On Jan 7 last year, the Sec­­­urities and Exchange Commi­­ssion of Pakistan (SECP) placed new general conditions for the public offer of securities and revised the book-building procedure.

Later on, the apex regulator of the capital markets made some amendments to the Public Offering Regulations 2017. One of the general conditions stated that “the issuer shall decide the floor price in consultation with the consultant to the issue, provided that the upper limit of the price band should not be more than 40 per cent of the floor price”.

The equity market reawakened to new listings this year with Interloop Ltd, recognised as the country’s largest hosiery producer, seeking to raise Rs4.9 billion in March. It represented a 12.5pc stake in the company.

This was the largest-ever private-sector initial public offering (IPO) in the country. The company issued 109 million shares — 75pc of them to institutional investors and high-net-worth individuals under the book-building process. The issue was oversubscribed 1.37 times with the price closing at Rs46.10 per share. But the book-building process was not altogether free from criticism.

According to Baqar Abbas Jafri of Investors Lounge, an investment portal, brokers who helped get the offer oversubscribed 1.37 times decided to sell the company’s shares to individuals and other participants on the very first day of listing.

Did that signify a flaw in the book-building process?

“There are some fundamental questions: if brokers/investment banks wanted to offload the stock on the first day, then why did they buy the stock in book building? Was it done merely to create over-subscription and raise public appeal for the stock during the IPO?” said Mr Jafri.

But this was not an isolated case. On June 21, 2015, a furore was created when the book-building process determined a strike price of Rs95 for meat company Al Shaheer Corporation Ltd. Its share price is currently hovering around Rs14.

The question raised at the time was whether the regulators determined if the strike price was fair or foul.

Critics argue that unless a transparent mechanism is evolved, it is possible to manipulate the strike price — which is worked out for three-quarters of the shares that are initially offered to institutions and high-net-worth individuals — to the disadvantage of public subscription.

SECP Policy Board Chairman Khalid Mirza told this writer that the book-building process needed to be simplified. But he added that people ought to differentiate between profit and profiteering. He stressed that it would be wrong to call anyone a thug until they were proven guilty.

PSX CEO’s side hustle

The Pakistan Stock Exchange (PSX) issued a show-cause notice to its CEO Richard Morin last month for breaching the employment contract by simultaneously operating his own wealth management company. Mr Morin was given 15 days to come up with an explanation, but he has yet to reply to the notice.

Archer Wealth Management, a Montreal-based firm that identifies as “independent financial advisers,” shows Mr Morin as chairman of the board, CEO, chief compliance officer and portfolio manager.

Interestingly, the PSX CEO is still keeping his name and designations on the website of the Canadian company (archerpatrimoine.com/en/firm) after receiving the show-cause notice from the PSX.

Mr Morin’s remuneration, which is higher than the salaries drawn by the bourse’s previous chiefs, is already a cause for concern for the investing public. There is also a general feeling that in his one and a half years in office, the first foreign head of the Pakistan bourse has fallen short of expectations. He was expected to bring in foreign investment, introduce new products and cross-listings and ensure technological transfer.

The public is not fully aware of the circumstances that led to the show-cause notice. The issue came to light after former PSX official Sani-e-Mahmood Khan pointed it out to the PSX board. He is currently the CEO of private firm Securities Exchange Management Suite.

There are reports that Mr Morin has been barred from travelling abroad by the PSX board to thwart any possible attempt to do personal business. In his place, the chairman of the board represents the PSX at overseas conferences. Commentators say the PSX should have sent out a material information note on its website because the bourse is a listed company.

According to a corporate law expert, however, such a notice was not necessary because it is the board’s internal matter.

Commenting on the issue, Mr Morin said: “It is a private matter on which I shall not comment.”

He is a nominee of the Chinese consortium that holds a 40pc stake in the PSX. Pakistani directors were unwilling to comment whether possible action against Mr Morin would receive the approval of strategic investors.

Published in Dawn, The Business and Finance Weekly, May 6th, 2019

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