Pakistan’s three stock exchanges have decided to merge their core operations and sell up to a 40% stake to strategic investors from abroad.

The Karachi Stock Exchange (KSE), Lahore Stock Exchange and Islamabad Stock Exchange entered into a Memorandum of Understanding on August 25 for their integration into one single trading platform under the proposed name of Pakistan Stock Exchange (PSE).


“Post integration, PSE will be in a much stronger position in attracting international strategic partners and local financial institutions, which is a requirement as per the demutualisation law,” Akif Saeed, commissioner for the securities market at the Securities and Exchange Commission of Pakistan, told fDi.

“Divestment options will be explored as a commercial decision by the stock exchange post-completion of the integration exercise, especially since consolidation may result in attracting greater interest and competition amongst strategic investors,” he added.

Turkish interest

Earlier this year, Borsa Istanbul submitted a Letter of Intent to purchase a stake in the three Pakistani exchanges, provided they merge into one entity. The document demanded a one-year exclusivity period for due diligence and negotiations. However, it has not yet been accepted and will now be evaluated once the the integrated entity, PSE, is formed.

Earlier, Nadeem Naqvi, KSE’s managing director, said the PSE will consider selling up to a 40% strategic stake to investors who have at least $200m capital and a minimum track record of five years’ operations. Following that transaction, it will offload up to a 20% stake to the general public, whereas the remaining 40% will continue to be held by members of the stock exchange.

“Once the integration is complete we will do aggressive marketing for the exchange, including roadshows in the US, UK and the EU,” said Usman Ghani, chairman of KSE’s demutualisation committee.

Sources have confirmed that Borsa Istanbul and Qatar Stock Exchange, whose officials visited the KSE earlier this year, are considering a joint bid.

Increasing value

Deutsche Bank, financial adviser to the transaction, declined to comment on the deal and its pricing, but Mr Naqvi said the valuation should be higher than in 2012, when the demutualisation process started. “The trading value at KSE has increased three times since then.”

In recent years, the KSE has been rated as Asia’s best performing equity market by Bloomberg.

In June 2015, the index provider MSCI said it was adding the MSCI Pakistan Index to the review list for a potential reclassification to emerging markets as part of the 2016 annual market classification review.

“The Pakistani equity market has grown significantly and its liquidity has greatly improved. As a result, concerns about the potential for failing to meet size and liquidity criteria should there be a negative market event have receded,” MSCI said in June.

Aftab Chaudhry, Lahore Stock Exchange’s managing director, said foreign investors seeking a strategic stake in PSE should be wooed by three key factors. “The huge untapped potential of targeting the growing middle class and converting them into investors; new listings from the new economy comprising of tech firms and [small and medium enterprises]; and cheap valuations relative to the region that can help attract foreign portfolio investors.”