Pakistan has equity appetite; its owners have control anxiety

Pakistan keeps saying it has no capital. Firms complain that bank borrowing is expensive. Government complains that private investment is weak. Economists complain that debt dominates finance. Yet whenever a credible company comes to the stock market, investors appear.

So let us stop pretending the problem is only lack of capital. The market has appetite. What it does not have is enough supply.

More precisely, Pakistan lacks owners willing to sell meaningful equity, share control and accept serious governance.

The recent listings on the Pakistan Stock Exchange make the point clearly. When decent corporate stories came to the market, investors responded. They subscribed to tyres, takaful, dairy, poultry, logistics, petroleum retail and REITs. Several issues were oversubscribed. Some attracted demand far above the size of the offer. The market did not walk away. The sponsors held back.

The most telling example is Service Long March Tyres. SLM came to the market with a proper industrial story: manufacturing, import substitution, exports, scale, technology partnership and growth. It raised around Rs7.77 billion through the sale of roughly 389.7 million shares. Investor demand was reportedly many times the offer size. One account placed interest at around Rs70 billion.

Yet the company offered only about 5 percent of its post-IPO equity.

If investors were willing to absorb the issue so quickly, why sell only 5 percent? Why not 10 percent, 15 percent or 20 percent? Why not use the opportunity to create a genuinely broad-based public company? Why come to the market with a feast, and then serve it with a teaspoon?

The answer is simple. Pakistan’s sponsor families want the advantages of the stock market without the consequences of the stock market.

They want valuation. They want liquidity. They want prestige. They want cheaper capital. They want the credibility of being listed. But many do not want dilution. They do not want independent shareholders asking hard questions. They do not want analysts examining performance. They do not want institutional investors pushing for discipline. They do not want boards becoming real. They do not want control to shift from the drawing room to the boardroom.

For many sponsor groups, the stock exchange is not treated as a market for ownership. It is treated as a financing counter.

Recent listing data confirms this pattern. SLM offered only about 5 percent of post-IPO equity. Sitara Petroleum’s public IPO portion was around 10 percent, though the broader issue including pre-IPO placement was larger. Blue-Ex’s main-board migration involved only about 3.5 percent of post-IPO capital. Wahdat Poultry offered about 15.8 percent. Ghani Dairies offered about 24.3 percent. Pak-Qatar Family Takaful and Pak-Qatar General Takaful offered approximately 21.7 percent and 29.7 percent respectively. The REITs were better from a free-float perspective: Image REIT offered about 33.4 percent, while JS Rental REIT and Signature Residency REIT each offered about 25 percent.

Taken together, these recent listings raised roughly Rs18.6 billion. Their implied combined valuation at offer prices was about Rs220 billion. In plain language, assets and companies worth around Rs220 billion came to the exchange, but the public was allowed to buy only about Rs18.6 billion of that value. For every Rs100 of value brought to the market, barely Rs8 was offered to outside investors. The remaining Rs92 stayed with sponsors, original owners or controlling shareholders.

This is the difference between a capital market and a token listing market.

A real capital market widens ownership. It creates liquid companies. It brings in institutional monitoring. It improves disclosure. It gives minority shareholders a voice. It allows pension funds, mutual funds, insurance companies and individuals to own pieces of growing businesses. It gives companies the ability to raise equity instead of loading their balance sheets with bank debt. It forces firms to explain strategy, defend performance and improve governance.

A token listing does the opposite. It gives the company a price, but not real market discipline. It gives sponsors liquidity, but not accountability. It creates a small tradable float while leaving control untouched. It allows a company to claim the respectability of being listed while continuing to operate like a private family estate.

This also exposes the hollowness of the constant demand for lower interest rates. Business groups repeatedly argue that investment is impossible because credit is too expensive. There is truth in the complaint, but not the whole truth. If debt is so unbearable, why are owners not raising larger amounts of equity? If bank borrowing is too costly, why not sell 20 or 30 percent to the market and fund expansion through shareholders?

The answer is uncomfortable: many owners would rather pay interest than share control.

