KARACHI: With the loss of the IPO option, many companies have shelved their expansion plans as bank loans are unaffordable and difficult to obtain in the wake of credit crunch and tight monetary policy, said bankers and analysts.

The plunge of the equity market deprived companies willing to raise funds through IPOs (Initial Public Offering), forcing them to shelve their plans indefinitely.

Initial public offerings have been a popular investment for retail investors in Pakistan over the past few years. This was also an attractive option for petty investors guaranteeing immediate gains. Shares were offered at a low price to retailers delivering immediate profit as soon as the stock was listed.

‘Last year, 19 IPOs were launched to raise a fund of Rs19.86 billion but fall of stock business restricted IPOs to only eight worth Rs4.4 billion.’ said Mohammad Imran, head of research at the First Capital Equities. The last IPO was launched in August.

Bankers said banks would not extend credit to most of the companies which are willing to raise funds through IPOs as banks take a different view of the balance-sheet of a company before lending.

‘The banks in the days of liquidity crunch would not prefer taking risk by offering credit to diversified companies of difference sectors.’ said a senior banker.

Most importantly the companies under the current high interest scenario are unable to borrow from the banks.

‘The cost of debt would be too high for companies which want to expand their plans and it could eventually fail any plan for expansion with such a high interest, like 20 to 22 per cent.’ said a high official of a chemical company willing to raise funds through IPO.

The benchmark interest rate rose to 15 per cent last week which thrashed the business circle hard which is finding it uneasy to digest, and they are raising voice against the sudden jump of the interest rate.

The SBP said that the interest rate was increased to control inflation, but inflation has been rising since the raising of interest rates.

The SBP raised the discount rate by 500 basis points during the last few months but the main inflation reached 25 per cent.

The main inflation (CPI) directly hits the general public, but both the government and the State Bank showed great concerns over the rise of core inflation which also climbed to 18.3 per cent in October.

The prime minister’s finance advisor Shaukat Tareen said a couple of weeks ago that interest rate could be increased if core inflation goes further higher.

‘There is no chance for companies willing to raise funds through IPOs as obtaining of loans from banks is no more affordable.’ said Imran.

He believes that if the stock markets are opened now, it will take at least six months to respond positively to an IPO.

As part of the government plan and the policy of the State Bank, credit flows have been restricted.

The SBP discourages banks lending to market offering risk-free T-bills at a rate as high as 14 per cent.

Banks showed over- enthusiasm by investing Rs103 billion in three-month T-bills on Wednesday last, reflecting the success of the SBP policy. It means that the market will remain deprived of the credit it needs while the economic growth will fall.