Oct 14, 2015

Turkey issues LoI to buy strategic stake in Pakistan Stock Exchange

Turkish stock exchange has issued a Letter of Intent (LoI) to the Government of Pakistan for acquiring 40 percent strategic shares in Pakistan Stock Exchange (PSE). Turkey's Borsa Istanbul Anonim Sirketi (BIST) has over 420 listed firms with more than $260 billion market capitalization. BIST's letter came as the country's three stock exchanges in Karachi, Lahore and Islamabad are set to merge into a new integrated national bourse on Thursday (today).

Finance Minister Ishaq Dar would be the chief guest at SECP where the chairmen of three bourses would sign a Memorandum of Understanding (MoU) to formalise the merger. The demutualisation committees of Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) on Tuesday decided the merger in a joint meting held at SECP. 

The MoU signing, sources said, would lead to the cancellation of the licenses of LSE and ISE. "KSE's license would stand valid and the three bourses would merge into Pakistan Stock Exchange," they said. Thursday's seems to be a high-stake event for the PML-N led federal government given the fact that the Ministry of Finance is organising it. What made the long-disputing managements of three bourses to develop consensus on a merger? According to sources, it was the long-awaited strategic sell-off of the three exchanges that made the stakeholders to opt for a merger. 

It goes without saying that the country's three exchanges have long ago missed the two-year deadline set by the Demutualization Act 2012 for the sale of 40 percent stakes of KSE, LSE and ISE to a strategic investor. While KSE (97pc trading volume) had been able to attract the attention of Turkey, Qatar, Tokyo and London stock exchanges, the volume-starved LSE (2.5pc) and ISE (1.5pc) had been finding it difficult to market their product to offshore investors. 

An SECP spokesman said the integration would induce foreign investors to make strategic investment in PSE, once it is formed. The integration is expected to create a "strong case for attracting strategic partnerships", the SECP reportedly said Tuesday. The Borsa Istanbul of Turkey, sources said, has offered that partnership to the Government of Pakistan through issuing an LoI. "Turkish Borsa wrote a letter to the government saying they want to buy one and not three stock exchanges of Pakistan," said the sources. 

Under the Turkish LoI, Islamabad would be required not to issue any licenses for the development of new stock exchange in the country. "They want only one integrated stocks entity that PSE is going to be," the sources said. Expecting the sell-off to materialise within next three to six months, the sources said the BIST's letter also restricted Pakistan to negotiate the deal with any potential strategic buyer for one year. "We won't be negotiating with other potential buyers," they said. 

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