July 12, 2006	Wednesday	Jumadi-ul-Sani 15, 1427

KARACHI, July 11: The enormous gains that investors made from subscriptions in initial public offerings (IPOs) of state-owned companies, such as Oil and Gas Development Company Limited (OGDC) and Pakistan Petroleum Limited (PPL), brought them in droves to Pakistan’s capital markets.

Some estimates suggest that from less than 100,000, the number of investors in equities rose to 500,000. But that was until the stock market crash of March 2005. Both the needy and greedy small investors lost all that they had earned and more. The reverberation of those investors’ scream still echoes in the corridors of Parliament. But that aside, the government has almost stingily held on to all its holdings in public companies. None of those promises of divestment of holdings in Habib Bank Limited, State Life Insurance and secondary offerings in OGDC, NBP and UBL materialized.

The private sector listings have also been all too slow. The result is that too much cash is chasing too few shares at the market. On any given day, volumes are almost always generated in as many shares as can be counted on the finger tips of one hand: NBP, DGKC, MCB, Lucky Cement, MCB and one or two others.

There is a need for new offerings: both from the public and private sectors. Currently, private six companies are waiting while their applications for listings are under process at the offices of the corporate regulators. They include GELCAPS Pakistan Ltd, First Pakistan Securities Ltd, United Stock Advantage Fund (open-end), Hira Textile Mills, Allied Rental Modaraba and SME Leasing Limited. That is about all.

Even the financial year 2005-06 saw a handful of new offerings compared to the previous year. Only nine new companies showed up to make IPOs, compared with 16 companies the earlier year.

Suleman Amir Ali, analyst at InvestCap, observes that the decline in IPOs was in spite of the stupendous growth of 35 per cent exhibited by the KSE during the year. But even so, out of the eight total listings, only one was made by the government from its holdings in Bank of Khyber, while the other eight offerings emanated from the private sector.

The IPOs were from a diverse range of industries, including some of the emerging and growing sectors like IT and telecom (Netsol and WorldCall). On the industrial front, three new companies entered the capital market, including two from the textile sector (Chenab Ltd and DS Industries) and one from a new industry like tinplate (Siddiqsons Tin Plate Ltd). The banking sector saw listing of two new banks -- Bank of Khyber and Bank Islami. Two offerings related to the mutual fund industry -- PICIC Energy Fund and AKD Index Tracker Fund -- both bringing in new concepts in the form of focused sector and index funds.

A meager sum of Rs3.6bn was raised through the IPOs. Total amount generated through IPOs in the previous year had amounted to Rs15bn.

To satiate the appetite for more stocks and rein in the extreme volatility in few actively traded scrips, it is imperative for the government to take the lead in offerings of just a part from its almost wholly-controlled giant companies. The investors’ interest in equity investment is currently at low ebb. A private company can not be expected to enter the market, even if some of the hassles of compliance with complicated code of corporate governance were to be relaxed. Let the small households reap the gains as they did by subscribing to PPL and OGDC and let the corporate watchdogs keep their eyes open and it is possible to reactivate the interest of investors with small means to the stock trade.