Presentation -lahore(Final) 4th March 2011.pdf

7/27/2019 Presentation -lahore(Final) 4th March 2011.pdf

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AKD

Securities

Limited

Initial Public Offering

The Depth and Breadth

BY:

MUHAMMAD FARID ALAM FCA

MARCH 4TH 2011

Seminar Lahore Stock Exchange


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AKD Securities - Overview

The leading stock brokerage in Pakistan accounting for approximately8% of average daily value traded on the Karachi Stock Exchange

AKD Securities is in the top 5 brokers of all local Financial Institutions

Key broker for foreign institutional investors with over US$1,300

million turnover in FY06-07 (25% of the total estimates FII turnover)

Member of the National Commodity Exchange Limited (NCEL),currently in the process of launching commodity products to local andforeign investors

Over 100 domestic institutional and high net worth clients handled byinstitutional desk comprising of:

Commercial, Investment & Islamic Banks Development Financial Institutions Mutual Funds & Investment Companies

Corporate Provident & Pension Funds Public & Private Sector Corporations


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AKD Securities Limited is a proud recipient of The Best Equity BrokerageHouse Award for the years 2005-06 and 200607, by CFA Association of

Pakistan

The CFA Association is a global organization with over 84,000 membersfrom the investment profession in 128 countries. It is also considered the

most respected institution in setting investment industry standards ofservice performance and ethics.

AKD Securities - Overview


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Online Trading

Investment Banking

Institutional SalesBrokingResearch

Marketing

Technology

Compliance Administration

Risk Management

Training

ENABLING

our customers toachieve the best InvestmentPerformance thro ugh:

BestResearch

Best Execution

Best Settlement

BestPractices

BestService

AKD Securities Area of Operations


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Terms and Terminologies Used

IPO : Initial Public Offerings

Primary Market

Secondary Market

GDR: Global Depository Receipt


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Defining Initial Public Offering (IPO)

The first sale of stock by a company to the public. Companiesoffering an IPO are sometimes new, young companies, or sometimes companies which have been around for many yearsbut are finally deciding to go public.


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Capital Needed

Startup company

needs large sums of

capital, beyond the

reach of a private

placement.

Capital NeededStartup company needslarge sums of capital,beyond the reach of a

private placement

Cheaper CostIPO will costs less

than another round ofventure capital

Cash in ChipsEveryone wants to

get liquid

Large EnoughStartup company islarge enough and

profitable enough to go

public

PrestigeManagement, investors,want the glory of beingassociated with a highly

successful company

Hot Stock MarketStock market is hot and

hungry for IPOs

Factors Triggering the Timing for a

Company of Going Public


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A well-seasoned group of professionals facilitate the IPO Process

Stakeholders in an IPO

Investment Banker/Advisors

Bankers

CDC/Balloters

Investors

Underwriter

Legal Council

Executive Management

Accounting / Financial

Public Relation

Independent Auditor

AND

Members of the Exchange


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What it takes for Listing

Taking a Company public requires a lot of commitment by Sponsors and effort by membersand Advisors

The following steps are involved in the listingprocess:

Structuring and Due diligence Valuation and Pricing Appointment of third parties

Regulatory approvals Marketing and placement

& Finally

IPO - Listing


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Regulatory requirements An Insight

The following regulation needs to be complied with when listing aCompany in Pakistan:

The listing regulation Issue of Capital Rules, 1996 Companies Ordinance, 1984

SECP and Stock Exchanges guidelines for preparation ofprospectus


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Regulatory requirements An Insight

For a Company to be listed on the Exchange the following conditionsapply It should a public limited Company with a paid up capital of PkR

200 mn post IPO Incase the existing paid up capital of the Company is upto PkR

500 mn atleast 50% of the such capital shall be offered to the

public Incase capital of the Company is beyond PkR 500 mn public

offer shall be atleast PkR 250mn atleast or 25% of the Capital,whichever is higher

The Issuer may allot upto 25% of the public offer to OverseasPakistanis and upto 5% of the public offer to its employees

A person who holds 10% of the shares of the Company may offershares to public via Offer for Sale

The size of capital to be offered through offer for sale shall not beless PkR 100 mn otr 25% of capital, whichever is less


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Benefits to Stakeholders from a

Listed Company

- Better terms from lenders

- Management retains larger degree of control viz a viz

private equity

- Foreign Portfolio Investment

- Price discovery for public sector Companies

- Marketable commodity

Economy

Sponsor/Investor


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SIZE DOES NOT MATTERBUT

LISTING DOES


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IPO Prospects

A falling market combined with volatility & uncertaintygives an adverse Impact to the primary market.

