For Karachis equity market, 2010 has been promising so far, though not in the sense of flat share prices seen since January. Its the series of new public offerings that has caught the investors attention.
Its been just two months since the start of current year, and already nearly four companies have offered their shares in the market. In contrast, in 2009, investors had to wait for the whole twelve months for the same number of offerings.
This years IPOs so far include, Ghani Gas, Fatima Fertilizer, Safe Mix Concrete and AMTEX Limited, and before you know it, Agritech Limited and Wateen Telecom Limited, will also be sharing their capital with the public.
Why the change of heart in corporate boardrooms, one might ask.
Well, apparently, its not just optimism about the economic recovery that is prompting businesses to seek capital from the equity market. It is, in fact, the cash starved nature of the economy that has been making it difficult for firms to raise money from the debt market.
Despite the downward cycle in interest rates that began in 2009, benchmark KIBOR is still hovering around 12.3 percent compared with an average 10 percent in 2007.
While that has kept borrowers at bay at one end, at the other, banks are also reluctant to offer loans due to increasing non-performing loans on their books, which reached 12.6 percent by September 2009 - nearly double from its 2006 level.
Of course, while all this is happening, the governments appetite for debt is making it difficult for banks to bend their lending portfolios towards private borrowers.
Looking from the buyers side, lack of investment avenues is increasing investors appeal for the IPOs. As a rule, whenever an economy shows signs of recovery, as is the case in present Pakistan, investors start taking interest in small and medium cap companies, because they tend to have greater sensitivity to economic growth.
And, in a sense this is good. While there is no denying the importance of the listing of those earlier privatized blue chips, such as OGDC, NBP etc, the real process of capital formation is something else.
Persuading second and third tier companies to prepare their documents and reach out to the public are the core functions of the market. If Pakistan Railways lists its capital at KSE, it would boost KSEs market cap by a zillion times but that will not have anything to do with real entrepreneurship.
Sadly, however, instead advising their clients about which small/mid cap firm is best to invest, many KSE brokers are still discouraging investors to pick such stocks. The reason oft cited is the lack of research and information.
Those following the market know very well, that the so-called research Universe of KSE brokers has, by and large, remained the same in the last
number of years. Is somebody looking into that?
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