Pakistan Stock Exchange (PSX) has ensured best strategic partnership with the divestment of 40 percent shares to a Chinese consortium and got a very good price for the shareholders as well.
While briefing the Senate Standing Committee on Finance meeting chaired by Senator Saleem Mandviwalla here Thursday on sale of 40 percent strategic shares to a Chinese consortium, Securities & Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi informed the committee that law provides up to 40 percent shares to strategic partners. However, a conscious decision was taken to divest 30 percent strategic shares to a Chinese consortium of three stock exchanges and 5 percent each to two local financial institutions, Habib Metropolitan Bank and National Bank of Pakistan.
An Act namely Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 was approved by the parliament and three stock exchanges were converted into companies limited by shares, he said, adding that 60 percent shares of the stock exchanges were deposited in blocked account. Of them 40 percent were to be sold to strategic investor and financial institutions and 20 percent to general public, while remaining 40 percent in terms of the Act are freely held by the initial shareholders, ie, brokers.
A divestment committee consisting of initial shareholders of PSX and chairman of PSX board of directors was constituted by the SECP on February 29, 2016 which was responsible for ensuring divestment of shares of PSX within six months. However, as permitted under the regulatory framework, the SECP granted an extension of four months to the committee to complete the divestment process. The SECP on recommendation of the committee approved the appointment of KPMG as an independent valuer for carrying out valuation of PSX.
The meeting was informed that based on expressions of interest received by the committee, the SECP allowed 16 investors, including 3 anchor investors and 13 local and foreign financial institutions, to initiate the due diligence of PSX.
Though the transaction was commercial in nature and required to be completed under the law, the Commission in the larger interest of the capital market and the public interest in general reviewed the eligibility of each participant in detail in terms of the regulatory framework.
Subsequent to completion of due diligence, two prospective anchor investors, ie the Chinese Consortium and Markhor Investment Group, and local financial institutions including Habib Bank Limited (HBL), MCB Bank, Faysal Bank, Pak China Investment Company (PCICL), Habib Metropolitan Bank Limited (HMBL) and National Bank of Pakistan (NBP) expressed the desire to participate in the bidding process. The Chinese group had formed a consortium with HBL and PCICL while Markhor had formed a consortium with MCB and Faysal Bank. The NBP and HMBL intended to acquire PSX shares on a standalone basis.
The Chinese Consortium comprised three exchanges in China, ie China Financial Futures Exchange (CFFEX), Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE), intending to acquire 17 percent, 8 percent and 5 percent shares of PSX respectively. Both PCICL and HBL intended to acquire 5 percent shares each of PSX.
The meeting was informed that the SSE is the 4th largest stock exchange in the world by market capitalisation ($4.42 trillion) and 5th largest by turnover ($19.9 trillion). Investor accounts at the SZSE exceed 168 million. The three exchanges are well regulated by the China Securities Regulatory Commission and are amongst the top performing global markets. Their product offerings are diverse and particularly include derivatives, debt and funds which have primarily remained underdeveloped in Pakistan. They also possess indigenously developed technology which is at par with the developed markets.
Markhor comprised two UK and one Singapore based private equity firms, ie DCE Partners, Kingsway Capital and Blibros Limited, which together with MCB and Faysal Bank intended to acquire 40 percent shares of PSX. The committee commenced the bidding process on December 15, 2016 which remained open till December 22, 2016 and bids were received from the Chinese Consortium, NBP and HMBL. The bids received in sealed envelopes were opened at 5:00pm on December 22, 2016.
The Chinese Consortium, including HBL and PCICL, bid for 40% shares of PSX and offered a price of Rs 28 per share, which is above the valuation carried out by an independent valuer. Both NBP and HMBL, thereafter, withdrew their offers. The committee declared the Chinese Consortium as the successful bidder and share purchase agreement was signed on December 27, 2016.