PSX stake sale deal to bolster Sino-Pak linkages: Ishaq Dar

KARACHI: Finance Minister Ishaq Dar on Friday spoke to media at the share purchase deal-signing event in Pakistan Stock Exchange (PSX).

Lauding the progressive development in his speech, Dar said, “The sale of 40 percent stake of Pakistan Stock Exchange [to the Chinese Consortium] is a historical moment for the country.” The finance minister further congratulated the two parties on the agreement.

Dar also shed light on the Sino-Pak relations, saying that given the two countries’ mutually beneficial endeavors, the latest stake sale is another milestone.

Explaining how the deal between the Consortium and PSX will help the former’s growth, Dar commented that it will improve the stock exchange system with modern technology and share-trading methods.

He also said the privatisation policies will open new avenues for foreign investors, since investment has not been satisfactory, while low interest rate and inflation helped boost the industrial production.

Moreover, State Bank of Pakistan governor Ashraf Wathra also addressed the attendees. He said, "Western countries have improved their economic after association with other countries. [...] Nobody can alone improve economy at its own."

A Chinese-led consortium on December 22 offered approximately $85 million to acquire 40 percent stake of the PSX.

Gains for Pakistan’s economy

Explaining how the deal between the Chinese Consortium and PSX will help the former’s growth, Dar commented that it will improve the stock exchange system with modern technology and share-trading methods.

The finance minister went on to say that the Sino-Pak corridor is of vital importance, especially since it plays a key role in economic development. Pakistan’s economy expanded 4.70 percent in fiscal year 2015-16, which reflects the country’s continuous upward movement since 2009, when the rate crumbled to 0.36 percent. Since then, the volatility – most of it being positive – has averaged at around 0.3 percent.

In addition, industrial growth during the same period clocked in at 6.8 percent. Dar reasoned that the low interest rate and inflation were the main factors behind the bump-up in industrial production.

Dar informed that the capital markets will soon introduce pension and gratuity funds, while the privatisation policies will open up new platforms for foreign investors.

However, Dar noted that the pace of advancement in Pakistan’s agricultural sector has been unsatisfactory, stating that it was below the expectations. He also acknowledged that both local and foreign investment has not been up to the mark.

SBP’s viewpoint

State Bank of Pakistan governor Ashraf Wathra was also present at the ceremony, and conversed with the attendees. He remarked, “Nobody can improve an economy alone.”

Wathra elucidated with the example of Western countries, which have persistently boosted their economies through strategic linkages with neighbouring and similar nations. It is in this context that he pushed for better relations with fellow countries – case in point, China.

According to the central bank’s governor, the latest deal will be advantageous for the whole South Asian region. Pakistan and China have already joined hands under China-Pakistan Economic Corridor (CPEC), which will connect the north all the way down to Gwadar, Balochistan.

PSX and the Chinese Consortium

On December 22, 2016, PSX received an approximately $85-million bid from a Chinese Consortium to buy out a 40 percent stake. The offer valued PSX shares at Rs. 28 apiece, making it the highest one as per the standard regulations.

The Consortium included three Chinese exchanges – China Financial Futures Exchange Company Limited, Shanghai Stock Exchange, and Shenzhen Stock Exchange – as well as two local financial companies: Pak China Investment Company Limited and Habib Bank Limited.

PSX has been one of Asia's best performing markets since several years. KSE-100 Index shot up 14,990 points during 2016 to close at 47,806. It generated above-average return of 46 percent (45 percent in dollar terms) in 2016, against the last 10-year average of 20 percent.

Pakistan was also recently approved to be restored to the MSCI Emerging Markets status, which will give it a wider range of potential investors than as a Frontier Market.

What 2017 holds for PSX?

PSX Divestment Committee chairman Shehzad Chamdia disclosed the future plan for the stock exchange. He said now that the 40 percent stake sale has been completed, PSX aims to go for another 20 percent listing in June 2017 via an initial public offering (IPO).

This will leave the remaining 40 percent stake to the brokers.

Talking about the gains, Chamdia said that the brokers’ reduced ownership in PSX will make the exchange and trading process more transparent, considering that the regulation and trading will be separate.

Chamdia also mentioned that the agreement will enhance stake ownership diversity, and lead to cross-listing, which, altogether, will make Pakistan transition towards becoming a regional market.

While all predictions are subject to unforeseen factors and risks, PSX looks like it is on a positive trajectory. KSE-100 – the benchmark index – has constantly risen over the past few weeks, and crossed the 49,000-point mark to register a new record high.