Demutualization Intro Implmntation

8/13/2019 Demutualization Intro Implmntation

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DEMUTUALIZATION OF KARACHI STOCK EXCHANGE

INTRODUCTION & IMPLEMENTATION


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What is Demutualization

The Demutualization means the segregation of majority ownership of a stock

exchange from the right to trade on such stock exchange.

Demutualization is the process of continuing an organization from its mutual

ownership structure to share ownership structure.

The process, as per Stock Exchanges (Corporatization, Demutualization and

Integration) Act, comprises of:

obtaining regulatory consents;

converting membership rights into distinct trading rights and shares; and

transfer of a strategic stake to an investor;

public issuance and listing.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION


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Existing Proposed

COMPANY LIMITED BY

GUARANTEE

COMPANY LIMITED BY

SHARES

Corporate Structure



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Existing Proposed

10 directors to include:

5 member directors;

4 SECPs nominee directors

1 Managing Director

Initially, 11 directors to include:

4 directors from amongst the TRE

certificate-holders;

6 SECPs nominee directors (to be

replaced with directors representingstrategic investor and general

public)

1 Managing Director

Subsequently, all directors, except the

Managing Director, will be elected to theBoard through votes of shareholders.

Constitution of the Board



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Shareholding structure

100% shares to be allotted equally among 200 existing members of KSE

40% under house account of

existing members

60% in CDCs blocked account

under KSEs participant ID, to be

operated by the Board, and later on,

to be divested in the following

manner:

Upto 40% to strategic investor(s)

Upto 20% to general public

through offer for sale

Any remaining share to financial

institutions



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Powers of Demutualization Committee

(i) To approve the valuation of KSE undertaken and revised by Deutsche

Bank AG.

(ii) To enter into negotiations, finalize and execute agreements for sale of upto

40% of the total issued share capital of KSE out of the shares to be

deposited into CDCs blocked account with one or more strategic investorsor financial institutions at a price that is equal to or greater than the above

valuation.

(iii) To accept or reject an offer from a strategic investor, if the price offered is

less than the valuation as referred to above.

(iv) To determine the offer price for offer for sale to general public of not lessthan 20% of the total issued share capital of the Exchange out of the

shares to be deposited into CDC blocked account.

As proposed in the EOGM



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Timelines

The Stock Exchanges (Corporatization, Demutualization and Integration) Bill

was passed by the National Assembly on October 08, 2009 and by the

Parliament, in its joint session held on March 27, 2012.

The President of Pakistan signed the Stock Exchanges (Corporatization,

Demutualization and Integration) Act on May 07, 2012 (t0)initiating a definedroadmap, as explained in the following slides.



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t30June 06, 2012 [Target: May 29]

Action point Reference Comments

KSEs EOGM has to be held to ratify the

already existing Demutualization

Committee and to empower the

Committee.

Section 3 EOGM for the purpose is in

session.



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t45 June 21, 2012

CONTINUE

D


Exchange has to submit the following to

the SECP:

Section

4(1)

1. Valuation by Financial Advisor/

Investment Bank (can be extended to

120 days by SECP)

(a) Deutsche Bank retained to

revise its earlier valuation.

2. Revaluation of assets & liabilities by afirm of Chartered Accountants approved

by SECP

(b) FAMCO Associates retainedalong with Iqbal A. Nanjee &

Co.

3. Proposed authorized and paid-up capital

and number of shares @ Rs.10/- par

value

(c) Based on report on re-valuation

of KSEs assets and liabilities

4. Names of all existing members of KSEto act as initial shareholders along with

the number and value of shares to be

allotted to each

(d) Based on final list of membersas at a specific cut-off date and

report on re-valuation of assets

and liabilities



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t45 June 21, 2012


5. Names of four (4) out of current member

directors to act as interim directors until

the new Board is constituted under the

Act

(e) Proposed in this meeting

6. Proposed plan for segregation of

commercial and regulatory functions ofKSE

(f) M/s. Ahmed & Qazi appointed

to develop the plan

7. Draft Memorandum & Articles of

Association of the demutualized

Exchange

(g) M/s. Ahmed & Qazi appointed

to review & revise the previous

draft

8. Proposed 5-year development plan

along with capital expenditure estimateand sources of finance

(h) Being developed in-house

Note: Items 2 to 8 above are to be approved by the Board before submission to the

Commission



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Within 30 days from the submission of

documents, SECP would approve Items 2 -

8 above and also provide to the Exchange,

names of six (6) nominee directors

Section

4(2)

t75 July 21, 2012 [Target: July 20]



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Issuance of notice of EOGM by the

Exchange for the purpose of adoption of

new and approved Memorandum & Articles

of Association of the Exchange, through

Special Resolution

Section

5(1)

t84 July 30, 2012 [Target: July 24]


t A t 20 2012 [T t A t


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Within 30 days after SECPs approval,

Exchange must:

Section

5(1)

hold EOGM to adopt via Special

Resolution, KSEs Memorandum &

Articles of Association

(a)

allot shares to approved initialshareholders in scrip-less form

(b)

deposit 60% of shares allotted to each

initial shareholders in a blocked account

(c)

issue a certificate to each initial

shareholder certifying the number of

shares deposited in the blockedaccount

(d)

issue Trading Right Entitlement (TRE)

certificate to each initial shareholder

(e)

t105 August 20, 2012 [Target: August

15]


t A t 27 2012 [T t A t


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Within 7 days after EOGM, Exchange must

deliver to concerned Registrar, the

following:

Section

5(3)

Certified copy of Special Resolution for

adoption of Memorandum & Articles of

Association

(a)

Certificate from KSEs auditors,

certifying issue of all shares to initial

shareholders in dematerialized format

(b)

Certificate from CDC certifying deposit

of 60% of allotted shares in blocked

account

(c)

t112 August 27, 2012 [Target: August

22]


t S t b 03 2012 [T t


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Registrar to issue Certificate of Re-

registration as evidence of change of

status of the Exchange from a company

limited by guarantee to company limited

by shares

Section

6(1)

t119 September 03, 2012 [Target:

August 29]

Note: KSE will become a corporatized and demutualized exchange from the date of

receipt of the Certificate of Re-registration.


t S t b 12 2012 [T t


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Issuance of notice for EOGM by the

Exchange for purpose of election of four

first directors of the demutualized

Exchange

Section

10(2)

t128 September 12, 2012 [Target:

September 05]


t O t b 03 2012 [T t


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EOGM, elections and constitution of new

Board of KSE

Section

10(2)

t149 October 03, 2012 [Target:

September 28]



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Demutualization Intro Implmntation