The fate of primary market (IPOs) is directly linked

with that of the Secondary market.

For a successful IPO, the secondary market needs tobe stable if not buoyant.


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IPO Prospects

Specific IPO related issues are:

Quality of Issues Pricing of Issues

Post Listing Performance Effects of Broader Market on IPOs.


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Has the IPO Market Finally

Recovered?

Good Companies willing to compromise on valuations to be able to raisecapital and grow & glow rather than eternally wait for GOOD TIMES


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An IPO Is An IPO Till Listed

Once a stock is listed, investing in it as like investing in anysecondary market stock.

The price is influenced by:

General Economy Trends

Sector Condition Companys Specific Performance


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IPOs CANNOT BE SOLDBUT

HAVE TO BE BOUGHT


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To Develop and Regulate Capital Market in Pakistan

Role of SECP


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Traditionally a company intending to raise funds from the public onlyhad an option of going for a fixed price IPO

However, fortunately enough as part of the Government initiative fordevelopment of financial markets, the SECP formally launched thebook building rules in April 2008, thereby starting a new era of listing

The book building mechanism may be new to Pakistan, but has beenwidely practiced in public offerings globally

India has been leading player in book building which is evident fromthe fact that all the new listings in India during last two years have

been through the book building mechanism

Fortunately for Pakistan capital markets, the investors now haveflexibility to bid at the price they feel feasible to subscribe to a newstock

Finally a Development Book Building


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It would be pertinent to highlight that AKD Securities Limitedwas the first one to apply these rules in Pakistan by offeringshares of Ghani Gases Limited via the book buildingmechanism. The issue was oversubscribed

AKD Securities is currently working on the listing of two majorinfrastructural projects namely:

Tuwairqi Steel Mills Limited International Steel Limited

Finally A Development

B k B ildi C i ith


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The cost of the transaction is significantly

reduced as the public portion is smaller

and hence fixed costs are reduced.

Includes certain fixed costs to be

borne by the Issuer that push the

overall cost of transaction at higher

side

Cost of the

Transaction

The issuer can decide to allocate shares to

any investors falling within the cut-off

price range.

The Issuer has no discretion over the

quality of investors as the shares are

issued to general public

Investors

Demand for the securities offered can beknown everyday as the book is built.

Demand for the securities offered isknown only after the closure of the

issue

Demand

Price at which securities will be

offered/allotted is not known in advance

to the investor. Only an indicative price

range is known.

Price at which securities are

offered/allotted are known in

advance

Pricing

Book Building processTraditional OfferingFeatures

The cost of the transaction is significantly

reduced as the public portion is smaller

and hence fixed costs are reduced.

Includes certain fixed costs to be

borne by the Issuer that push the

overall cost of transaction at higher

side

Cost of the

Transaction

The issuer can decide to allocate shares to

any investors falling within the cut-off

price range.

The Issuer has no discretion over the

quality of investors as the shares are

issued to general public

Investors

Demand for the securities offered can beknown everyday as the book is built.

Demand for the securities offered isknown only after the closure of the

issue

Demand

Price at which securities will be

offered/allotted is not known in advance

to the investor. Only an indicative price

range is known.

