Those pundits who had espoused China as the new owner of the country’s stock exchange were proven right.

The Chinese consortium last Thurs­day, under a bidding process, won 40pc strategic shares of the Pakistan Stock Exchange (PSX) that were up for grabs.

The winning team comprised three Exchanges led by China Financial Futures Exchange Company Limited and supported by the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

The transaction was the first such acquisition undertaken by any bourse in the region

When the sealed envelopes were opened in the presence of bidder representatives, the Chinese came out as the highest bidder. The consortium put Rs28 per share on the table. Two local financial institutions — the Pak China Investment Company Limited and Habib Bank Limited, also part of the consortium, picked up 5pc shares each.

The offer price was Rs2 above the reference price calculated for the PSX by the international audit and advisory firm, KPMG. Quick calculations showed that at Rs28 per share for 320m shares on offer, the PSX would receive Rs8.96bn ($85m). At that price the Pakistan bourse would be valued at Rs 22.5bn ($215m).

There are several factors that make the successful completion of the PSX strategic sale a landmark transaction. Not only is it China’s first footprint outside its own territory, the transaction is also the first such acquisition undertaken by any bourse in the region.

“The Shanghai Stock Exchange is one of the two exchanges operating independently in China; the other being the Shenzhen Stock Exchange”, says Khurram Schehzad, chief commercial officer (COO) at JS Global Capital. He affirmed that the Shanghai Stock Exchange was the second largest in Asia. It was still not entirely open to foreign investors due to tight capital account controls.

The Divestment Committee of the PSX released a short statement but did not identify other bidders and the price that they had offered under the sealed bids. People in the know believe that the principal competitor — the consortium of Markhor and Nasdaq, withdrew their bids just before closing time.

The Divestment Committee said in a statement that it would issue the Letter of Acceptance (LoA) to the successful bidders. Although the date of LoA has not been disclosed, analysts believe it could possibly be by Dec 27, the last date set for completion of the divestment programme.

Some knowledgeable people in the market thought that the LoA ceremony might be held with much fanfare with Prime Minister Nawaz Sharif also making his presence felt.

From Pakistan’s perspective, there could not have been a more opportune moment to offer strategic shares to foreign buyers.

During 2016, the PSX has given out returns of 41pc to investors, marking the bourse as the best performing market in Asia.

Going forward in May next year, the country’s bourse would be upgraded to its original place among Emerging Markets, from which it was relegated to the Frontier markets status after the ‘floor’ debacle in 2008.

Although currently witnessing major outflows, most market participants expect huge foreign investment from large international funds that invest in emerging markets.

So what value addition would the strategic investor do to the PSX? Senior brokers thought the impact could be huge. Arif Habib said: “The divestment brings about an ideal partnership for the development of the capital markets in Pakistan. The arrival of Chinese investors would be another step in fostering economic development in the region”. Already excited by the prospects of the China-Pakistan Economic Corridor (CPEC), many market participants thought that the Chinese were surely the best bet.

The number of investors at the PSX at under 0.5m fades in the face of the 200m account holders on the Shanghai Stock Exchange.

Khurram Schehzad at JS Global counted some of the advantages to the local bourse: “technological advancements, product development and diversification with global investor-suitability, stronger risk management, increase in both foreign and local investor base and potential for inter-market/cross-market listings for a wider reach and access of capital to Pakistan’s corporate sector, are some of the benefits”.

For the 200 stockbrokers at the PSX, the long wait is at last over. There is likely to be a flood of liquidity. Besides the Rs8.96bn inflow from the strategic sale, the market would receive another Rs4.5bn from the offer of the remaining 20pc shares in the PSX to the general public, possibly within the next six months.

The same 200 stockbrokers being the original owners of PSX would receive the entire proceeds of the 60pc shares sale in a pre-determined ratio. That would result in significant liquidity generation for the stockbrokers, resulting in their higher capital adequacy.

The sale of 20pc shares in IPO would mark the completion of the measures mentioned under the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012.

It all started with the view to separate the stock exchange ownership from its management so as to dilute the powers of the stockbrokers that held sway over the market.

Published in Dawn, Business & Finance weekly, December 26th, 2016