Sunday, October 2, 2016

Shanghai Bourse Seeks 40% Stake in Pakistan Stock Exchange

The Shanghai Stock Exchange has submitted a letter of intent to buy up to 40% stake in the Pakistan Stock Exchange, according to  report in The Nikkei Asian Review.  The Shanghai Stock Exchange has the world's fourth largest market cap. The possible Pakistan tie-up could encourage Chinese companies to expand into the South Asian country and perhaps even list on the PSX.

In August this year, Bloomberg News reported Shanghai Electric's US$1.6 billion for 66% stake in K-Electric, Karachi's main electric utility.

Multinational Acquisitions in Pakistan: 

In July 2016, two multinational giants acquired 2 Pakistani companies as part of their growth strategy to establish presence in Pakistan.

Dutch dairy giant FrieslandCampina acquired 51 % of Karachi-based Engro Foods Limited, the second largest dairy producer in Pakistan.

In the same week in July, Turkey's Arcelik announced purchase of Dawlance, Pakistan's market-leading home appliance maker.

Both cited opportunity for double-digit growth in the emerging market as the main reason for their acquisitions.

Shanghai Bourse's Bid: 

If the Shanghai Bourse's bid succeeds, it will represent the first purchase of a stake in a foreign stock exchange by a Chinese bourse.  In June, global index provider MSCI upgraded Pakistan to emerging markets status while keeping Vietnam as a frontier market, because the former has much better market liquidity.

The Shanghai Stock Exchange has the world's fourth largest market cap. The possible Pakistan tie-up could encourage Chinese companies to expand into the South Asian country and perhaps even list on the PSX.

Pakistan Top Performing Market in Asia:

As of Sept 30, 2016, KSE100 index, the PSX's key stock index, has  gained almost 24 percent year to date making Pakistan the best performing market in Asia. Vietnam and Indonesia follow with returns of 18% and 16.8%, respectively, while India’s Sensex Index has gained only 6.7%.

Year-to-date, the Global X MSCI Pakistan ETF (PAK) has gained 21.7%, according to Barron's Asia.

PSX official Ayyaz Afzal told The Nikkei Asian Review that "Shanghai is one of two stock exchanges who submitted us letters of intent (to acquire PSX stakes)".

The other bidder is a bourse in the Middle East. Afzal said the PSX could receive additional letters of intent by December, and "before March 2017, I think there will be some positive news about the strategic investor," he said.

A total of 576 companies are listed on the PSX, with an aggregate market cap of slightly higher than 8 trillion rupees (US$80 billion), according to Nikkei Asian Review. Pakistan, the world's sixth most populous nation, is home to some 190 million people. Its economy in 2015 was the globe's 41st largest, at $270 billion.

ADB Pakistan Forecast: 

The Asian Development Bank (ADB) has recently raised Pakistan's economic growth forecast for fiscal year 2017 (from July 2016 to June 2017) from 4.8% to 5.2%. The Bank also sees brighter outlook for the the entire South Asian region. However, the prospects of even a limited India-Pakistan war could derail the economies of the entire South Asia region. I hope that sanity will prevail in New Delhi to tone down its war rhetoric, abstain from escalation and maintain the current economic momentum.


Pakistan's economic recovery is in full swing with double digit growth in multiple industries, including auto, pharma, chemicals, cement, fertilizers, minerals, etc.  It is expected to pick up steam over the next several years with new investments on the back of China-Pakistan Economic Corridor related projects. Prospects of even a limited war in South Asia could derail the economies of the entire region. I hope that sanity will prevail in New Delhi to abstain from escalation and maintain the current economic momentum.

Related Links:

Haq's Musings

ADB Raises Pakistan GDP Growth Forecast

Is Pakistan Ready For War With India?

India's Israel Envy: Surgical Strikes in Pakistan?

Growing Middle Class in Pakistan

Rising Energy Consumption

China-Pakistan Economic Corridor

Pakistan's Thar Desert Sees Development Boom


Nitin B said...

2016 2017 UPDATED
Bangladesh 7.1 6.9
India 7.4 7.8
Pakistan 4.7 5.2
Sri Lanka 5.0 5.8

Among the major South Asian countries, Pakistan is still growing the slowest in spite of the rosy Stock Market that you have presented. In terms of global competitiveness in South Asia, Pakistan is the least competitive.

Index Rank
Bangladesh 106
India 39
Pakistan 122
Sri Lanka 71

Riaz Haq said...