Price at which securities are

offered/allotted are known in

advance

Pricing

Book Building processTraditional OfferingFeatures

Book Building Comparison withTraditional Offering


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Book building is a process whereby investors bid for a specificnumber of shares at various prices

The Lead Manager & Book Runner(LM & BR), with the consent ofOfferor sets a floor price which is the minimum bidding price aninvestor can bid at

An order book of bids from investors is maintained by the BR, whichis then used to determine the cut off/strike price through the DutchAuction Method

A bid by a potential investor can be a Limit Bid, Strike Bid or a

Step Bid

a. Limit Price: Maximum price an investor is willing to payb. Step Bid:A series of limit bids at increasing pricesc. Strike Order:A bid for the specified number of shares at strike

price

Book Building Process


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IPOs via the book building process are gaining popularity globallyover the fixed price IPO methodology

A fair mechanism of price discovery and demand for shares in themarket

The greater control and flexibility of book building method providessubstantial benefits to the Offeror

Assists in capitalizing over the demand of shares in the marketthereby reducing the risk of under pricing

Lower issue cost compared to traditional method resulting in costsavings

Offeror also has the option to select the quality of investors

Book Building Benefits


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In traditional IPO methodology the investor mix is usually generalpublic as preference is given to investor subscribing for 500 shares.However, in book building mechanism institution interest can besolicited thereby improving the quality of investors

Book Building Benefits


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Preliminary prospectus are sent to institutional investors and HNWIs(who are individuals having net worth of at least PkR1.0 Million) tosolicit their interest to participate in the bidding process

Identities of the investors are be kept confidential

Bids can be a limit bid (maximum price willing to pay) or a strike bid(price at which demand is enough to raise the minimum targetedcapital) or a step bid (series of limit bids at increasing prices)

Bidders have the right to revise or withdraw their bids during thebidding period

BR shall collect not less than 25% of application money as marginfrom corporate and 100% for HNWIs

BR on receipt of books shall build an order book and maintain recordof bids received

Book Building Procedure


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The Offeror in consultation with the LM & BR shall determine the strikeprice at the close of the bidding period

Successful bidders to be intimated within one working day of closure ofbidding period, strike price and no. of shares provisionally allotted

Successful bidders to deposit balance money within 3 working days,otherwise margin money will be forfeited

Offer to general public shall be equal to or at a discount to the finaldetermined strike price through the Book Building Process

Final allotment to be made after receipt of full subscription money andcompletion of public subscription

Book Building Procedure


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Recent GDR (Global Depository Receipt) of Pakistani Companiesthrough the Book Building process are as follows:

Company NameAmount Raised

(mn)

MCB $150.00

UBL $650.30

OGDC $800.00

Total $1,600.30

GDR Through Book Building

Global update Singapores largest IPOHutchinson Port Holding Trust aims to raise upto

USD 6.4 bn in an IPO


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PERCEPTION THATRATTLE US


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Government: Perceptions that RattleUs


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Government: Perceptions that RattleUs

Economists cause the crisis failed to


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Economists cause the crisis, failed tospot it and have no idea how to fix it!

Listed Corporate: Perceptions that


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Listed Corporate: Perceptions thatRattle Us

Listed Corporate: Perceptions that


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Companies May go sick but Promoters rarely do !

Once you become Big, you become Honest !

Is Trading & Insider Trading Inseparable ?

Listed Corporate: Perceptions thatRattle Us

Broker & Advisory: Perceptions that


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Broker & Advisory: Perceptions thatRattle Us

Broker & Advisory: Perceptions that


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Broker & Advisory: Perceptions thatRattle Us


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Players: Perceptions that Rattle Us


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Demand Side

Financial Literacy

Awareness and Demanding Accountability, Transparency & RiskInformation to make Informed Choices to save, borrow or Investempowering people to change behavior. Trained Counselors being

there real-time when financial decisions are made.Timeliness is vital

Supply Side

Financial InclusionProviding what People Demand. Increasing Penetration at theGrass root level by leveraging on Communications andTechnology. Low cost models

Players: Perceptions that Rattle Us


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Pakistan Market Outlook

Post-flood rehabilitation and funding

Soft commodity spike and Agri incomes

Liquidity trajectory

Central banks monetary policy

Trade performance (EU concessions)

Corporate results and Earnings outlook

Leverage product reintroduction

IMF tranches & Reform process

Flags for FY11 KSE-100 Index can reach 13,100 if it reverts tohistorical average PER multiple

Downside limited by:

High dividend yield (2011F: 6.4%)

Corporate earnings resilience

Cash Market (downward sticky/reduced volatility)

Valuation expansion if political risk continuesreducing & economic growth rebounds post flood-impacted FY11.

