Booming equity market ‘positive’ to $140m investment outflow on Hubco deal

The once volume-starved stocks market of the country appears to have flourished to an extent that the market Wednesday shrugged off a huge but “planned” foreign portfolio investment outflow of $ 140 million from the Hub Power Company (Hubco), the country’s largest independent power producer (IPP).
The development drew a mixed reaction, both positive and negative, from the market analysts taking different perspectives of the outflow that, they said, was “planned” thus insignificant for the local bourse.
Wednesday saw Dutch investors from the National Power International Holdings BV materializing their plan to pull out of Pakistan’s equity market by selling their entire controlling shares, 17.44 percent or 201.803 million, to local conglomerates.
The institutional buyers of the foreigners-held equity include three local banks. Habib Bank Limited, Allied Bank Limited and United Bank Limited, the sources said, have bought a major chunk of the Hubco’s stakes.
The market sources said the foreign investors had sold out their equities at 28 percent discount at Rs 46 per share as against Rs 64, the prevailing market price of the company’s shares.
Senior broker Aqeel Karim Dhedy, the chairman of AKD Group, says the deal was worth $ 140 million. In rupee terms, the deal accounts for Rs 14 billion, given the current rupee-dollar parity standing at Rs 100.7 on the inter-bank market.
The market participants were divided when asked for their view on what such a huge outflow of foreign portfolio investment meant for the country’s ailing economy and its boosting equity market.
“It can be seen in two ways. Of course, the investment outflow is something undesirable for a country. But when you have an open economy in and outflows happen to be a matter of routine,” said Nadeem Naqvi, the managing director of KSE.
It, he said, also has to be seen that a domestic consortium had bought the foreign stakes in the IPP.
Naqvi said by making the purchase the domestic investors had showed their renewed confidence in the government and it policies regarding energy sector. “I take a positive perspective from it,” the managing director said.
He said the second phase of the deal was that a future partnership between the foreign and Pakistani investors would be established that would pave the way for more investment inflows in future.
“It augurs well for the country as well as the market. Because the foreign equity came to the local investors on a discount rate,” AKD told Pakistan Today.
The business tycoon said the company’s dividend once used to be paid in foreign exchange, dollar, would now be paid in the rupee.
Khurram Schehzad of Arif Habib Limited says the outflow was “planned” and “not abrupt”.
To him, selling and buying equities was a normal course of investors, foreigners or locals.
“That’s part of investment strategy, investors buy when markets are low and sell when markets are high and when they feel they can get returns,” the analyst explained.
Asked about the impact, Khurram replied: “I think it won’t be significant as inflows in equity market are strong.”
Also, the analyst seconded AKD’s view as a “third point” that the change in the nature dividend payment would prove to be a good omen for the local market.
Senior Ahsen Mehanti sees no problem in the foreigners’ offloading of their stakes.
“The offloading was based on earlier decision to quit from Hubco and their own assessment on energy policies and compliances in the previous government,” he said.
The analyst said the PML-N led government’s new policies on power, which were yet to be approved, appeared to favor more investors in the sector on tariff rationalization and provincial support.
“The good thing is its numbers purchased by the three reputable banks,” Mehanti told Pakistan Today.
The analyst said the deal at a 30 percent discount to market price had saved the country with foreign exchange.
“Outflow is not a positive development but low value sale is a positive development,” he concluded.
MD KSE Nadeem Naqvi recalled that during past six months over $ 500 million portfolio investment had come to the country amid positives like Unilever.