KARACHI: The Pakistan Stock Exchange (PSX) sold 40 per cent strategic shares on Thursday to a Chinese consortium that made the highest bid of Rs28 per share for 320 million shares on offer. The value of the transaction is calculated to be Rs8.96 billion ($85 million).
The Chinese consortium comprises three Chinese exchanges — China Financial Futures Exchange Company Limited (lead bidder), Shanghai Stock Exchange and Shenzhen Stock Exchange. Together they will take up 30pc of the strategic stock while two local financial institutions — Pak-China Investment Company Limited and Habib Bank Limited — will pick up 5pc each, the maximum permitted to a single institution under the regulations.
The significant feature of the deal lies in the fact that it is the first such sale of strategic interest in a bourse in the regional markets. Through the deal, the Chinese bourse has also made its first foray in an acquisition outside China.
20pc shares will be offered to public through IPO
The PSX’s divestment committee opened the bids on Thursday evening in the presence of representatives of the bidders and announced the highest bid which, market sources said, was at a premium to the reference price of Rs26 determined by KPMG, a global network of firms providing audit and advisory services.
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At least 17 parties had submitted expressions of interest (EoIs) at the preliminary stage. According to the sources, six bidders were in the final run, which included a consortium of Markhor and NASDEQ, but it withdrew before the closing time.
The divestment committee did not identify other bidders or the price they had offered, but said in a statement that the committee 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 earlier set for completion of divestment. The acceptance of the offer is subject to formal approval of the apex regulator — Securities and Exchange Commission of Pakistan.
With 40pc of the PSX equity already vested with the 200-strong stock broker fraternity, the remaining 20pc would be offered in an initial public offering (IPO) to the general public.
Former PSX chairman Arif Habib said: “The divestment brings about an ideal partnership for development of the capital market in Pakistan. The arrival of Chinese investors will be another step in fostering economic development in the region.”
An analyst was of the opinion that the sell-off would result in significant liquidity generation among stock brokers that was expected to result in their higher capital adequacy.
The 20pc shares to be offered to the public would raise another Rs4.5bn. According to people familiar with the affairs, the entire proceeds from the sale of shares would be distributed among the 200 stock brokers in a pre-determined ratio.
Most brokers and market participants thought that the sale of controlling stock was fairly priced. The market participants said the divestment would add value to and help in index trading, new product and possibly cross-border listings.
“The foreign investor will be expected to bring in investment, experience, technological assistance and new products,” said an official at the stock exchange.
A senior analyst concurred and pointed out that at the moment, the local bourse was depending almost entirely on just 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 such an offshore ‘anchor’ investor,” he said.
The sale of strategic shares comes several years after the stock exchanges in Pakistan were demutualised — ostensibly to separate the ownership from management. As the first step towards demutualised exchange, 40pc shares of the exchange were passed on to the members’ own accounts, while the remaining 60pc are parked in the ‘restricted’ account.
Following the integration of the country’s three bourses into the Pakistan Stock Exchange, the bourse hastened its effort to find the strategic investor and has hopefully closed the deal.
Published in Dawn, December 23rd, 2016