Can take the KSE-100 Index to 13,250 by June2011, particularly if leverage product is introduced

KEY MACRO RISKS

Major terrorism event

Disruptive political change

Commodity price shock (esp. oil)

Delayed recovery in export markets

Weather related agri-sector failure


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Index Outlook Underpinned by

Regional DiscountConvergence

Mean PER

Reversion

While average historical discount has been 35% to regional markets, Pakistan equities currently trade at a ~44% discountto regional multiples. The broader market should return 16% as Pakistans risk premium converges to historical levels.Upside increases to 35% if OGDC is ignored.

The market PER multiple has averaged 9x in the last 10 years. Convergence to the mean multiple implies an upside of15%.. FY11F targeted EPS growth for Universe stands at 14%. Upside increases to 34% if heavyweight OGDC is removedfrom current valuations.

Mapping AKD Universe target prices results in a Jun'11 KSE-100 Index target of13,250 points.Target PriceMapping

KSE 100 Index Forward PER Band (x) Regional ValuationsPER (x) P/BVS (x) ROE (%) Dividend Yield (%)

2010A/E 2011F 2010A/E 2011F 2010A/E 2011F 2010A/E 2011F

Pakistan 8.8 7.8 1 .7 1.6 18.9 20.1 5.9 6.9

Thailand 14 .6 12.2 2.1 1 .9 14.1 15.5 3.3 3 .5

Singapore 15.4 14.1 1.8 1.7 11.5 11.7 3.0 3.3

Malaysia 15 .9 14.2 2.2 2.1 14.0 14.5 3.3 3 .6

Indonesia 18.1 14.9 3.5 3.2 19.4 21.3 1.9 2.3

China CSI 300 17.4 14.2 2.6 2.2 15.0 15.8 1.5 1.8

Hong Kong 14.7 12.7 1.9 1.7 12.9 13.7 2.9 3.3

India 18.9 15.7 3.2 2 .7 16.7 17.4 1.2 1.4

Phil ippines 15.2 13.8 2.4 2.2 15.6 15.8 2.9 3.2

Regional Average 16.3 14.0 2.4 2.2 14.9 15.7 2.5 2.8

Disc. to Region -45.9% -44.1% -32.2% -27.5% 26.6% 27.9% 2.4x 2.5x

Source: Bloomberg

Jul-04 Jun-05 May-06 Apr-07 Mar-08 Jan-09 Jan-10 Dec-10

(x)

14.5

11.0

7.5

4.0

Pakistan Market volatility is an


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Pakistan Market volatility is an

opportunity

KSE-100 Index Volatility2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

High 1,550 2,701 4,604 6,218 10,303 12,274 14,815 15,676 9,846 11,407

Low 1,075 1,273 2,359 4,472 6,218 8,767 10,041 5,865 4,815 9,230

KSE-100 Index YoY Performance

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

CY % -16% 112% 66% 39% 54% 5% 40% -58% 60% 22%

Difference between KSE-100 High & Low

44%

112%

95%

39%

66%

40%48%

167%

104%

24%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

*CYTD

How Technology has Impacted


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Online Trading

Share has become a commodity

Hybrid & Purely Online Models

The Role of Mutual Funds will assume more focus in channelizingsavings to Capital Markets.

Institutional and Retail Foray facilitated. The Broking Pie will growbiggerforays into multi asset class products.

How Technology has ImpactedOur Models!

How Technology has Impacted


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How Technology has ImpactedOur Models!


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DOS&

DONTS

FOR IPOs

Avoid Herd Mentality Develop


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Youre jumping on because others are. Do you know where the bus is

going?

Avoid Herd MentalityDevelop

Independent Thinking


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Expect the Unexpected!

Be Flexible and Adapt to


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Be Flexible and Adapt to

Changing Situations

PATIENCETEMPERAMENT


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PATIENCETEMPERAMENT

CONTROLHOLDLONG TERM


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DONT BE IN A HURRY


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At the End of the Day Pray!


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and Believe in Yourself !


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Thank You

Presentation -lahore(Final) 4th March 2011.pdf

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