NBRX: "Among the major South Asian countries, Pakistan is still growing the slowest in spite of the rosy Stock Market"

Using your own numbers, Pakistan's 10.6% jump (from 4.7% to 5.2%) in GDP growth rate is the second highest after Sri Lanka's 16% in South Asia region....that's the slope the stock investors like.

As to the WEF competitiveness index rankings, Ruchir Sharma, the Indian-American head of Morgan Stanley's emerging markets has thoroughly debunked them.

Sharma says the most important predictor of future growth is demographics.

Countries with a young and growing labor force have a much better chance of future economic growth and stability than anything else.

Pakistan is doing very well on this measure.

Pakistan's work force is over 60 million strong, according to the Federal Bureau of Statistics. With increasing female participation, the country's labor pool is rising at a rate of 3.5% a year, according to International Labor Organization.

Sharma addresses the question of Pakistan's low savings rate by saying "it's a chicken-or-egg issue: it's not at all clear which comes first, strong growth or high savings"

Majumdar said...

Professor sb,

Sharma addresses the question of Pakistan's low savings rate by saying "it's a chicken-or-egg issue: it's not at all clear which comes first, strong growth or high savings"

Bakkkiland has historically had low savings rate. For most of the post independence era, Bakkkiland has had higher growth rates than India. And yet invariably, its savings rates trailed India's.


Riaz Haq said...

Majumdar: "Bakkkiland has historically had low savings rate. For most of the post independence era, Bakkkiland has had higher growth rates than India. And yet invariably, its savings rates trailed India's. "

Countries with greater income inequality usually have higher savings rates.


Because lower equality and greater concentration of income at the high-end promote more savings because high-income earners tend to save more of what they earn. People in low-income groups usually spend almost all of what they earn to sustain a reasonable living standard.

Low savings rate then needs to be made up by foreign inflows in the form of export earnings, investments, worker remittances, debt and aid etc

Majumdar said...

Brofessor sb,

Almost 80% of the China’s oil is currently transported from the Middle East through the Strait of Malacca to Shanghai, (distance is almost 16,000 km and takes 2-3 months). With Gwadar port in Pakistan becoming operational, the distance would reduce to less than 5,000 km.

The CPEC is indeed a fantastic project. What it does not however deserve is a bogus raison d'etre. Even a school boy would know that it takes ten times as much cost to move goods by 1 km overland as it does over water. And we are not talking flatlands but some of the most difficult mountains in the world.


Riaz Haq said...

Majumdar: " Even a school boy would know that it takes ten times as much cost to move goods by 1 km overland as it does over water. And we are not talking flatlands but some of the most difficult mountains in the world."

There's no way to transport anything by ship to western China.

It's a hot topic these days in the US: transporting oil by tucks, rails, boats or pipeline. Of these pipeline is the cheapest option.

Here's a "schoolboy" guide as published in Wall Street Journal:

PROS: Pipelines are typically the cheapest, and in some cases quickest, way to move crude in the U.S., and they spill less often than other transport methods. In 2014, pipelines delivered 3.4 billion barrels of crude oil to U.S. refineries, according to Energy Information Administration data. The Association of Oil Pipe Lines says it has a 99.999% safe-delivery rate on these shipments. “On an apples-to-apples basis, pipelines have less accidents, cause less environmental damage and cause less harm to human health than do railcars moving comparable masses of oil and gas,” says Mr. Green. (The Energy Information Administration figures are based on U.S. refinery receipts of crude cargo. But crude shipments often combine several modes of transportation, so the numbers don’t give a complete picture.)

The industry seems to be banking on pipelines as the go-to transport of the future. Pipeline projects have added more than 3 million barrels a day of capacity since 2012, although construction has slowed recently.

CONS: Pipelines can corrode over time, leading to spills. And one positive aspect of pipelines—they’re often built underground and out of sight—can also be a problem. Companies have been accused of abandoning underground lines without cleaning them out, meaning they can leak while nobody is watching. In March 2014, a Los Angeles-area pipeline spilled about 1,200 gallons onto a residential street, destroying yards, damaging homes and stinking up the neighborhood. Phillips 66 had bought the pipeline in 2001 as part of an acquisition, but never used it or checked what was inside, until it finally corroded. Phillips 66 says it “cares for the communities where we live and work. We are committed to operating excellence, and we integrate health, occupational safety, process safety and environmental accountability into our organization and all of our operations, including pipeline integrity and maintenance.”

