The managements of Islamabad and Lahore bourses may think otherwise but officials at Karachi Stock Exchange (KSE) blame the Exchange’s German advisers for setting back the much-delayed demutualization of the country’s bourses.
Enacted in May 2012, the Stock Exchanges (Corporatization, Demutualization and Integration) Act 2012 provides for the continuation of the country’s stocks exchanges from their mutual ownership structure to the shared one.
The four-stage but long-delayed demutualization process, however, has hindered at the third stage of transferring the KSE members’ 40 per cent stakes to a strategic investor(s). The remaining stages are: (a) obtaining regulatory consents (b) converting 40 per cent membership rights into distinct trading rights and shares and (c) the public issuance and listing of 20 per cent balance shares.
Currently, the apex and front regulators at Securities and Exchange Commission of Pakistan (SECP), KSE, Islamabad Stocks Exchange (ISE) and Lahore Stocks Exchange (LSE) are under fire for not being able to meet the deadlines in the long-awaited demutualization process.
KSE officials said so far three strategic investors from Japan, Malaysia and Qatar had shown their interest to operate the demutualised bourse.
“We have signed with them Non Disclosure Agreements (NDAs) during the span of last two months,” a director at the KSE’s Board told Pakistan Today, seeking anonymity.
The signing of NDAs, the official explained, implied that the three investors were willing to operate the KSE. Next step was to establish a “data room” under which “We were to give them (investors) access to our network that is accessible to the KSE management only,” he added.
What the director cited as a first stumbling block was the lukewarm response of the Deutsche Bank, the KSE’s financial advisor since August 2012.
“On SECP’s approval, we had appointed Deutsche Bank as a financial adviser to evaluate the enterprise value of the shares to be floated for strategic investment,” the official said.
From the very outset, he said, the process was being delayed by the KSE’s German banking advisers on one pretext or the other. “Actually Europe, during recent recessionary period, had been coping with its own problems. The Europeans, including Germans, are inward looking,” he viewed.
“They have been giving various lame excuses, in my opinion,” the director said. The foreign bank, however, was finally able to release the per share value of the 40 per cent strategic shares at Rs 10.15 or Rs 10.30, he said. “The members would get a good sum of money,” he claimed.
According to KSE sources, a rough estimate suggests that the 40 per cent strategic stakes would fetch the 200 KSE members at least Rs 50 million each. In addition, the KSE officials believe the strategic operators would not only introduce significant technological improvement to local markets but also bring in portfolio investment from their respective countries.
Second setback to the positive development on the strategic investment front was the politics of sit-ins in Islamabad and the consequent lingering political uncertainty in the country.
“At least three visits (of foreigners to Pakistan) have already been cancelled in recent days (prominently that of the Chinese president),” the KSE official lamented. This, he said, made the apex regulators at SECP to extend the demutualization deadline for another one year for the front regulators at the country’s three bourses.
“The SECP has written to us to try for one more year,” he said. The new deadline is August 12, 2015, he said.