PSX divestment expected to fetch $136mln

KARACHI: Pakistan Stock Exchange (PSX) Limited, which is the Asia’s best performing equity market, is expected to rope in approximately $136 million through the divestment of its majority stakes, a brokerage said on Wednesday.  

In July, the newly integrated PSX unveiled plan to sell off 40 percent of its shares to strategic investors and another 20 percent as free-float through an initial public offering (IPO).     

“Assuming transaction price of 3x of the book compared to global average of 3.8x, the 40 percent selloff and 20 percent IPO could inject $136 million in the brokers’ cash balances,” said Zeeshan Afzal, executive director research at Insight Securities.

Afzal said the sell-off will cause a $60 million worth of revaluation gains on the remaining freely-held 40 percent shares by Jun 2016, resulting in higher capital adequacy and proprietary trading.

The PSX’s benchmark 100-share Index gained 15 percent this year, becoming the best performer in Asia.

The proposed sell-off is seen as the next big event after the Morgan Stanley Capital International (MSCI) Inc. announced to re-award the emerging markets status to the Pakistan’s equity market.

The country will be reclassified into the MSCI Emerging Market Index in May 2017. This upgrade is expected to attract more than $400 million of fresh foreign investment as the index is tracked by the Funds with assets worth $1.5 trillion.

The divestment is a part of demutualization process under which the country three stock exchanges (in Karachi, Lahore and Islamabad) had been integrated into the PSX.

The incumbent government led by Prime Minister Nawaz Sharif claimed that the macroeconomic stability was the major reason behind revival of the investor confidence. MSCI Inc. threw the country back in the frontier index back in 2008 due to deteriorating investment climate.

In the last three years, the PSX’s benchmark Index surged more than 90 percent.  

Two global capital market’s bellwethers Shanghai Stock Exchange and NASDAQ have been reported as the aspiring buyers.  A delegation from NASDAQ is expected to meet the management of the PSX this week to express its interest in the bourse divestment.  Managing Director Nadeem Naqvi at PSX told media that the bourse had received expressions of interest from different investors, including Shanghai Stock Exchange.

Afzal said the selloff will improve PSX operations and help in introduction of futures/derivatives products. This will also boost trading activities and further improve the confidence of foreign investors, he added.  He said at the price to book ratio of 4x, “$183 million would fall in brokers’ kitty.” “However, if all brokers agree to offer the remaining 40 percent shares, the cash inflow would increase to $227 million (at P/Bv of 3.0x) and $305 million (at P/Bv of 4.0x),” he added.

At present, the PSX is almost a cash market, offering very limited future contracts and no options.