Initial Public Offerings Prospects & Challenges

Initial Public OfferingsProspects & Challenges

JANUARY 2014

By : Muhammad Farid Alam, FCA

Chief Executive Officer – AKD Securities Limited

Pakistan IPO Summit - 2014

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Table of Contents

1. AKD Securities Limited:

Leading Corporate Brokerage House

Outstanding Investment Banking Credentials

Landmark Transactions

Investment Banking Prowess

Corporate Relationships

2. Benefits of Listing:

Unlimited Access to Global Capital

Unlocking the True Value of a Company

Creating Invest-omers

Wealth Creation

Succession Planning

3. Issues & Challenges:

Issues Faced by Financial Advisors

Issues Faced by a Company

4. The Way Ahead

1. AKD Securities Limited

AKD Securities Limited

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AKD Securities Limited (“AKDS”) is one of the leading securities firm in Pakistan with an 8% to 10% market share in average daily traded volume at KSE.

We provide a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services.

AKDS Investment Banking prowess is well established in the industry. Outside of the large domestic banks, we have consistently been ranked among one of the leading underwriters and arrangers of equity in capital markets transactions.

From 2008 till date, AKD Securities Limited accounted for 40% of all domestic equity offerings

AKDS also provides access to a diversified investor network through its institutional and online sales/trading desks.

“The Best Equity BrokerageHouse” Award for the years2005-06 and 2006–07, by CFAAssociation of Pakistan

Also featured as the second bestbrokerageby AsiaMoney polls intheyear 2007

Also featured as the second best brokerage by Asia Money polls

in the year 2007

International Equity FundsLeasing Companies &

Modarbas

International Broker - Dealer Arrangements

Mutual Funds & Investment Companies

Commercial & Investment Banks

Corporate Provident & Pension Funds

Development Financial Institutions

Public & Private Sector Corporations

AKDS has over 100 institutions, domestic and international, along with high net-worth clients across several sectors including:AKDS has over 100 institutions, domestic and international, along with high net-worth clients across several sectors including:

Deutsche Bank

Leading Corporate Brokerage House

“Best Corporate Finance House of the Year” and “Runner-up Best Brokerage House” Award 2010 -

2011 by the CFA Association of Pakistan

Recipient of “Deal of the Year” Award at ICAP Excellence Awards 2013 for

Participation Term Certificate of Treet Corporation Limited

Outstanding Investment Banking Credentials

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Arrangement Capability

Successfully advised for and arranged over

PKR 45bnthrough equity listings, right issuance, debt arrangements,

equity underwritings and term finance certificates

Recognition

Ranked “Best Corporate Finance House of the Year – Equity & Advisory” for the

year 2011

for successfully executing landmark transactions during

the year

Market Share

Successfully executed

43%of the total 28 domestic

equity listings since CY2008 which clearly reflects our

investment banking prowess in domestic capital markets

Innovation

Awarded “Best Transaction of the Year” for the year

2012 by Institute of Chartered Accountants of

Pakistan (ICAP)

for Advisory & Arrangements of Pakistan’s 1st ever PTC

Pioneer Book Runner

A convincing market share of

70%representing our domination in all domestic book buildings

held in Pakistan’s capital markets to date

Privatization

Successfully advised and arranged for transactions

worth

PKR 19bnbased out of GoP’s

Privatization Program and are also mandated as

advisors for the GDR of NBP along with the consortium of

Deutsche Bank AG and Morgan Stanley

Investment Banking Prowess AKD Securities Limited

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Includes buy / sell side advisory services to both local and international clients. Services range from multi-stage M&A i.e. deal structuring, valuation, divestment, structure optimization, target company and JV identification

Includes fund raising via Debt (both secured and unsecured) and Equity issuance – IPO, OFS, Rights / Bonus, SPO / FPO, Convertible Loan and Equity Linked Instruments and Pre-IPO Placements (Private Equity Placement)

Advisory on structuring secured and unsecured debt facilities and negotiation for debt scheduling. Performance feasibility analysis on plans of reorganization as well as risk assessment and opportunities

Providing advice on capital structure, determining debt and equity strategy and arranging finance for working capital requirements, expansion, acquisition, refinancing with negotiation for key terms and covenants

Mergers & Acquisition

s

Project Finance

Debt Restructuri

ng

Capital Markets

Corporate Bonds

Debt Arrangements

Mergers & Acquisitions

Business Restructuring

Public Offerings

Private Placements

Privatization

Debt

Equity

Merger & Acquisitio

ns

Landmark TransactionsAKD Securities Limited

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Lalpir Power

Limited

Highest Over-Subscribed Book Building: Acted as Lead Manager, Arranger & Book Runner for the Offer for Sale of Shares where the Book Building of 28.48mn shares was over subscribed by 6 times which is the highest over-subscription received for any domestic Book Building.

Treet PTCFirst Ever PTC in Pakistan’s Capital Markets: Acted as Financial Advisor & Arranger for the first ever Participation Term Certificate in the history of Pakistan’s Capital Markets for Treet Corporation Limited worth PKR 1,255mn.

Engro Fertilizers Limited

One of Pakistan’s Best Performing Listings: Acted as Book Runner for the Book Building of 75mn shares of Engro Fertilizers Limited at a floor price of PKR 20/- per share and received over 400 bids with an overwhelming response resulting in a strike price of PKR 28.25/- per share.

Attock Petroleum

Pakistan’s Highest Ever Over-subscribed Offer for Sale of Shares: Lead Managed the PKR 577mn Offer for Sale of Shares of Attock Petroleum Limited that was over-subscribed by a record 19 times.

