Karachi: The Karachi Stock Exchange (KSE), Pakistan’s biggest bourse, may sell shares locally and in Dubai in a dual initial public offering (IPO), luring overseas investors to the South Asian market that has risen 10-fold in six years.
Sale arranger Deutsche Bank AG will complete its valuation by June and the IPO could take place within a year, Muhammed Yacoob Memon, deputy managing director of the exchange, said. Memberships had changed hands at about $1.5 million (Rs6.6 crore) in October, valuing the bourse at $300 million.
“There are already discussions on how to get the listing of the company on the Karachi and Dubai stock exchanges,” Memon said in an interview in Karachi on 19 March.
Karachi’s KSE 100 index has surged to $52 billion in market value from $5 billion since 2001. The NYSE Group Inc., operator of the world’s largest stock exchange, agreed in January to invest $115 million in neighbouring India’s biggest bourse.
“We have seen interest from overseas stock exchanges in India and if we get our act together, then I don’t see why there won’t be interest in the Karachi Stock Exchange,” said Nasim Beg, who oversees the equivalent of $320 million in stocks and bonds as chief executive officer of Arif Habib Investments Management Ltd in Karachi.
KSE plans to demutualize, or convert to a public company from a body owned by its members, by the end of this year as part of a reform program that began in 1997. Under the plan, independent management, automated trading and risk management systems were introduced at the exchange.
The KSE 100 index trades at 14.9 times future earnings, compared with India’s benchmark Sensitive Index, which is valued at 20 times earnings, according to Bloomberg.
Pakistan’s benchmark index has climbed 12.5% this year, on course for its sixth consecutive annual rise. Overseas investors bought a net $697 million of Pakistani stocks in the July-January period, compared with $400 million a year earlier, according to central bank data.
“Pakistan has good political and economic relations with the Middle Eastern states, and therefore expects to get a good price in Dubai,” said Ali Hussain, head of research at Invest Capital & Securities Ltd. in Karachi. At the same time, the fightings in the country, and assassination attempts on Musharraf and prime minister Shaukat Aziz, highlight the security risk in Pakistan, Standard & Poor’s said in a report in December.
The valuation of membership is “the most contentious issue” in the process, Haroon Askari, the exchange’s head of operations, said in an interview in Karachi on 19 March. “Members have different views on how various assets should be valued.”
Companies from West Asia, including Emirates Telecom Corp., and Emaar Properties PJSC, accounted for 15% of Pakistan’s foreign investment in the seven months ended 31 Jannuary. Overseas investment in shares, from countries like the UAE and Kuwait, more than doubled to $981.2 million in the July-February period, compared with $470.9 million a year earlier.
The “natural choice” for an overseas listing would be London or New York, since Dubai’s low volumes will not provide “quality price discovery,” said Beg. The exchange plans to start trading cash-settled futures on 2 April to develop a derivatives market, Memon said.