October 3, 2016 / 8:36 AM / a year ago

Pakistan Stock Exchange says Shanghai bourse interested in buying stake

KARACHI (Reuters) - The Pakistan Stock Exchange Ltd has received interest from the Shanghai Stock Exchange and other foreign companies about buying a stake of up to 40 percent, its managing director said on Monday.

A sign of the Pakistan Stock Exchange is seen on its building in Karachi, Pakistan January 11, 2016. REUTERS/Akhtar Soomro/File Photo

The Pakistani bourse has been searching for a strategic investor as the final part of its demutualisation plans, and in July invited companies to express interest in buying a stake.

“By late August, early September expressions of interest were received, including from Shanghai Stock Exchange,” Nadeem Naqvi, Managing Director of Pakistan Stock Exchange, told Reuters by telephone when asked about a newspaper report on the Chinese exchange’s interest.

He did not name the other interested parties. The Shanghai Stock Exchange did not respond to a request for comment.

Naqvi said the Pakistan bourse’s market capitalisation from 558 listed companies stands at $77 billion, and interested parties must submit sealed bids by Oct. 21.

“Final outcome will be known by early November,” he said.

Pakistan’s economy, which grew 4.7 percent last fiscal year, has rebounded in recent years and is now expanding at the fastest pace since 2008.

The improving economy has powered local shares to record highs. On Monday, the benchmark 100-share index, which has risen 25 percent this year, rose above 41,000 points for the first time.

Pakistan’s bourse in June received a confidence boost when index provider MSCI upgraded it to Emerging Market status from the lower-tier Frontier market segment. Last month intra-day trading volumes hit their highest level in 11 years.

INVESTORS HURT IN 2008

Though western companies have been hesitant to pile into Pakistan, in part due to lingering concerns about security and energy shortages, Chinese firms have been increasing their presence.

A major catalyst was the 2014 announcement that China would spend $46 billion to build an economic corridor through Pakistan comprising road, rail and energy projects.

The China-Pakistan Economic Corridor (CPEC) will link western China with Pakistan’s Arabian coast and envisages new industries being set up along the route in special economic zones.

The Shanghai bourse, which was closed off from foreign investors for decades, has looked to increase its presence abroad as the Chinese government relaxed cross-border investment rules.

In November 2014, the bourse launched a direct mutual trading link with Hong Kong which it plans to extend to London, and last year joined forces with the China Financial Futures Exchange and Germany’s Deutsche Boerse to create a new Frankfurt-based company, the China Europe International Exchange.

In May, Pakistan stock exchange deputy managing director, Haroon Askari, told Reuters the bourse had received initial interest from the Istanbul and Qatar exchanges. Qatar later downplayed its interest.

In recent years the main Pakistan bourses were demutualised to weaken the influence of stockbrokers and deepen the investor base.

Many foreign equity investors lost out in 2008 when the bourse imposed a floor during the financial crisis, effectively trapping them in a collapsing market for three months.

Pakistani officials say the demutualisation means such measures would not be taken in future.

The demutualisation plan, which saw all the main bourses merged to become the Pakistan Stock Exchange, requires the bourse to find a strategic investor to buy a stake of 15 percent to 40 percent.

Pakistani officials said the investor would have to buy at least 15 percent but no higher than 40 percent.

If the sale involves a stake of anything in between, the bourse would seek to sell the balance to other institutions to meet the 40 percent cap.

Japan’s Nikkei newspaper first reported the interest of Shanghai Stock Exchange late on Sunday.

Additional reporting by Michelle Price in HONG KONG; Writing by Drazen Jorgic; Editing by Christopher Cushing and Mike Collett-White

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