KARACHI: The corporate sector has raised a comparatively small sum of Rs4.2 billion through the issue of only three initial public offerings (IPOs) in 2013.
The loss of interest by companies to mobilse funds from a booming stock market that has seen investors return at an impressive 44 per cent in 2013, aggregating to a mouth watering 115 per cent gain since the stock rally began in January of last year, is stunning.
An equal number of companies had entered the stock market in 2012.
Market participants admit that the poor showing of new listings is a risk to capital formation.
Keeping aside the few technical listings, Pakistan equity market saw only three IPOs in 2013.
Listing of companies on the local bourse remained at low levels after the financial crisis of 2008.
Strict code of conduct for listed companies, slowdown in industrial growth, absence of government offerings of shares in state-owned enterprises and absolute lack of incentives to listed companies, to entice them to raise funds from the bourse, are listed by market participants for the sad state of things on the new listings front.
”After the 2008 global financial crisis that was followed by local external accounts crisis, the trend of IPOs has slowed down almost to a halt,” says Mohammad Tahir Saeed, analyst at brokerage Topline Securities.
He observed that since 2008, an average four new companies have offered their shares every year (excluding right shares) to public, which compares unfavourably with an overwhelming number of 30 IPOs a year in 1990s and seven every year between 2000 and 2007.
Normally listing takes time and the market is looking forward to improvement in the number of new entrants in 2014 as issuers compare advantages against disadvantages in a market that is witnessing rapid increase in size and rocketing stock prices that raises the value of companies.
Major investors expect public offering by government to trigger a spate of new offerings by private companies.
Analyst at Topline points out that all the three new IPOs in 2013 surfaced after the PML-N government took the reins of power in May 2013.
The analyst believes it to be an indicator of investors’ confidence and great expectations from the incumbent government.
As the capital markets have proved themselves to is a potent tool to raise capital, all three IPOs after the change of government show increased demand of fresh capital on account.
During 2013, the amount of Rs4.2bn was raised through offerings to the public, High Net Worth Individuals (HNWI) and local/foreign institutions through IPOs and book building.
Despite being low, it was substantially higher than Rs500m of new offerings in 2012. ”Our calculation includes the amount of shares that were offered in book building process and also those which are yet to be offered to general public. “We assume those shares will be offered to public at the strike price settled in book building process,” analyst Tahir says.
The distribution of new shares of the total amount Rs4.2bn offered in 2013 included Rs827m worth equity offered to public; Rs3.3bn (US$33.0m) to HNWI and local/foreign institutions through private placement and book building.
Engro Fertiliser made the biggest offering of 105m shares in 2013. Out of total offer, 18.75m shares are yet to be issued to general public.
Incidentally all three new offerings in 2013 were over-subscribed. Lalpir Power was related to energy sector, Engro Fertiliser was chemicals related while Avanceon Ltd was from the technology sector.
Avanceon’s book building was oversubscribed marginally by 0.03 times while the other two received a much warmer investor response.
Lalpir’s public offer was significantly oversubscribed by 4.9 times whereas Engro Fertilizer’s book building was oversubscribed by 2.9 times.