What’s more, even though pipelines don’t spill as often as other forms of transport, when they do spill, they can unleash a huge amount if not caught in time. In 2010, a pipeline owned by Enbridge Inc. ruptured and spilled 843,000 gallons into Michigan’s Kalamazoo River, the largest inland oil spill in U.S. history. Earlier this year, a pipeline owned by Plains All American Pipeline burst in California, spilling as much as 143,000 gallons into the ocean and onto beaches.

Riaz Haq said...

What next 4 #Pakistan, #Asia's best-performing stock market? It's already up 27% year-to-date #Karachi via @markets

Pakistan has plowed an independent trajectory this year, outperforming both its fellow frontier markets and members of the emerging-market grouping that it is slated to join in 2017.

The country's benchmark KSE100 Index has rallied 27 percent year-to-date to become Asia’s best-performing equity market in 2016, according to a basket of 26 peers tracked by Bloomberg. The market received a boost in June when MSCI Inc. announced that it would reclassify Pakistan as part of its benchmark emerging-market index from May 2017 — a show of confidence that it declined to extend to China.

It was a long time coming for South Asia's second-largest economy. The Pakistan Stock Exchange, previously known as the Karachi Stock Exchange, was downgraded to frontier-market status in 2009 after it introduced curbs against sell orders to stem an investor exodus in late 2008.
After registering gains over seven of the eight years since, investors are betting it still has further to climb.

"The benchmark index can easily reach 60,000 before the general election in 2018," said Vasseh Ahmed, who's chief investment officer of Karachi-based Faysal Asset Management Ltd., in an interview. That represents almost a 50-percent increase from present levels. "Now that the IMF program is over, the government will be giving incentives that will positively impact the market and business sentiment. The boost from the upgrade and Chinese investment is also there.".

The KSE100 Index reached its all-time peak of 41,464.31 last Friday, and by 2:23 p.m. in Karachi was heading toward a new record. Last month Pakistan completed a three-year $6.6 billion International Monetary Fund loan program. Thanks to the aid, Prime Minister Nawaz Sharif was able to avert a balance-of-payments crisis and boost foreign-exchange reserves to a new high.

"Textile is already seeing the push, and the government may further boost the agriculture sector. The banking sector will also rebound given interest rates have bottomed, while the oil and gas sectors are rallying following a recovery in energy prices and infrastructure development," added Ahmed. The country's central bank has held its benchmark interest rate at 5.75 percent since cutting by 25 basis points in May.
For Federico Parenti, Milan-based fund manager of Base Sicav Emerging and Frontier Markets Equity Fund, Pakistan is on top of his wish-list.
"My fund is currently waiting to get access to such a beautiful and nice market," Parenti said by e-mail. "At the moment Pakistan access is delayed due to fear of political and religious risks, but I think staying just in Europe for investment and thinking other places won't change for the better is a bigger risk."


For Parenti, the improvements that are predicted by EFG Hermes to lure around $475 million of inflows by the middle of next year do, in themselves, carry risks.
"Because of the MSCI upgrade, the ratio of foreigners holding onto Pakistani stocks is set to increase," the fund manager said. "But they will also add volatility since most of the money is 'disloyal,' meaning that they can easily pull their money out of the country whenever they want."

Still, he said he plans to allocate 10 percent of his funds to Pakistan once regulators give the go-ahead, with these challenges failing to overwhelm to the country's enticing demographics. "The prospect is bright with the growing young population and the rising middle class. I want a piece of your economy — a piece of your frozen food, a piece of your cement, and a piece of your hospitals," he wrote.

Riaz Haq said...

#StandardAndPoors 500 Index Funds Outperform 99% of Actively Managed #US #equity funds. … via @FT

Amin Rajan, chief executive of Create Research, the consultancy, said: “These numbers are scary. Active managers need a root and branch look at their investment processes to retain their relevance in today’s surreal investment landscape.”

According to the analysis, 99 per cent of actively managed US equity funds sold in Europe have failed to beat the S&P 500 over the past 10 years, while only two in every 100 global equity funds have outperformed the S&P Global 1200 since 2006. Almost 97 per cent of emerging market funds have underperformed.

Daniel Ung, director of research at S&P Dow Jones Indices, said: “The figures are startling.”

Asset management experts believe the findings will exacerbate investor concerns about overpriced, underperforming active funds, and will ultimately push investors into cheaper indexed and exchange traded funds.

Stewart Aldcroft, senior adviser on the Asian fund industry at Cititrust, the fund services business of Citigroup, the US bank, said: “The S&P figures have become a massive boon for the ETF industry, which has been able to use them to show the benefit of passive investing.

“The active industry has built a whole range of arguments against [S&P’s statistics], but until they start to consistently achieve better returns, they will continue to be on the back foot.”