They would rather borrow, lobby, seek subsidised credit, demand relief and blame monetary policy than accept meaningful dilution. They complain about the price of debt, but the cost they fear most is the loss of control. In Pakistan, the real interest rate may be high, but the emotional cost of dilution is apparently higher.

That is why the supply of equity remains so thin. It is not because Pakistani savers refuse to invest. Recent listings show the opposite. Investors have shown appetite for industrial, financial, services and real-estate-backed offerings. The demand is there. The shortage is on the sponsor side.

The small size and vagaries of the PSX make this problem worse. Pakistan’s stock market is still narrow, sentiment-driven and vulnerable to policy shocks, currency swings, taxation changes, political noise and sudden changes in interest-rate expectations. A handful of sectors and large stocks dominate turnover, while many listed companies remain illiquid for long stretches. This creates a vicious cycle: sponsors hesitate to offer larger stakes because they fear volatility and weak secondary-market depth, while the market remains shallow precisely because sponsors keep offering tiny floats. The result is a market that can show bursts of enthusiasm during an IPO but still lacks the depth, breadth and stability required for serious long-term capital formation. Thin floats feed volatility; volatility then becomes the excuse for more thin floats. It is a neat little trap, and Pakistan has been sitting in it for far too long.

This matters because Pakistan’s financial system is badly unbalanced. Banks dominate corporate finance. Government borrowing crowds out the private sector. Firms remain dependent on debt. Private investment stays weak. The stock market remains shallow. Institutional investors struggle to find large, liquid and well-governed companies. Ordinary savers are left with too few serious opportunities to participate in corporate growth.

Then we wonder why capital formation is weak. It is weak because we have built a system in which owners want capital without sharing ownership, banks prefer lending to the state, and the stock market receives scraps from the sponsor table.

Regulators and the PSX must therefore stop measuring success merely by the number of listings. The harder questions are more important. How much equity was actually offered? How much fresh capital went into the company rather than to selling shareholders? How large is the free float? Will the listing improve governance? Will minority shareholders matter? Will the board become stronger? Will disclosure improve? Will there be real liquidity after the first few trading sessions?

A company offering 5 percent is not equivalent to a company offering 25 or 30 percent. They should not be treated as if they are making the same contribution to market development. A thin float may generate an IPO headline. It does not build a serious market.

Listing incentives should reward meaningful public floats. Companies offering larger stakes should receive faster processing, better visibility, stronger index eligibility and lower continuing costs. Token floats should receive token praise. The market does not need more ceremonial listings. It needs investable companies.

The same principle should apply to privatisation. Public assets should not be transferred quietly from the state to a handful of already-powerful private groups. Wherever possible, privatisation should be done through broad public offerings, mandatory listing, wide share distribution and strong governance conditions. Otherwise, the country merely moves assets from public monopoly to private concentration. That is not reform. That is a change of landlord.

Pakistan must also confront the culture of family control. Families can build excellent businesses. Many have. But companies that want public capital must accept public discipline. Ownership has to evolve into governance. Boards must become real. Independent directors must be independent in substance, not cousins in disguise. Minority shareholders must have rights that can be enforced. Professional management must be empowered. Disclosure must become a discipline, not a box-ticking exercise.

Dilution should not be seen as weakness. It is often the price of scale. Serious entrepreneurs dilute to grow. Serious companies dilute to attract capital, talent and credibility. Serious markets dilute concentrated ownership into broader prosperity.

The owner who refuses dilution may preserve control, but often at the cost of growth. Too many Pakistani firms want the valuation of a public company with the control structure of a private household. That bargain cannot create a modern capital market.

SLM’s listing is therefore both encouraging and revealing. It proves that investors will support a credible industrial story. It proves that Pakistan can attract equity capital. It proves that savers are willing to back growth companies. But it also proves how little of Pakistan’s better corporate stories are actually being shared with the market.

Pakistan does not merely need more listings. It needs larger floats, stronger governance, deeper liquidity, professional management and owners who are willing to let the market in.

The country’s problem is not that investors have no appetite. The problem is that too many owners have no appetite for accountability.

Copyright Business Recorder, 2026