KARACHI, Aug 3: The demutalisation committee of the stock exchanges has asked the financial advisor (FA) to the ‘corporatisation, demutalisation and integration’ of the bourses -- The Deutsche Bank, to find the ‘strategic buyer’ of 40 per cent shares in the demutualised stock exchanges by the end of September.
A knowledgeable source at the bourse said, adding that the FA had given its consent.
With the global and local equity markets trading at their historic high, the government has yet to realise that there could be no better time to sell-off the state-owned enterprises (SOEs) that are on the list of privatisation. Yet the Pakistan equity market has redoubled its efforts to search for a ‘strategic buyer’ of 40pc equity in the ‘demutualised’ stock exchanges.
After approval from the parliament, the President of Pakistan had signed the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012 on May 8, 2012.
The law stipulated that the stock exchanges be demutualised within 119 days of the promulgation in accordance with the timelines specified in the completion of the cycle.
The ‘corporatisation, demutualisation and integration’ means transformation of the stock exchange from a not-for-profit organisation, to a for-profit company, listed on the stock exchanges and owned by shareholders.
As the statutory status of the KSE is about to change from company limited by guarantee to company limited by shares, the entire equity of the KSE (as a company) has been vested in the members (brokers). But 40pc of those shares have passed on to the members own accounts, while the remaining 60pc have been placed in the ‘restricted’ account’ of the members with the Central Depository Company (CDC).
A strategic investor would be offered 40pc of those shares and the remaining 20pc would be floated in the initial public offering (IPO).
The big worry has been to find a buyer of the strategic shares?
A senior official/member of the KSE did not think that there was any timeline given to the FA. “The process has to be completed by August 14 next year, which means there is ample time to find the best buyer who also might give the highest bid”, he said.
“The focus, in the best of circumstances, can be by the end of this calendar year” the official thought.
He pointed out that there were very strict criteria for choosing the party which would hold the strategic shares.
Two of them were the minimum capital requirement of Rs200 million and at least 10-year experience of the capital markets.
He noted that only three types of buyers could qualify: An international Stock Exchange; derivative and commodity exchanges or an International Clearing House. Also, giving away 40 per cent of the market to the strategic buyer could be a long-drawn process, which would include drafting the sales deed, approval by the mutualisation committee, solution of queries and perhaps holding road shows.
A market expert says that in terms of money, the strategic sell-off of 40pc shares could amount to around $800m, if the valuation of the demutualised exchange—which has not been disclosed---stands at $200m.
Although that is not a phenomenal sum which would unleash liquidity in the market, there are other significant benefits of sale to the strategic investor, says this market participant.
He counted those blessings as bringing new technology in the market if the buyer is from the developed market and introduction of new derivative products.
The country’s bourses are currently trading in only the ready market and deliverable futures.
The index futures were introduced in the market but they have yet to take off.