Last week politicians and consumer protection groups questioned the integrity of Europe’s €13.3tn asset management industry at an event specifically convened to look at the role of the asset management market.

Attendees at the meeting, held at the European Parliament and organised by Sven Giegold, a Green MEP, accused investment houses of overcharging their clients and failing to put investors first.

Mr Giegold, who co-organised the event with Sirpa Pietikäinen, an MEP from the European People’s party, said that “high costs” were hurting investment returns.

Assets managed in passive mutual funds, which provide lower-cost exposure to markets by tracking an index, have grown four times faster than traditional active products since 2007, according to Morningstar, the data provider.

Assets held in passive mutual funds have grown 230 per cent globally, to $6tn, since 2007. However, assets held in active funds total $24tn.

Riaz Haq said...

UPDATE 1-Abraaj to sell #Pakistan K-Electric stake to #China's #Shanghai Electric for $1.8 bln #Karachi via @Reuters

* SEP to buy 66.4 pct of K-Electric for $1.77 bln

* Abraaj selling after initial investment in 2009

* Part of increased Chinese investment into Pakistan (Adds details, context)

By David French

DUBAI, Oct 30 Abraaj Group has agreed to sell its majority stake in Pakistan's K-Electric to Shanghai Electric Power Co (SEP) for $1.77 billion, the emerging market-focused private equity firm said on Sunday.

The transaction is the largest M&A deal in Pakistan in a decade, and comes at a time of heightened Chinese interest in investing in the South Asian nation as part of its "One Belt, One Road" initiative.

Abraaj-controlled KES Power will divest the 66.4 percent stake subject to regulatory approvals being obtained.

SEP was among a number of Chinese bidders, including China Southern Power Grid, which were lining up to acquire the stake, sources told Reuters in August.

Chinese companies' interest comes after China last year announced energy and infrastructure projects worth $46 billion in Pakistan, with a view to opening a trade corridor linking western China with the Arabian Sea.

K-Electric is Pakistan's biggest electricity company, supplying power to 2.5 million customers in and around Karachi, the country's biggest and wealthiest city.

The private equity firm first acquired its stake in K-Electric in 2009, but said in June 2014 that it had mandated Citigroup to evaluate options for the investment.

"SEP will leverage its own strengths as a strategic investor and further realize K-Electric's potential to provide better services to the people of Pakistan and the government of Pakistan," SEP Chairman Wang Yundan said in the statement. (Editing by Andrew Torchia and Susan Fenton)

Riaz Haq said...

#Pakistan offers great-potential for #Turkish firms investments. #Dawlance #Cocacola #Erdogan #Turkey

Atilla Yerlikaya, the president of Turkey-Pakistan Business Council of External Economic Relations Committee, emphasized Pakistan's economic potential for Turkey, showing a brief glance into the country's economic opportunities.
According to Yerlikaya, during Erdogan's last visit to Pakistan, Erdogan and Pakistani PM Nawaz Sharif came together with businessmen from both countries and called for a closer cooperation to increase bilateral trade volume and investments to a great degree.
He said, ''President Erdogan praised the Koç Group for investing in Pakistan by buying Dawlance co, a prominent white goods producer of Pakistan for $243 million and Anadolu Group for Coca-Cola investment which exceeds $500 million. He cited them as examples of successful economic cooperation between two countries.''


Highlighting Pakistan's great potential for business, he said, ''Within the context of the Project of China-Pakistan Economic Corridor, Pakistan's energy and logistic infrastructures will be renewed. Considering Pakistan's $270-billon national income, one can easily grasp how a $50-billion investment makes sense. These investments will unlock agricultural and industrial sectors of the country for Turkey."

Riaz Haq said...

World's top performing #Pakistan bourse to sell 40% stake for $225m. 17 prospective buyers include #Brits #Chinese

Karachi: Pakistan’s main bourse is to sell a 40 per cent stake next week, a company official said on Friday, citing Chinese and British consortia as among the prospective buyers.
At least 17 entities have expressed an interest in the Pakistan Stock Exchange (PSX), whose benchmark stock index was one of the best performing indices worldwide in 2016, gaining 38 per cent so far.
The PSX is currently owned by more than 300 Pakistani brokers.
“We are opening bidding for the 40 per cent share of the PSX on December 15,” Shahzad Chamdia, chief of a PSX divestment committee, told AFP.
Analysts estimate the deal will be worth around $225 million (Dh826.2 million), but the committee declined to comment.

