KARACHI, June 27: The Karachi Stock market saw a total of 12 equity offerings, which set out to raise Rs6.3 billion in the financial year 2007. Reflecting a considerable improvement over the earlier year's total Initial Public Offerings (IPOs) at nine of the aggregate size of Rs3.6 billion, they nonetheless could hardly satiate the appetite of the market for more new issues.
During 2007, the neighbouring India emerged as eighth largest IPO market in the world, attracting $7.23 billion (Rs300 billion) in net proceeds through 78 public issues. Globally, $246 billion were raised through 1,729 IPOs in 2006 as against $167 billion in 2005. Greater China's IPO markets soared to an all time high with $56.6 billion through 175 offerings in 2006 and Hong Kong Stock Exchange accounted for 19 per cent of the total proceeds raised in the global markets.
But it would be unfair to compare with all things Indian. Bombay Stock Exchange was born more than 100 years before the KSE. Around 4,800 companies are listed on it with market capitalisation of Rs40.7 trillion ($999 billion). That puts into shade the Rs4 trillion market capitalisation and around 400 active companies on the KSE.
Analyst Faraz Farooq at First Capital Equities stated that in the Pakistani equity market, the increase in size of IPOs in FY07 over that of FY06 was due to re-entry of the government through OGDC's second issue in the stock market, which accounted for 38 per cent of the total issue size and 34 per cent of the cumulative subscribed amount in FY07.
On the other hand, subdued interest was observed by the private sector. “This could be linked to lack of tax incentives for listed companies (tax rates are at par for private and public listed companies) while the tough requirements of corporate governance has also restricted the IPO traffic in last few years”, the analyst says.
The stocks on offer; the issue size and amount received in subscription stood are as follows: (1) Namco Balanced Fund; Rs300 and Rs8 million; (2) WE Balanced Fund; 100 and 3; (3) Allied Rental Modaraba 150 and 161; (4) BMA Principal Guaranteed Fund; 150 and 161 million; (5) Arif Habib Limited 500 and 1,346 m (6) Hira Textile Mills Limited 313 and 38m; (7) OGDC (2nd Issue) 2,366 and 3,271m; (8) PACE (Pakistan) Limited 550 and 1,084m; (9) JS ABAMCO Limited 1,300 and 2,532m (10) Flying Cement Company 140 and 525m; (11) Pervez Ahmed Securities 250 and 543m and 12) Sitara Peroxide 250m. Total 6,268 and Rs9,563 million.
As can be noticed from the above against the offer size of Rs6.3bn in FY07, total subscription received amounted Rs9.6bn. That translated into average oversubscription of 1.5 times. Amongst the 12 offering made in FY07, three were undersubscribed. Those included IPOs of two closed-ended mutual funds i.e., Namco Balanced Fund and We Balanced Fund and a textile concern, Hira Textile Mills. Other than that, all offerings were oversubscribed. The IPO of Flying Cement was 3.8 times subscribed, which was the highest amount on all issues. It was followed by Arif Habib (2.7 times), Pace Pakistan (2.0 times) and JS ABAMCO (1.9 times). The secondary offering of OGDC was oversubscribed by 1.4 times.