Investors' unprecedented response

According to the Federal Minister for Investment and Privatisation, Dr Abdul Hafeez Shaikh, who addressed a press conference in Islamabad on February 20, the initial public offering of 5 percent govt holdings of the Sui Southern Gas Company Limited, evoked an exceptionally enthusiastic response from the general investing public and recorded the largest ever bid-applications in the stock market.
The bid money received by banks turned out to be 15 times higher at Rs 13 billion than the actual offer of the value of Rs 872 million involving 33 million shares at Rs 26 each.
In view of the overwhelming response, the government will opt for green shoe option as previously announced, thereby allotting a total of 10 percent of its holdings in SSGC to the applicants seeking the minimum lot of 1000 shares each. Yet another new phenomenon recorded in the case of this public offer, is the preponderant participation of investors from the middle income group.
This was reflected in the fact that 75 percent of the applicants comprising 243,116 applications out of a total of 258,089 represented those applying for the minimum lot of 1000 shares each.
Balloting for the allocation of shares took place in Karachi on Feb. 23 and the surplus amount of bid money was to be returned to the unsuccessful applicants in next ten days.
The pattern of bidding shows that the divestment of the entire 10 percent holdings in the company will be passed on to relatively small and medium investors, which is undoubtedly a highly encouraging aspect of privatisation through the stock market.
The minister ruled out the possibility of increasing the amount of shares for sale to more than 10 percent as declared in the initial public offer.
In his view, an increase in the sale to cover the surplus application money, would not be an appropriate step due to the absence of any declaration of an intention to this effect earlier.
Further, he felt that excess supply of these shares in the hands of public investors might destabilise the share market in the event of a slump in values.
This argument was also advanced by the minister in reply to a suggestion that the PTCL and PSO shares should also be offered to general investing public in the ratio of 10 percent in order to ensure participation of small and medium shareholders in the ownership of these companies.
It may be pointed out here that the stock exchanges have always complained about lack of depth in the range of investment available to investors in general.
Seen in this context, the need to broaden the listings of important public sector enterprises can hardly be questioned and therefore the minister's argument on this issue would deserve a rethinking.
The stock exchanges have shown an exceptional state of stability in their price trends recently in the face of huge diversion of liquids funds from the capital market to the buying shares of public sector companies like the NBP, OGDC and SSGC.
Billions of rupees have been blocked in these public offers and yet the stock market has surprisingly maintained an upward surge in prices and the share price index has been establishing new high levels week after week over the last six months.
This shows that the buying support in the market has remained steady.
Notwithstanding his apprehensions, the minister unfolded his plans to make initial public offer of 5 percent shares of PIA along with green shoe option of similar percentage and 10 percent shares of PPL in the coming months.
These offers, it may be pointed out, would also increase the amount of floating equities in the stock market besides involving blockage of huge funds which otherwise can be utilised in the trading activity.
The minister's argument implies that the planned divestment through the stock market would prove counter productive. But the factual situation, on the other hand, depicts a highly favourable impact on the stock market and therefore programme for the divestment of the shares of larger public enterprises should continue so that the public participation in the ownership of these enterprises could be expanded.
The unprecedented response to the share offers of state-owned companies from the general investing public is definitely reflective of an undeniable restoration of investors' confidence in the institution of stock exchange in Pakistan.
This change is obviously attributable to the wide ranging reforms that have been carried out in the management and performance of stock exchanges in the country besides the welcome turnaround in several sectors of the economy.