“We have the reference share price being evaluated by a third party and will reveal it only on the bidding day,” Chamdia said.
Sources at the PSX said a consortium consisting of the Shanghai Stock Exchange, the Shenzen Stock Exchange and a Chinese fund is bidding, as well as another consortium of UK financial institutions led by Nasdaq Technology.
Chamdia did not reveal the names of either consortia but confirmed that Chinese and British stock companies were in the running.
Other bidders include Pakistani banks and financial institutions, but their chances of winning are thought to be unlikely.
Following the sale, the company plans to offer 20 per cent of its shares to the public, Chamdia said.
Under its stock exchange reforms, Pakistan merged its three stock exchanges — the Karachi Stock Exchange, the Lahore Stock Exchange and the Islamabad Stock Exchange — to form the PSX in January this year.
The benchmark KSE index of 100 shares was at its highest ever level of 45319 points on Friday, compared with 32816 points on January 1.

Riaz Haq said...

#Asia’s top-performing market #Pakistan's #PSX to see 7-8 new listings in 2017. #KSE100

KARACHI: Asia’s best-performing market, the Pakistan Stock Exchange (PSX), is expected to see seven to eight new company listings in 2017 through the issuance of shares to general public in initial public offerings.

“The companies that will make the initial public offering (IPO) will be from sectors like packaging, transportation, real estate investment trust, insurance and auto vendors,” said Shahid Ali Habib, Chief Executive Officer of Arif Habib Limited.

“At least four of the expected IPOs are in our hands; these are expected to be launched by June 2017; we cannot disclose their names according to regulations,” he said.
In addition to this, the government is also in the process of getting State Life Insurance Corporation (SLIC) listed on the stock exchange.

The making and breaking of records at the PSX suggested that more companies would come to the exchange to raise interest-free funds in IPOs in a bid to develop new projects or expand their ongoing businesses, he said.

In the current calendar year, three new companies were listed on the PSX. Two of them were Hi-Tech Lubricants and Loads Limited. In the year to date, the market’s benchmark KSE 100-share Index has advanced by over 40% to 46,584.53 points.

Market outlook

Habib anticipated that a lot of positive happenings in the economy would support the benchmark index advance to 55,500 points by the end of December 2017. “Pakistan’s equity market will potentially generate a yield in the range of 17% to 21% in 2017,” he said.

The bourse will continue to record strong returns in CY17, an assessment supported by the brokerage house Arif Habib’s price-to-earnings ratio (PER) re-rating hypothesis.

“Currently, the market is trading at a CY17F PER of 9.1x (multiples), a discount of 22% and 34% to the MSCI Emerging Market and Asia-Pacific region, respectively,” he said and expected the equity market to go up to 9.7x in 2017.

All you need to know about the PSX divestment

Factors supporting the upward trend include reclassification of Pakistan into the MSCI Emerging Market from the MSCI Frontier Market, double-digit earnings growth for listed companies (16.5%), attractive valuations, a strategic foreign investor acquiring a big stake in PSX and flush of liquidity from divestment to brokers (in the range of $90-100 million), continuing economic growth (5.1% in FY17), Chinese investment in Pakistan’s energy and infrastructure worth $55 billion by FY17-18 and political maturity.

According to Habib, brokers are expected to re-invest the $90-100 million in equities, which will provide additional support to the market.

He said the low interest rate scenario had created huge liquidity in the system and a big part of it was expected to land in the share market.

Local investors have so far invested $450 million in the market. The trend is expected to continue in 2017.

Foreigners to invest $300-400m

Habib said foreign investors had so far sold stocks worth $230 million at the PSX in 2016, as fund managers in the MSCI Frontier Market were pulling out ahead of Pakistan’s upgrading to the MSCI Emerging Market in May 2017. They are expected to return after Pakistan’s reclassification.

He anticipated that foreigners would invest in the range of $300-400 million in 2017 against selling in 2016. At present, foreigners are holding shares worth $6.5-7 billion at the PSX.

Riaz Haq said...

#Pakistan Stock Exchange says #China-led consortium (#Shanghai, #Shenzen bourses) bid highest 4 #PSX. #CPEC … via @WSJ

A Chinese-led consortium, including the Shanghai Stock Exchange, emerged as the top bidder Thursday for a 40% stake in the Pakistan Stock Exchange, one of the best-performing markets in Asia this year.

The Pakistan Stock Exchange, formerly the Karachi Stock Exchange, said the consortium includes three Chinese exchanges: the China Financial Futures Exchange as the lead bidder, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange. The consortium also includes two Pakistani financial institutions: Pak China Investment Company Limited and Habib Bank Ltd.

