brief media on the operational integration of PSX which KSE MD Nadeem Naqvi said would start working from December 28.
Dwelling on a historical and operational background of PSX, Naqvi told a questioner that his side was engaged on PSX's strategic sell-off with three international bourses - London Stock Exchange, Qatar Stock Exchange and Borsa Istanbul of Turkey. While last of the three has issued a Letter of Intent (LoI), the other two were negotiating with local stock market managers verbally.
"Dialogue with the London Stock Exchange is at the initial stages," said the managing director who was flanked by NCCPL CEO Muhammad Lukman, CDC COO Aftab Dewan and KSE Board Member Abid Ali Habib. "Chances are it would be a consortium which may include financial institutions," he viewed. Aimed at raising the global profile of Pakistan's $69 billion market capital, the strategic sale of PSX was expected to materialise within one year of the integration of Karachi, Lahore and Islamabad stock exchanges - "by the end of 2016," Naqvi said.
To a question, he said a joint financial advisor would be appointed to recommend to the Demutualization Committees their independent assessment on valuation related issues at PSX. Deutsche Bank of Germany, he said, now had a limited role to play in the PSX affairs. Habib, who represented the owners (members) of stock exchanges, told a reporter that the PSX management would "try to maintain" the KSE-100 index which having been founded in 1991 had become a historical global brand?
Calculating the KSE-100 index's average annual rate of return during last decade, the KSE official said the stocks had been the most lucrative among other asset classes. During CY2005-14, he said, the index's return on investment stood at 25 percent compared to 12.4 of gold, 11.4 of Defence Saving Certificates, 11.9 of Treasury Bills, 10.5 of Pakistan Investment Bonds and only 4.9 percent of bank deposits.
He urged savers, especially retailers who are the major source of bringing liquidity, to invest up to 20 percent of their savings in the stock market where businessmen protect their margins, thus profitability. The investor would get their principal investment paid off within five years given the 22-23 percent average rate of annual return prevailing on the market, Naqvi said.
During the period under review, he said, while the corporate sector had raised over Rs 1.16 trillion through KSE the resource-constrained governments' collection on account of privatisation proceeds amounted to Rs 439 billion. At the integrated bourse, TREC holders would be provided free of cost a state-of-the-art Internet trading interface, Karachi Internet Trading System (KITS) which the MD said KSE had developed at a cost around Rs 65-70 million.
"We would be simultaneously catering to 400 plus brokers," said Naqvi who was unhappy with the dismal number of retail investors, 220 lac, at local bourse. This number, he said, would be doubled within next 2-3 years of merger. Naqvi also stressed the need for building a regional network of stock exchanges illustrating ASEAN countries which were working out a scheme to develop a single trading platform for regional bourses. "If we fail to build a regional network (through cross listing) in next five years we would be left behind internationally," he warned. Compared to Pakistan's $69 billion, the market capital of Thailand and Vietnam stood at $250 billion, he said.
In a phased manner, PSX would see its operational and real estate segments separated in order to focus on measures that could ensure viability and long-term growth for the bourse. "Real estate constitutes about 50 percent (Rs 3.75bn) of our Rs 8 billion capital," said the managing director who believes that the integration would ultimately benefit the people of Pakistan.