Only 3 IPOs on KSE in 2009

Saturday, December 12, 2009
By Salman Siddiqui

KARACHI: Owing to ups and downs in the economy amid the mayhem on the Karachi stock market in 2009, only three Initial Public Offerings were made on the bourse during the year.

The three IPOs included two in power and one in chemical sectors, which observers termed the worst in this decade.

Companies (usually smaller and younger) in need of money to expand their businesses come to the stock market and offer their shares to those people and institutions, who are ready to provide capital to them. This is called IPO. Sometimes, large companies also make IPOs and get listed on the bourses to become publicly traded.

“Despite higher lending rates, firms did not come to local bourses due to liquidity crunch and lack of interest by investors who lost tons of money in the previous year,” said M Sohail of Topline Securities.

This was for the first time in the last seven years that the Karachi bourse saw only three IPOs in a year. No offer of shares was made in the first half of the outgoing calendar year.

Few companies, mainly power firms, in a bid to overcome electricity shortages preferred to tap the local equity market in the second half, giving some hope of further offerings in the coming year, he added.

“Pak American Fertiliser and Fatima Fertiliser have already expressed interest in making public offerings next year, which can pave the way for more issues,” said Atif Zafar of JS Research.

“We believe a strong market performance in 2009, which recovered by 53 per cent from the beginning of this year to date (the fifth highest since the KSE 100-index was formed) and the gradual economic recovery will provide a suitable setting for fresh issues next year,” he added.

The Karachi market lost over 69 per cent to 4,815 points in January 2009 falling from an all-time high of 15,676 points hit in April 2008. That wiped off around Rs2 trillion from the market in the year.

Although two IPOs were able to get more than the required amount this year, small investors’ involvement was not seen. Only 20,000 investors participated in the three IPOs compared to an investor base of approximately 250,000 in Pakistan, based on CDC sub-accounts.

Nishat Power and Ghani Gases were oversubscribed while Nishat Chunian Power was not subscribed fully, Sohail cited.

These three IPOs were worth Rs1.1 billion compared to 10 IPOs worth Rs17.7 billion in 2008 led by the financial sector, Zafar said.

Interestingly, nine out of the 10 offerings in 2008 were made before the imposition of the famous price floor in August.

Compared to 1990s, offerings in this decade are down by two-thirds. The decade of 1990s was a booming period for the IPOs when on an average 30 offerings were made in a typical year thereby increasing the listed firms from 487 in 1990 to 767 in 2000.

On the contrary, in the current decade average offerings a year have fallen to 10 (approximately).

Last two years saw a total of 19 IPOs. Years 2004 and 2005 were historically best years in terms of the number of IPOs. A total of 17 IPOs were floated only in 2005 to raise an amount of Rs36 billion.