The consortium’s winning offer, subject to regulatory approval, of 28 rupees ($0.27) per share values the stake at $85.5 million, and the exchange at $213.7 million.

The Pakistan Stock Exchange has been one of the best-performing markets in Asia this year, with its benchmark KSE 100-stock index gaining 42% this year. MSCI announced in June this year that it will upgrade Pakistan, earlier classified as a frontier market, to include it in its Emerging Markets Index.

The sale of the 40% stake is “big news not only for us, but also for the country,” said Shehzad Chamdia, chairman of the Pakistan Stock Exchange divestment committee. “I think it will be a game changer for our capital markets.”

Mr. Chamdia said the consortium’s offer is structured so that the three Chinese exchanges will have 30% of the exchange, while the two local partners will have 5% each. Along with board seats, the consortium will also get to nominate the CEO and CFO at the exchange, Mr. Chamdia said.

Pakistan has seen major Chinese investment in recent months, especially under the China-Pakistan Economic Corridor, a multibillion-dollar infrastructure program to upgrade the land route between the two countries and also boost Pakistan’s energy generation capacity.

Separately, China’s state-owned Shanghai Electric Power Co. acquired a controlling stake in K-Electric, the power utility in Karachi, Pakistan’s largest city.

Prime Minister Nawaz Sharif’s government considers boosting foreign investment a key pillar of its plan to revive Pakistan’s economy, and has pointed to the performance of the country’s stock exchange during his tenure as a sign of economic progress.

Riaz Haq said...

#China investment brightens #Pakistan’s future. #PSX #KSE #CPEC … via @FT

Late last year, three Chinese exchanges jointly submitted the highest bid for a 40 per cent stake in the Pakistan Stock Exchange. They paid almost Rs9bn, or $85m. Weeks after the deal, the market hit an all-time high.

This year has been a good time to be a broker in Karachi, especially after index provider MSCI announced last summer it was restoring the country to emerging market status after downgrading it to frontier status after the financial crisis. In March, local brokers with stakes in the PSX received cheques when the Chinese transaction closed. Since then, they have been sending roadshows to financial capitals to sing the praises of the Pakistani market.

The Chinese investment in the the Pakistan stock market is not officially part of the China Pakistan Economic Corridor (CPEC), which is itself part of the broader, One Belt, One Road initiative designed to strengthen trade links between China and Europe. Yet the biggest reason to be optimistic about Pakistan is the Chinese investment that is pouring into the country.

More than $55bn is expected to come into the country in the next five years, according to a forecast from the Pakistan Business Council. Beijing is doing for Pakistan what the country cannot seemingly do for itself — provide functioning infrastructure. The most critical of these involves building power plants to solve the country’s perennial energy shortage, which has become one of the biggest constraints on economic growth.

Last year investors latched on to what Chinese investment might mean for Pakistan. The stock market is up more than 40 per cent over the past 12 months, and touched a record high in January. However, its momentum has slowed, rising only about 3 per cent this year.

Investors must decide whether China will be a long-term game changer for corporate Pakistan — or whether China itself will be the biggest beneficiary of CPEC. Will local steel, cement and heavy chemical companies see a huge uptick in orders? Will Chinese capital invest in the Pakistani cement and steel industry, where being local is an advantage given high transport costs. Or will Chinese companies see a boost to revenues as a result of Chinese investment?

“With the China connection, it is difficult to go wrong; that is key,” argues Mark Mobius, executive chairman of Templeton Emerging Markets Group. “Three years ago, we went big in Pakistan when everyone was down on it.”

Yet the evidence so far is mixed. Many contracts are not public, but Chinese companies that have received contracts to help construct some of the power plants have been guaranteed equity returns from the projects. Moreover, until the Pakistani business community rose in revolt, Chinese steel imports were duty-free.

Chinese investment is not the only reason to buy Pakistan. Law and order has improved, although progress seems fragile. Growth, which came in at under 5 per cent last year, is expected to rise to 5.2 per cent this year, according to the Asian Development Bank. Consumer spending is strong. The cost of capital is at a 43-year low, according to data from the Pakistan Business Capital. Pakistani management talent — whether at multinationals such as Unilever or local companies such as Engro or National Foods — is impressive.

But reasons to be bearish are not hard to find. The country’s exports are declining, while those at competitors such as Vietnam and Bangladesh are growing. Manufacturing as a percentage of GDP is shrinking, and is a mere 13 per cent today. Remittances are down, while the balance of payments is under pressure.

