KARACHI: The capital market of Pakistan recently witnessed its biggest-ever IPO deal. Service Long March Tyres Limited's IPO saw its two-day book-building exercise close with 16.7 times oversubscription and total investor interest amounting to about Rs69.4 billion, which is the equivalent of roughly $250 million. This made the SLM Tyres IPO the biggest-ever deal seen on the Pakistan Stock Exchange.

The figures were higher than any previously set benchmark. Never before had there been such an overwhelming response to an IPO in the PSX. No book-building exercise had ever seen such a huge number of bids. And, no industrial firm had ever managed to raise so much money from one equity issue in Pakistan’s capital markets.

16.7 Times Oversubscribed Max Amount Raised On First Day

The SLM Tyres IPO of Pakistan has managed to raise the maximum amount of funds worth Rs7.77 billion through the book building process, which is the maximum amount raised by any IPO on the PSX. The deal has also closed at the top of its range, with a 40 percent premium to the bottom price.

The 16.7 times oversubscription ratio indicates that the total value of bids was 16.7 times the total shares floated by the company. This means that for each rupee of shares offered by the company, investors offered Rs16.70 in bids. This is a clear indication of the gap between supply and demand, rather than marginal excess demand.

Biggest Deal in PSX History Arif Habib Verifies the Claim

The CEO of Arif Habib Limited, Shahid Ali Habib, who was the lead manager and bookrunner for the SLM Tyres IPO Pakistan, verified that the deal was indeed a historical one

He said that it was the biggest IPO ever seen at the PSX, which created an interest of Rs70 billion among investors, while it raised Rs7.77 billion. He emphasized that the SLM Tyres IPO Pakistan was not a big transaction in a favorable market but was a landmark event for the capital market of Pakistan.

Investor Response at Such a Level

Service Long March Tyres IPO Pakistan received unprecedented attention not because of the usual reasons of market euphoria but because of the nature of Service Long March Tyres itself, which is an exporting entity with proven size and technology. This type of business was traditionally overlooked by investors in Pakistan.

The manufacturing industry in Pakistan, especially those that are export-oriented, provide something that the financial services industry and consumer goods companies operating in Pakistan cannot, namely, foreign exchange, diversification, and income which is not dependent solely on the local economy. This makes such an export-oriented company a fundamentally different risk proposition to one investing in the rupee-denominated environment with constant currency pressures.

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Implications of the Listing for the Pakistani Stock Market

The listing of SLM Tyres IPO in Pakistan has created a new benchmark for all future deals on the PSX. For any issuer considering an IPO, there is now a precedent established regarding the limit of investor interest – and also a model of success that an export-focused industrial firm can replicate.

The massive subscription makes a mockery of the belief that Pakistan’s capital market is too shallow for big deals. The Rs69.4 billion worth of subscriptions were received from an underdeveloped market characterized by short-termism and aversion to industrial investments. SLM Tyres’ IPO Pakistan shatters all three perceptions at once.

Signal for Export Focused Manufacturers Contemplating the PSX

SLM Tyres IPO Pakistan clearly gives a signal to other export focused manufacturing firms contemplating the capital markets. The equity market of Pakistan is ripe with demand for industrial firms with size, export sales, and technological edge. The 16.7 times oversubscription is proof of such demand – as well as the 40 percent premium on offer price.

Now that companies operating in sectors like textiles, engineering, chemicals, etc., which depend heavily on exports, have realized that there is potential to generate substantial capital through an IPO on the PSX at fair valuations, the record-setting IPO of SLM Tyres Pakistan Ltd. has shown the market what more is possible from future companies reaching such standards.