KARACHI: More than two-and-a-half years since demutualisation of the Karachi Stock Exchange, the bourse is still in search of a competitive strategic buyer of 40 per cent shares.

Informed sources say that the bourse had hunt down three parties who have gone beyond expression of interest (EoI). The talks are taking place with the Burse Malaysia (previously known as Kuala Lumpur Stock Exchange); the Tokyo Stock Exchange and the Qatar Exchange.

Although the stock exchange is keeping it quiet, a person in the knowledge of things tells that talks have progressed at a faster pace with the Tokyo Stock Exchange, and the KSE has provided it with Non-Disclosure Agreement (NDA). The KSE is not under a liability of disclosure of the facts either to the chief regulator or the public until the final evaluation has been done.

The financial advisor (FA) to the transaction, Deutsche Bank was believed to be keeping an eye on the developed markets of the West.

Although some people at the market believe that initial interests were shown by the London Stock Exchange and the New York Stock Exchange, others dismiss that such could have been the case.

“For those markets with trillions of dollars in market capitalisation, our market with just over 550 listed companies and market capitalisation of just under $80bn, is but a pittance,” says one fund manager.

No one, however, doubts the advantages of involvement of a global strategic investor in KSE, who would help raise credibility of the Pakistani capital market.

It is expected to result in value-addition and help in index trading, new product and possibly cross-border listings. “The strategic investor will be expected to bring in investment, experience, technological assistance and new products,” says an official at the stock exchange.

A senior analyst concurred. He pointed out that at the moment; the local bourse was depending almost entirely on just the one product ready cash market. There were no ‘options’ trading and futures were almost non-active.

“All that could change giving the market a new international look with the entry of a big strategic investor,” he said.

The Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012, aimed at separation of trading rights from the rights of ownership was corporatised and demutualised with effect from Aug 27, 2012.

As things stand, 40pc of shares of the demutualised exchange have passed on to the members own accounts, while the remaining 60pc are parked in the ‘restricted’ account of the members with the Central Depository Company (CDC).

The strategic investor would be offered 40pc of those shares while the remaining 20pc would be offered in the initial public offering (IPO).

Originally, the stock exchanges had to find a strategic buyer within 119 days. That period expired in Aug 2014; the chief regulator, the Securities and Exchange Commission of Pakistan, has extended the date till August this year to enable the exchange strike a favourable deal with the buyer.

Published in Dawn, February 8th, 2015

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