pakistan - country brief

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FIRST CAPITAL EQUITIES Country Brief| Pakistan August 2014 PAKISTAN A Natural Destination for Investment PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES IN APPENDIX II AT THE END OF REPORT.

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Page 1: PAKISTAN - COUNTRY BRIEF

FIRST CAPITAL

EQUITIES

Country Brief| Pakistan

August 2014

PAKISTAN A Natural Destination for Investment

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES IN APPENDIX II AT THE END OF REPORT.

Page 2: PAKISTAN - COUNTRY BRIEF

Bridge b/w South, Central & West Asia

Country Brief| Pakistan August 2014

First Capital Equities Ltd

Full name: Islamic Republic of Pakistan

Population: 188mn (2014)

Capital: Islamabad

Largest city: Karachi

Area: 796,095 sq km

Major languages: English, Urdu, Punjabi, Sindhi, Pashto, Balochi

Major religion: Islam

Head of State: President Mamnoon Hussain

Head of Govt: Prime Minister Nawaz Sharif

2

Pakistan

Page 3: PAKISTAN - COUNTRY BRIEF

Geo-Strategic Importance

Proximity of great powers:

Located at the junction of Russia and China.

Strong USA interest in the region.

Gateway to central Asia:

Located very close to the oil rich Middle East region and Central Asian states.

Offers access from energy efficient to energy deficient countries.

The proposed Turkmenistan–Afghanistan–Pakistan–India Pipeline (TAPI) highlights the significance.

Significance as a transit economy:

Land locked Afghanistan relies heavily on Pakistan for its reconstruction phase.

Pakistan offers Central Asian region the shortest route of 2,600 km as compared to Iran’s 4,500 km or Turkey’s 5,000 km .

Gwadar port with its deep waters attracts the trade ships of China, Central and South East Asian countries.

The only direct and shortest link between China and the Middle East.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

3

Pakistan

“While history has been unkind to Pakistan, its geography has been its greatest benefit. It has resource rich area in the north-west, people rich in the north-east”, Stephen Philip Cohen

Page 4: PAKISTAN - COUNTRY BRIEF

A Land of Many Splendors

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Page 5: PAKISTAN - COUNTRY BRIEF

A Land of Many Splendors

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Page 6: PAKISTAN - COUNTRY BRIEF

Workforce & Population With a population of 188mn people (the world’s sixth most populous country), Pakistan offers both a

competent workforce as well as a lucrative consumer market.

Boasts of a diverse and rich cultural heritage. Home to the 5,000 years-old Indus Valley civilization,

the Indus plain has always been a melting pot of cultures and civilizations.

One of the world’s largest youth bulge country. About 41% of the population is aged 14 or younger,

48% is 15–49 years of age and only 11% of the population 50 and older. This young and dynamic population is considered an omen of prosperity.

The world’s 10th largest labour force. A large pool of trained and experienced engineers, bankers,

lawyers and other professionals with many having substantial international experience. Around 49% of the Pakistani population speaks English at least to intermediate level.

Growing consumerism across Pakistan as reflected by tele-density which has now reached 79% - 5th

largest mobile phone market in Asia.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

2004 2104

Total Population (mn) 153 188

Urban Population (mn) 51 73

Rural Population (mn) 101 116

Labour force (mn) 44 60

Un-employment (%) 8 6

Literacy Rate (%) 53 60

Page 7: PAKISTAN - COUNTRY BRIEF

Growing Consumerism Against the perception of being a hotbed of terrorism and international threat, Pakistan is by large a

moderate, liberal and progressive state. Majority of Pakistanis adhere to moderate Barelvi Islam, which draws from Sufi traditions.

31mn internet users. With the recent introduction of third-generation (3G) mobile technology, the

country’s broadband user base is expected to reach between 25 to 45 million by 2020.

The country is home to 14.4 million Facebook users. Exposure from cable TV and internet in Tier 2

and Tier 3 cities.

Growing fashion conscious middle-class. Demographic changes, growing urbanization (39%) and

increased social awareness.

Since 1971, around 7.4mn overseas Pakistanis working/living around the globe. During FY13, FX

remittances amounted to US$14bn.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

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Page 8: PAKISTAN - COUNTRY BRIEF

Home to Multinationals

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Page 9: PAKISTAN - COUNTRY BRIEF

Level of competitiveness

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Ease of Doing Business Rank

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Level of competitiveness

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Trading Across Borders

Regulation

Resolving Insolvency

Credit Market Regulations

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Level of competitiveness

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Judicial Independence

Globalization Index

Price Competitiveness in T&T Industry

Ranking of Happiness

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Page 12: PAKISTAN - COUNTRY BRIEF

Legislative framework The Constitution of Pakistan provides a federal parliamentary system of government, with the

President as the head of the State and an elected Prime Minister as the head of the government.