The wave of Chinese investment will make a huge difference to Pakistan. That much is not in dispute.

But it is possible that alongside the power plants, roads and ports, China’s investment will leave a trail of bad debts. For now, of course, Karachi brokers will be hoping Beijing’s interest lifts the domestic stock market to new highs.

Riaz Haq said...

#Malaysia Axiata's Edotco buys 55% stake in #Pakistan cell tower co with Pakistan's Dawood Hercules 45% for US$940m

KUALA LUMPUR (Aug 30): Axiata Group Bhd's 62.4%-owned subsidiary edotco Group Sdn Bhd announced its biggest expansion plan to-date with the proposed acquisition of 13,000 towers in Pakistan for US$940 million to solidify its position as one of the largest independent tower companies in the world.

In a statement today, edotco said it, together with Pakistan-listed Dawood Hercules Corp Ltd (DH Corp), is acquiring the towers from Pakistan Mobile Communications Ltd (PMCL).

DH Corp, with a market capitalisation of US$600 million, is one of Pakistan's largest conglomerates with a varied business portfolio which includes fertilisers, foods, chemical storage and handling, trading, energy — including independent power production, renewables and petrochemicals.

The proposed deal follows edotco's recent acquisition of Tanzanite Tower Private Ltd and its 700 towers in June.

Today, edotco said Tanzanite has entered into an agreement with PMCL to acquire the latter's tower subsidiary Deodar Private Ltd and its portfolio of over 13,000 tower assets.

As part of the transaction partnership, DH Corp will be investing a 45% equity stake in edotco Pakistan Pte Ltd, which in turn owns Tanzanite, with the remaining 55% controlling stake to be held by edotco.

The total transaction consideration for the proposed acquisition will be funded through a combination of external local debt of US$600 million and an equity split of US$174 million by edotco and US$166 million by DH Corp for their respective stakes.

Subject to the customary and regulatory conditions precedent being fulfilled, the acquisition is scheduled to be completed in the fourth quarter of 2017.

With its existing portfolio of over 26,000 towers owned and operated across six countries, the move will effectively place edotco as the eighth largest independent tower company and second largest multi-country tower operator globally.

The acquisition will lead edotco to have a portfolio of approximately 40,000 towers being operated and managed across the region, comprising some 32,000 owned and operated with a further 8,000 towers managed through a range of services provided.

edotco chief executive officer (CEO) Suresh Sidhu said the acquisition of Deodar is a critical part for the company's growth strategy and ambition to position edotco as the leading independent telecommunications infrastructure services provider in Asia.

"With DH Corp as our partner, we are confident in the potential of the market in Pakistan and will continue to demonstrate our long-term commitment to supporting the development and enhancement of the country's telecommunications infrastructure," he said.

As the majority shareholder of edotco, Axiata's president and group CEO Tan Sri Jamaludin Ibrahim said the group supports the proposed transaction, which will further elevate edotco's position as a leading independent tower company globally and bring strong financial accretion to the company.

"It will also help create a more balanced portfolio for edotco in having three operations of significant size and nature which are Malaysia, Bangladesh and Pakistan," he said.

Riaz Haq said...

#China’s #dairy giant Yili Group expresses intent to acquire 51% of #Pakistan's Fauji Foods

A China-based dairy firm has expressed its intention to acquire a majority stake with management control in Fauji Foods Limited (FFL), known for its Nurpur brand, according to a notice sent on Tuesday to the Pakistan Stock Exchange (PSX).

The potential acquirer, Inner Mongolia Yili Industrial Group Company Limited, will hold talks to acquire 51% voting share in FFL from its parent firm, Fauji Fertilizer Bin Qasim Limited (FFBL), and other shareholders.

The announcement was taken as a positive by investors as FFL’s share price gained by the maximum limit of 5%, increasing Rs1.72 to Rs36.12 with 345,000 shares changing hands on a day the KSE-100 Index witnessed profit-taking and plunged 1.94%. FFBL’s share price also hit the upper price limit, closing at Rs39.55 with a volume of 259,000 shares.
Fauji Fertilizer to inject $39m into Thar Energy

“We have received a notice of public announcement of intention from a potential acquirer, Inner Mongolia Yili Industrial Group Company Limited, whereby the potential acquirer has expressed its intention to enter into negotiations or discussions with Fauji Fertilizer Bin Qasim Limited (FFBL) for the proposed acquisition of upto 51% of the voting shares and/or control in Fauji Foods Limited, from FFBL and other shareholders,” FFL company secretary Brig, Zahid Nawaz Mann was quoted as saying in the PSX notice.

