KSE among worst performers in 2006
KARACHI, Dec 28: Friday would see the last trading session at the Karachi Stock Exchange before the advent of 2007. But unless something dramatic happens Ă˘â‚¬â€ť the prospects for which are slim Ă˘â‚¬â€ť the outgoing year would haunt investors as a bad dream. Year-on-year, the Pakistani equities provided return of under 5 per cent, lowest since the bull-run began five years ago and the KSE could well line up among the Ă˘â‚¬Ëśworst performing markets in the worldĂ˘â‚¬â„˘.
There are likely to be outburst of protests on that last remark, but if for 2002 and 2003, the KSE could claim its place as the Ă˘â‚¬Ĺ“best performing market in the worldĂ˘â‚¬Âť, because of its fabulous returns of 112 and 56 per cent, respectively, itĂ˘â‚¬â„˘s just fair to place the market down to where it belongs for 2006.
Most arguments would surround the word Ă˘â‚¬ËśbreatherĂ˘â‚¬â„˘ that the market must take after an incredible rise of 690 per cent in KSE-100 index, from 1,273 at the start of 2002 to 10,058 currently. And it would be fair to concede that part of the reason could be just that.
But apart from market performance, small investors in particular, who were given to make doleful of money from new offerings the year earlier, were disappointed as only five new companies entered the equity market to raise capital, amounting to only Rs1.9 billion. That compared with 14 IPOs worth Rs13.6 billion (including green shoe option) recorded in 2005.
Among the five new issues during 2006, there were two banks, two mutual funds and one securities firm.
Managing Director of KSE, Mr. M. A. Lodhi says that the major reason for companies to shun listing is the lack of incentives. Ă˘â‚¬Ĺ“It is the removal of 10 per cent tax benefit to listed companies as compared to unlisted companies that have put off companies from entering the capital market.Ă˘â‚¬Âť He said that companies had no reason to seek listing and take on themselves all the responsibilities of complying with audit as well as the Ă˘â‚¬Ëścode of corporate governanceĂ˘â‚¬â„˘, when they had no incentives to do so. Matters, he said, were being pursued with the government. But he wouldnĂ˘â‚¬â„˘t know if the ministry would budge from its stand.
Analyst at JS Capital Markets, Farhan Mehmood said that in the last few years, regular large size equity offerings had continued to flow from the government side, but those were absent during 2006. Some of such offerings in preceding years included those of OGDC (offer made in Nov 2003), SSGC (Feb 2004), PIA (Jun 2004), PPL (July 2004), KAPCO (Feb 2005) and UBL (June 2005).Easy and cheaper bank credit also dissuaded sponsors to raise capital from the capital markets during 2006. The two banks that dared make IPOs were well received by investors. Bank of Khyber and Bank Islami were heavily oversubscribed.
BoK attracted subscription amounting to Rs4.6 billion, which worked out at 6.8 times its offer, while Bank Islami received subscription of Rs3.5 billion, being 8.7 times its IPO size. InvestorsĂ˘â‚¬â„˘ clamour for bank shares was understandable as banking sector was the darling of the stock market during 2006, due to strong profitability and ongoing Mergers & Acquisitions (M&A) of banks.
On the other hand, the two IPOs of closed-ended mutual funds were hugely under-subscribed. The balanced funds NAMCO and WE funds, combined received subscription of Rs10.9 million from the general public, compared to a cumulative offer size of Rs400 million.
Mr. Mohammad Sohail, director research and equity broking at JS Capital Markets forecasts an improved 2007 in terms of new IPOs. Among companies coming up for raising capital from equity markets, he counts more than a dozen private firms that are already in one of the following stages of listings: Ă˘â‚¬Ĺ“companies in process of formal listingsĂ˘â‚¬Âť; Ă˘â‚¬Ĺ“prospectus/offer for sale cleared by the ExchangeĂ˘â‚¬â„˘ and those that have Ă˘â‚¬Ëśapplied for listingĂ˘â‚¬â„˘.
Ă˘â‚¬Ĺ“GovernmentĂ˘â‚¬â„˘s secondary offering in OGDC; UBL and new offers of Pakistan Steel and State Life Insurance are likely to materialise during 2007,Ă˘â‚¬Âť Sohail hopes.
During 2006, the government had almost stingily held on to all its holdings in public companies. The private sector listings also having dried up, the result was that too much cash went chasing too few (blue chip) shares.