National Refinery

Privatization of Pakistan’s Second Largest Refinery: Buy-side Financial Advisor for the Attock Group of Companies on their PKR 16,240mn Offer for the acquisition of 51% stake in National Refinery Limited.

Ghani Gases

Limited

First Ever Domestic Book Building: Lead Manager & Book Runner for the first ever domestic listing via Book Building mechanism for the Offer for Sale of Shares of Ghani Gases Limited.

Nishat Power

Limited

Re-opening of IPO Market: Acted as the Financial Advisor & Arranger for IPO of Nishat Power Limited. AKDS reopened equity markets for Pakistan post domestic political volatility and a deadlock in IPO market for nearly one year.

Corporate Relationships

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2. The Benefits of Listing

Unlimited Access to Global Capital

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The Benefits of Listing

Company Name Industry Size Year Listed in

Agricultural Bank of China Financial Services $22.1bn Jul-10 China

Industrial & Commercial Bank of China Financial Services $21.0bn Oct-06 China

General Motors Automotive $20.1bn Nov-10 US

American International Assurance Insurance $20.5bn Oct-10 Hong Kong

Visa Financial Services $19.7bn Mar-08 US

Facebook Social Media $18.4bn May-12 US

NTT Mobile Com. Network Telecom $18.1bn Oct-98 Japan

ENEL S.p.A. Utilities $16.6bn Nov-99 Italy

Nippon Telegraph & Telephone Telecom $13.7bn Oct-86 Japan

Deutsche Telekom Telecom $12.5bn Nov-96 Germany

Top 10 Largest Global IPOs

Raise virtually unlimited money from markets all across the globe

Unlocking the True Valuation of a Company

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– Market takes into account tangible & intangible assets' values– Growth potential is factored into the company's valuation– Market Value = Book Value of Assets + Future Earning– The secondary market helps to unlock the true value of a company

Company’s true value is unlocked through price valuations

Case in Point – IPO of Engro Fertilizers Limited:• Floor Price of PKR 20/- share

• Book Building helped in the price discovery where a strike price of PKR 28.25/- per share was determined which also led to an overwhelming response in the General Public

• The share capital of Engro Fertilizers was PKR 12.28 billion (USD 115mn) prior to the IPO

• Post-listing with a share price of PKR 45.96/- per share as at January 30, 2014 the total market capitalization of EFERT is approximately PKR 59.65 billion (USD 561mn)

Pre-listing – PKR 12.28 billion

Post-listing – PKR 59.65 billion

PR

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Creating Invest-omers

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Investors of listed companies also become loyal customersthat creates ‘Invest-omers’

– Investors are more likely to buy products from the same company in which they hold shares

– According to a study ‘inves-tomers’ spend 1.7 times more often than the typical shopper and spend 1.5 times as much money

– They remain customers 1.1 times longer and generate 2.1 times the number of business referrals (Source: Mowrey, 2000)

– MYER, an Australian chain of upmarket departmental stores, embraced the ‘inves-tomer strategy’ where shareholders were encouraged to become retail customers and resultantly at least 60,000 new shareholders joined the register

Wealth Creation

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Listed companies provide an opportunity to create further riches and are an indication of personal wealth for savvy entrepreneurs – Majority of the richest men made their fortunes through appreciation of their

companies’ shares which is vindicated by the fact that all of the top 10 richest people in the world owe their wealth to the stakes held in listed companies

– Carlos Slim is 2013's richest person with a wealth of USD 73 billion due to a rise in Mexican Stock Market

– Mian Mohammad Mansha is the first Pakistani businessman to be featured in Forbes list of billionaires due to the market value of his shareholdings in numerous listed blue-chip companies

– Mukesh Ambani (Chairman – Reliance Industries) at one time became the richest man in the world as result of increase in share prices

– Mark Zuckerberg became the youngest billionaire at the age of 28 years with an estimated worth of USD 15 billion after the IPO of Facebook Inc.

Succession Planning

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The structure and required level of corporate governance in listed companies supports in efficient and smooth succession planning

– According to a independent PWC research, 7 out of 10 private businesses do not have any procedures for resolving business conflicts between family members and almost half of them have no formal succession plans

– It is easier for listed companies to confront the problem of succession as it has better access to human resource capital

– Leadership transitions in global conglomerates had negligible effects on the Company's value:

Steve Jobs - Apple Bill Gates - Microsoft Warren Buffet - Berkshire Hathaway

Listing – A Winning Combination For All

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3. Issues & Challenges

Challenges Faced by Financial Advisors

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Issues & Challenges

• Listing a company is not about just adding another number to the Exchange

• Lesser incentive for attracting successful companies

• Demanding , over-ambitious and impatient managements / sponsors

• Corporate governance and corporatization are the greatest fears of domestic sponsors

• Dilution of shareholding is considered a sin

• Company is considered a part of the family’s silver by the sponsors

• Sponsors / managements shy away from stringent regulatory reporting

• Inexperienced boutique investment banks mislead high potential companies

• Not willing to offer shares at ‘Patriotic Par’

• Listing in itself has great benefits – and benefits never come underwritten so comprises are required…… At least initially!!!

“The only good companies stay unlisted”

Challenges Faced by Companies

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Issues & Challenges

• Absence of fiscal incentives is a great hurdle

• Lack of self-believe and level of preparedness in terms of financial reporting and structuring of the Company

• Start-up companies have nowhere to go while only brownfield companies are entertained

• Newcomers and single – entity sponsors are not welcomed

• Discomfort in sharing of information with outsiders

• Cost of listing

• Stringent regulatory deadlines at times delay processes

• Drive to grow and glow is missing

• Lack of trust in the eyes of potential investors

4. The Way Ahead

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The Way Ahead

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THANK YOU!

Documents

Initial Public Offerings Prospects & Challenges