Fauji Cement’s profit jumps 19% to Rs824m

Inner Mongolia Yili Industrial Group Co. Ltd. is a China-based company, principally engaged in the processing, production and distribution of dairy products and mixed feedstuffs, according to Reuters. Subject to execution and approval of the deal by regulators, this would be the second transaction involving foreign direct investment (FDI) in the current month.

Around a week ago, Dutch company, Vopak LNG Holding B.V., executed an agreement with Engro Corporation to acquire 29% stake in Elengy Terminal Pakistan Limited (ETPL) at a price of $38 million.

The country received a total of $2.76 billion in FDI in the previous fiscal year 2018.

The transaction, subject to approval, will also be the second major acquisition in Pakistan’s formal food sector by a foreign firm. Earlier, another Dutch firm, FrieslandCampina Pakistan B.V. (FC Pakistan), acquired 51% stake in Engro Foods at a price of $446.81 million in December 2016.

Riaz Haq said...

#Turkish firms to set up #industrial units in #Pakistan to considerably increase #trade and #investments, especially in #transport, #telecommunications, #manufacturing, #tourism and other industries. #economy

Turkish delegation on Monday expressed their interest for setting up industrial units in Pakistan to start production activities to meet the needs of the construction industry, a press release issued by the Islamabad Chamber of Commerce and Industry (ICCI) said on Monday.

ICCI President Sardar Yasir Ilyas Khan briefed the visiting delegation about the potential business and investment opportunities in the country’s real estate and construction sectors.

He said that Pakistan was a big market with huge demand for housing units and commercial buildings.

He said that the current government has announced a very attractive construction package to boost construction activities in the country and it was the right time for foreign investors to explore Pakistan’s real estate and construction industry for joint ventures and investment.

He said that the Turkish investors should bring technology and expertise and set up industrial units in Pakistan to capitalise on the emerging investment opportunities in construction and other sectors that would also help in maximising economic growth and increasing exports of our country.

He assured that the ICCI would extend all possible assistance and facilitation to Turkish investors for joint ventures and investment in the country.

Speaking at the occasion, Turkey’s ADO Group President Mustafa SAK said that they have seen huge potential for investment in Pakistan and they wanted to set up industrial units to produce construction material and products to meet the needs of the local construction industry.

They said that their collaboration with Pakistani counterparts would be beneficial for both countries.

He said that Pakistan and Turkey have worked to negotiate a preferential trading agreement, aiming to considerably increase trade and investments, especially in transport, telecommunications, manufacturing, tourism and other industries and hoped that its finalisation would further increase the volume of bilateral trade between the two countries.

Riaz Haq said...

‘Growing debt market crucial to Pakistan’s economic progress’

Growing and dynamic debt market is crucial for the economic progress of Pakistan and it is imperative for all stakeholders of the financial ecosystem to take the country’s debt market to regional and international levels, PSX chief executive officer said on Friday.

Farrukh Khan, chief executive officer of Pakistan Stock Exchange (PSX) said this during a gong ceremony to welcome Bank of Punjab (BOP) onboard as a market maker for conventional and shariah-compliant debt instruments on PSX.

“BOP is one of the first banks to become a market maker on PSX. We welcome this development as this will lead to increased growth and dynamism in the debt market, which is crucial for the economic progress of Pakistan,” Khan said in a statement. “We believe this step will play a significant role towards achieving that end. We are also in discussions with BOP to bring some of their SME [small and medium enterprise] clients to list on the new GEM [growth enterprise market] board. This will also be an important development for Pakistan’s economy, the SME sector and PSX.”

Market makers perform the role of providing liquidity and depth to the market by facilitating investors to buy and sell securities through continuously quoting two way prices – bid and offer prices.

Zafar Masud, CEO of Bank of Punjab said the bank will be the first bank in the Pakistan market making for both conventional and shariah-compliant securities as well as corporate debt instruments at the PSX portal.

“This makes us the first public sector bank offering a bouquet of services in collaboration with PSX,” said Masud. “We see our role expanding beyond a market maker for debt securities. Through this agreement, we are committing to becoming a leading player in development of capital markets in Pakistan by enabling greater investor participation and enabling listing of more debt, equity and non-conventional instruments at PSX.”

“We can partner with PSX in promoting privatisation and listing of public sector projects for example Punjab thermal power and Quaid-e-Azam solar power through the stock exchange. Moreover, we plan to design instruments to bring projects like Kamyab Jawan Program, SME financing project and low cost housing scheme to PSX platform,” he said.