Running a business on any scale requires careful planning and the ability of its managers to capitalize on all opportunities presented, while also finding the best solutions to all the challenges that arise in the business landscape. Every economy in the world has its own unique characteristics and businesses must continuously strive to achieve higher profitability and returns for its shareholders. In Pakistan, specific industries experience their own unique sets of challenges, but one key aspect which requires extensive deliberation for every business throughout the world is finding the right mix of financing for the businesses’ short and long term success.
To remain competitive and gradually grow, capital is required for a host of reasons ranging from factory and capacity enhancements, increasing the workforce, research and development, product development, working capital, servicing debt and business and product diversification among others. Business managers may favor one of the several options available to meet these financial requirements such as bank loans, private equity, partnerships etc, but each option also carries its disadvantages. For example, in the case of bank loans, businesses must provide some sort of collateral to the banks, on top of the periodic repayments of the principle amount plus interest on the initial financing they received. In a high interest rate environment, this chokes the company’s ability to maintain its margins.
Pakistan Stock Exchange (PSX) offers an alternate solution, which is to raise funds by listing your company on the Exchange. Briefly, equity listings require a business to offer a small part of its ownership for sale to the general public.
This is a comparatively cost efficient measure, where businesses do not give off their management control to the new investors / shareholders leading to effective decision making. Management is able to raise funds without having to pay back costly loan repayments. Furthermore, one of the biggest advantages of listing are the tax benefits which companies receive for four consecutive years after listing, enhancing their bottom line.
Getting your company listed not only helps management raise funds but it has several other perks as well. PSX provides a diverse marketplace with investors from throughout the world which increases liquidity. Secondly, PSX maintains international indices, including the KSE 100, which represents the top companies of Pakistan. The KSE 100 Index is followed by investors nationally as well as internationally. Listing on the Exchange gives a chance for companies to gain international recognition by being included in said indices. Moreover, business owners are also able to identify the true worth of their organizations, as investors give premium to fundamentally strong companies leading to better price discovery. Publicly traded companies also possess higher credibility and transparent public perception increasing company’s publicity and outreach. It helps attract the best talent and enhance a company’s relationship with its stakeholders.
Pakistan Stock Exchange was established on 11 January 2016 after the merger of Karachi Stock Exchange (established in 1947), Lahore Stock Exchange (established in 1970) and Islamabad Stock Exchange (established in 1992). PSX constitutes of 40% shareholding by a consortium of Chinese Exchanges (Shanghai Stock Exchange, Shenzhen Stock Exchange, & China Financial Futures Exchange), and 60% by general public, which includes initial shareholders, local and foreign investors. PSX has had a record of being the best performing Stock Exchange in Asia. With functional and operational capabilities similar to those of any other stock exchange in the world, it aims to provide an efficient marketplace to facilitate capital formation and boost Pakistan’s economy.
PSX offers two equity listing products i.e. the Main Board and the Growth Enterprise Market (GEM) Board. Each board has its own specific criteria and requirements for listing. Among the requirements is the condition that all companies must be public limited and registered with the Securities and Exchange Commission of Pakistan (SECP).
Currently, 530 companies are listed at PSX representing 36 industrial sectors and having total market value of over PKR 5.9 Trillion. The local bourse is a key economic performance indicator for every country, where PSX enjoys the position of being one of the best performing markets in the region.
Keeping in mind the current pandemic, businesses face extreme challenges in the short to medium term, as reduced overall economic activity locally and abroad has led to the rare demand side and supply side shocks. The government and the general public have cut down substantially on non-essential expenditure leading to severe revenue drops. Supply chains throughout the globe have been negatively affected due to restricted travel and lockdowns. Companies will require cost efficient funding now more than ever. To help business thrive, PSX offers an avenue that no business can afford to overlook.
“Opportunities don’t happen, you create them”,
Visit the PSX website (www.psx.com.pk) or call the Exchange directly to start gathering vital information that can benefit your business substantially and help you overcome the hardships of today’s business environment.