The federal legislature is a bicameral Parliament, which comprises the President and the two

Houses, the National Assembly (lower house) and the Senate (upper house).

The National Assembly is the country’s sovereign legislative body and makes laws for the federation

under powers spelled out in the Federal Legislative List.

The National Assembly’s constitutional tenure is of five-parliamentary years on the basis of adult

franchise and one person, one vote.

The National Assembly (NA) consists of a total of 342 members of which 272 members are

publically/directly elected while 70 members (60 women seats+10 non-Muslim seats) are decided on the basis of overall party representation in the house.

Almost the same criteria is also used to form assemblies at the provincial levels. Please refer to the

following tables for further illustration in this regard.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

National Assembly - Composition

Province / Area General Non-Muslims Women Total

Federal Capital 2

10

2

Punjab 148 35 183

Sindh 61 14 75

KP 35 8 43

FATAs 12 - 12

Balochistan 14 3 17

Total 272 10 60 342

Provincial Assemblies - Composition

Province / Region General Non-

Muslims Women Total

Punjab 297 8 66 371

Sindh 130 9 29 168

KP 99 3 22 124

Balochistan 51 3 11 65

Total 577 23 128 728

Page 13: PAKISTAN - COUNTRY BRIEF

Legislative framework Senate, the upper house of the Parliament, has equal representation from the federating units

balancing the provincial inequality in the National Assembly, where the number of members is based on population of the provinces.

The Senate's role is to promote national cohesion and harmony, and work as a stabilizing factor of

the federation.

The Senate consists of one-hundred and four members, of whom fourteen (14) are elected by the

members of each Provincial Assembly.

Eight (8) members are elected from the Federally Administered Tribal Areas (FATA), two (2) on

general seats, and one (1) woman and one (1) technocrat are elected from the Federal Capital.

Furthermore, four (4) women and four (4) technocrats are elected by the members of each

Provincial Assembly.

Legislation or law-making is the fundamental responsibility performed together by the two Houses of

Parliament, i.e. the Senate and the National Assembly.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Senate - Composition

Province / Area General Non-Muslims Technocrats/Non-

Muslim Total

Federal Capital 2 1 1 4

Punjab 14 5 23

Sindh 14 5 23

KP 14 5 23

FATAs 8 - 8

Balochistan 14 5 23

Total 66 17 21 104

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Electoral system Election Commission of Pakistan is solely responsible for supervising fair and impartial general

elections and taking appropriate measure regarding functions of administrating the electoral process. It’s an independent autonomous, and constitutionally established federal institution.

Meanwhile, a care-taker setup is to be put in place after the dissolution of assemblies. This setup

administrate the government activities during the period when an election for a new assembly is being held.

General elections (on both national and provincial levels) are held on the basis of adult franchise,

one person-one vote and the first-past-the-post (FPTP) voting method.

Since 1970, the country has conduct 10 elections.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Year A - Voting age population (mn)

B- Registration (mn)

C - Total Vote Cast (mn)

Voter Turnout (C/B)

VAP Turnout (C/A)

2008 91.86 79.93 35.61 45% 39%

2002 76.63 71.36 29.83 42% 39%

1997 60.57 54.19 19.06 35% 31%

1993 54.03 50.38 20.29 40% 38%

1990 49.30 47.07 21.40 45% 43%

1988 46.38 46.21 19.90 43% 43%

1985 41.36 32.59 17.25 53% 42%

1977 36.21 30.90 17.00 55% 47%

Average 46% 40%

FCEL Research, International IDEA

2013 110.78 86.20 46.22 54% 42%

Page 15: PAKISTAN - COUNTRY BRIEF

Political spectrum, parties & position

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Pakistan's Political Spectrum

S.No Party Name Abbrev. Ideological Position Political Base Major Leader

1 Pakistan Muslim League - Nawaz PML-N Centre-Right Mid-to-Northern Punjab Nawaz Shareef

2 Pakistan Tehreek-e-Insaf PTI Centrist KPK, Urban Punjab Imran Khan (the cricketer)

3 Pakistan Peoples Party PPPP Centre-Left Rural Sindh, lower Punjab Asif Ali Zardari/Bilawal Bhutto

4 Mutahida Qaumi Movement MQM Liberal Urban Sindh Altaf Hussain

5 Pakistan Muslim League - Quid PML-Q Centrist Mid-to-Northern Punjab Chaudhry Shujat Hussain

6 Awami National Party ANP Left-wing Khyber Pakhtunkhwa Asfandyar Wali

7 Jama'at-e-Islami JI Right-wing Urban - Scattered Sirajul Haq

8 Jamiat Ulema-e-Islam - Fazal JUI (F) Ultra-right Rural KPK & Balochistan Maulana Fazalur Rehman

2013 Elections: Party Position in National Assembly

Region ↓ Party Name→ PML-N PPPP PTI MQM JUI-F Others Independents Total Representation

