Cross-border listing: Pakistan eyes Qatari, Turkish markets for raising capital

The capital markets of Turkey and Qatar appear to be potential targets as the authorities at Karachi Stock Exchange (KSE) have rolled up sleeves to identify the big local business groups interested in raising funds in equity and debt through international investment. To this effect, the KSE management is engaged with its counterparts at Qatar Stock Exchange (QSE) and Borsa Istanbul Anonim Sirketi (BIST) for the cross border listing of over 500 local listed firms at the two international bourses.
What QSE's Director Listing Abdulaziz N Al-Emadi called it, "dual listing" topped the meeting agenda as a two-member delegation Monday visited KSE to explore opportunities for co-operation in a range of mutually beneficial areas including raising of long-term capital by Pakistani firms in QSE, development of Small and Medium Enterprises (SMEs) market segment and introduction of derivative products including Real Estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs).
QSE's visit came in line with an invitation extended by KSE chairman Munir Kamal who had visited the Qatari bourse last month. In a related development, a four-member Turkish delegation of BIST had arrived on a four-day visit at KSE in April to sign a data vending agreement for the sale and distribution of KSE's data through Eurasia Data Dissemination Network (EDDN). "Pakistani listed companies, due to higher dividend yield than their Turkish counterparts, could easily raise funds at BIST," was stated to be the key takeaway of the Turkish visit.
"Our aim is to make KSE a regional player," KSE managing director Nadeem Naqvi told Business Recorder after concluding a daylong meeting with QSE delegates here Monday. Detailing his discussion with Qataris, Naqvi said, the two sides discussed the pros and cons of dual listing. An oil rich economy, Qatar, with its real GDP increasing by 10.7 percent annually since 2008, has become one of the world's richest nations with $100,000 plus per capita income.
By December 31 last year, QSE had 43 listed companies with equity market capitalisation in excess of $187 billion and average daily value traded of $221 million in the spot equity market. Turkey, on the other had, was the world's 17th largest economy with over $820 billion Gross Domestic Product. Borsa Istanbul has over 420 listed companies with equity market capitalisation in excess of $260 billion and average daily value traded of $1.6 billion in the spot equity market $14.9 billion in debt market and $2.1 billion in the futures and options market. In 2013, more than $1.7 billion was raised in equity IPO's and $21.5 in debt securities.
The largest bourse of Pakistan, a developing economy growing at an annual rate of over four percent, KSE has 557 listed companies with its market capital exceeding $70.2 billion or over Rs 7 trillion as on June 30, 2014. "Their (QSE) PE (price-earnings ratio) stands at 13.2x against 10.4x of ours (KSE's)," said MD KSE adding "It means if listed there (at QSE) the Pakistani scrips would see their valuations hitting a 25 percent upside".
Further, he said, the QSE and KSE agreed to facilitate some big business groups from Pakistan in fundraising in Qatar capital market in debt or equity. "We would identify and take five to six big groups to an Investment Road Show due in Qatar in the third quarter of this calendar year," he said. The fundraising from international capital markets is envisaged to help dollar-hungry Pakistan save the much-needed foreign exchange reserves that up to June 5 accumulated to $17.44. Of this total, $5.13 billion belong to commercial banks.
Other areas of co-operation discussed, Naqvi said, included experience sharing in the launch of SECP-backed SME Market Counter due to be launched at KSE by September, REITs and ETFs. Similar discussions, he said, were underway with the Borsa Istanbul. For cross listing to materialise, Naqvi said, there was a need for certain regulatory changes. Listing at QSE would require Pakistani companies to send a certain percentage of their (quarterly) dividends to Qatar. This profit sharing with international investors is prohibited under the State Bank of Pakistan regulations.
"We would soon be engaging the State Bank and SECP on this," Naqvi said. Given the regulatory bottlenecks and identification of the local companies keen to get listed at QSE, he said the process of dual listing would take at least six more months to complete. Encouraged by the country's well-performing economy, the KSE management also is eyeing to build regional alliances with the capital markets of economically developed and developing regions like Association of South East Asian Nations (ASEAN) and Africa.
"We would explore all those global markets having a natural trade flow with Pakistan," the KSE MD said. For these long-term goals to materialise, he warned, it would be incumbent upon the country's policymakers to ensure the sustainability of positives like political stability, ongoing structural reforms and growth-oriented projects like China Pakistan Economic Corridor.