KARACHI: Notwithstanding the extraordinary rally in the shares market immediately after the Stand-By Arrangement (SBA) with the International Monetary Fund (IMF), the raising of fresh capital through the stock market is likely to remain muted in 2023-24.
Public listings, which help company owners raise fresh funds in exchange for new or existing shares, remained almost non-existent in the just-concluded fiscal year. Just one company, Globe Residency REIT, held its initial public offering (IPO) in 2022-23 to raise Rs1.4 billion.
“Sponsors have been reluctant to raise fresh equity because of the low multiples. I expect the number of IPOs in the next 12 months will be between four and six,” said Arif Habib Ltd CEO Shahid Ali Habib while speaking to Dawn.
The “multiple” refers to the price-to-earnings (P/E) ratio that measures a company’s share price relative to its per-share earnings.
The current multiple is 3.4 versus the five-year average of 5.5. In simpler words, it means the average market value of a company’s share is only Rs3.40 apiece if its earnings per share is Re1. Holding an IPO in such circumstances means sponsors will have to sell a bigger chunk of their shareholding to raise a relatively lower amount of capital.
“It becomes difficult for us to convince investors to raise equity as they want to do it at a multiple of seven or eight,” said Mr Habib.
The latest data obtained from the Pakistan Stock Exchange (PSX) shows the only company that’s applied for a listing is Treet Battery Ltd. In addition, the PSX has already approved “prospectuses” by as many as seven companies for the fresh raising of capital. These companies are Pakistan Reinsurance Company Ltd, International Packaging Films Ltd, Regal Automobile Industries Ltd, Secure Logistics Group Ltd, Searle Pakistan Ltd, Symmetry Group Ltd and Dalda Foods Ltd.
Two of these prospectuses were approved back in 2021 while another two were green-lighted in 2022. Three of the seven companies received the PSX’s approval in 2023. The sponsors of these seven companies are waiting for an opportune time to sell their shares at a premium.
No listing has been approved for the Growth Enterprise Market (GEM), which is a separate PSX counter reserved for smaller and riskier firms.
Published in Dawn, July 4th, 2023
