The initial public offerings (IPOs) in 2011 were limited to only four scrips, valuing a gross Rs 1.4 billion, down 58 percent on year-on-year basis, analysts said. The public response to these, too, remained dull, being subscribed by only 0.75x, they added. "A total of only four offerings have been floated in 2011, as opposed to six in last year", said Atif Zafar, an analyst at JS Global Capital.
These offerings included International Steels, Pakgen Power, Engro Foods and TPL Direct Insurance, raising a cumulative sum of Rs 1.4 billion against last year's Rs 3.3 billion, down 58 percent, he added. Historically, 2005 had been the best year, witnessing total 17 IPOs.
The KSE-100 in 2011 YTD (Year-to-date) is down 5.4 percent, underperforming by a gross 9-27 percent against most other asset classes ranging from commodities to foreign exchange to debt markets, he observed. "The lack of investor interest is reflective from average daily volumes falling to their lowest since 1998, along with a notable decline in money raised from the capital markets", he said.
Nevertheless, the KSE outperformed the international equity markets in 2011. The MSCI World, MSCI EM and MSCI FM indices were down by 8.2 percent, 17.2 percent and 20.6 percent, respectively in 2011 YTD. "We expect a similar trend for public offerings in 2012 at the local bourse, given slower than expected economic recovery, political uncertainty and poor law and order situation amongst others", he said.
While outperforming international equity markets by an average 10 percent, the KSE-100 lagged behind most other asset classes (Gold, US$, NSS, T-bills, PIB etc) by a notable 9-27 percent. "Despite cheap valuations, investors remained sidelined largely owing to falling popularity of the incumbent government amid dissonance with major international allies and local political parties; concerns over another global recession following downgrade of US debt rating by S&P; rapidly changing macro economic situation of Pakistan; concerns over capital gain tax (CGT) and stringent and complex regulations of the leverage products by SECP, in our view", Arif said.
"As a result, we also saw average daily volumes falling to their lowest since 1998 to 82 million shares", he added. In terms of value, the offerings were subscribed by 0.75x against 0.9x last year. Moreover, investors general lack of interest was also reflected in number of applications filed (12,000) against the required number (203,000), resulting in total subscription of 0.06x. In these terms, Engro Foods received the highest response (0.16x), while International Steel received the lowest (0.02x).
He said that similar trend was witnessed in global equity markets as well. Though 2011 began on a positive note, fears of recessionary concerns led to a marked decline in the number of IPOs offered during the second half of 2011. According to reports, global IPO market in the third quarter of 2011 witnessed a decline of 26 percent on quarter-on-quarter basis in volumes and 57 percent in value. "We expect a similar dull trend to persist for public offerings in 2012 owing to slow economic activities and lack of general interest of investors", Atif said. "Looking ahead, offerings by Engro of its fertiliser and power businesses appear strong possibilities in 2012", he added.