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Slowdown in listing: Only five IPOs at stock market in 2006

By Farhan Sharif

KARACHI: Despite the continuation of investor-friendly policies and a decent growth in corporate earnings, the local capital market remained slow in terms of attracting new listings compared with the previous year.

The calendar year 2006 was a depressing year in terms of Initial Public Offerings (IPOs). While the performance of the market is primarily examined by the index change, the growth of capital market can be determined by looking at the fresh issues brought into the market through IPOs.

With 2006 approaching its end, we are presenting an analysis of the stock offerings that took place during 2006.

“There have been only five equity IPOs worth Rs 1.9 billion in 2006,” said Farhan Mehmood, an analyst at Jahangir Siddique Capital Markets. Unlike the previous calendar year 2005, where we saw 14 IPOs worth Rs13.6 billion, including green shoe option, the outgoing year 2006 recorded only five. Of the five issues, there were two banks, two mutual funds and one securities firm.

This smaller size of IPOs in 2006 against previous few years could be linked to the nonappearance of government offerings as only one IPO of Bank of Khyber, that too belonging to the provincial government, was seen in 2006. In the last few years, we have observed regular large size equity offerings by the government like that of Oil and Gas Development Company in November 2003, Sui Southern Gas Company in February 2004, Pakistan International Airlines in June 2004, Pakistan Petroleum Limited in July 2004, Kott Addu Power Company in February 2005 and United Bank Limited in June 2005.

He said this is probably one reason which halted fresh issues to the equity market during the outgoing year as government offerings provide some confidence and prompt private sector to raise money through equity offerings. Besides, easy availability of bank financing and some strict rules to be faced in post-listing period to meet the requirements of corporate governance have also slowed down the pace and magnitude of IPOs in the stock market.

Major interest in 2006 was observed in banking companies as IPOs of both banks, Bank of Khyber and Bank Islami, were heavily oversubscribed. Bank of Khyber attracted a subscription amount of Rs 4.6 billion, 6.8 times its offered size, whereas, Bank Islami revived subscription of Rs 3.5 billion, 8.7 times of the IPO size. This could be attributable to the fact that the banking sector remained in the limelight during 2006 amid strong profitability and ongoing mergers and acquisitions.

On the other hand, the two IPOs of closed-ended mutual funds could not attract investors’ attention. Balanced funds NAMCO and WE funds got a combined subscription of Rs 10.9 million from the general public - far below their cumulative offer size of Rs 400 million. However, both of these funds were fully underwritten. Moreover, the result of Arif Habib IPO will be announced in January 2007.

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