Punjab 131 3 7 0 0 5 2 148 43%

Sindh 2 34 1 19 0 5 0 61 18%

KPK 6 0 17 0 4 8 0 35 10%

Balochistan 5 0 0 0 4 5 0 14 4%

FATA/FC 4 0 2 0 1 2 5 14 4%

Reserved Seats

Women 35 8 6 4 3 4 0 60 18%

Non-Muslims 6 1 1 1 1 0 0 10 3%

Total 189 46 34 24 13 27 7 342 100%

Representation 55% 13% 10% 7% 4% 8% 2% 100%

Page 16: PAKISTAN - COUNTRY BRIEF

Economic overview Agriculture is one of the pillars of the economy of Pakistan, with wheat, cotton, rice, maize and

sugarcane being the major crops.

Pakistan produces and exports fruit crops including mangoes and citrus. Other main exports of this

country comprise cotton, textiles, leather, apparel and cereals.

Agriculture accounts for 21% of GDP and 44% of employment. The four sub-sectors of agriculture are;

crop, livestock, fisheries and forestry.

The industrial sector contributes 21% in GDP; it is also a major source of tax revenues for the

government and also contributes significantly in the provision of job opportunities to the labor force.

The share of the services sector has reached to 58% in FY14.

Three main drivers of economic growth are consumption, investment and export. Pakistani

society like other developing countries is a consumption oriented society, having high marginal propensity to consume.

During FY14, the private consumption expenditure in nominal terms reached to 80%t of GDP, whereas

public consumption expenditures arrived at 12% of GDP.

Remittances from overseas workers, averaging about US$1bn per month (or US$12bn/annum) since

March 2011. Ranked 7th in terms of the largest recipient of officially recorded remittances in the world. After India, Pakistan is the second largest recipient of remittances in South Asian region.

Amongst 20 countries of the world where remittances cover more than 20% of imports and also

remittances are equivalents to more than 30% of exports.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

Page 17: PAKISTAN - COUNTRY BRIEF

Main industries by region

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

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Among the top 12 producers in world

Country Brief| Pakistan August 2014

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Pakistan

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Page 19: PAKISTAN - COUNTRY BRIEF

Key Indicators

Country Brief| Pakistan August 2014

First Capital Equities Ltd

FY10 FY11 FY12 FY13 FY14E

Real GDP growth (%) 2.6% 3.6% 3.8% 3.7% 4.1%

Agriculture (%) 0.2% 2.0% 3.6% 2.9% 2.1%

Industrial (%) 3.4% 4.5% 2.5% 1.4% 5.8%

Services (%) 3.2% 3.9% 4.4% 4.9% 4.3%

GDP (US$ bn) 176 211 225 236 247

Tax Revenue (PRs bn) 1,473 1,699 2,053 2,199 2,525

Fiscal Tax/GDP (%) 10.0% 9.4% 9.9% 9.6% 9.9%

Fiscal deficit (PRs bn) 929 1,194 1,761 1,867 1,464

Fiscal deficit as % of GDP 6.3% 6.6% 8.5% 8.0% 5.8%

Exports (US$ bn) 19.7 25.4 24.7 24.8 25.1

External

Imports (US$ bn) 31.1 35.8 40.4 40.2 41.8

Trade Bal. (US$ bn) (11.5) (10.4) (15.7) (15.4) (16.6)

Trade Bal. (% GDP) -6.5% -4.9% -7.0% -6.5% -6.7%

Remittances (US$ bn) 8.9 11.2 13.2 13.9 15.8

Current account (US$ bn) (3.9) 0.2 (4.7) (2.5) (2.9)

Current account as % of GDP -2.2% 0.1% -2.1% -1.1% -1.2%

CPI (%) 10.1% 13.7% 11.0% 7.4% 8.6%

Monetary M2 growth (%) 12.5% 15.9% 14.1% 15.9% 10.0%

Total FX Reserves - (PRs bn) 16.8 18.2 15.3 11.0 14.1

Exchange Rate (period avg.) 85 86 89 97 103

External Debt (US$ mn) 53,570 57,897 55,862 50,989 51,500

Debt Domestic Debt (PRs bn) 4,651 6,012 7,638 9,520 10,896

Total Debt as % of GDP 62% 61% 62% 63% 61%

Macro

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Economy

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Economic overview

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

-0.075

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FY10

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GDP IndustryServices Agriculture

GDP Sub-Sec Performance

Agri: 21%

Services: 58%

Industry: 21%

GDP Composition

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Demand Side Nominal GDP

Page 21: PAKISTAN - COUNTRY BRIEF

Stock Market Overview Currently three Stock Exchanges in Pakistan at; Karachi, Lahore and Islamabad

Karachi Stock Exchange (KSE) is the main bourse with 558 listed companies with combined market

capitalization of US$70bn.

KSE started operations in 1947 but came into limelight in early 1990s due to financial sector

liberalization. KSE has 200 members. Around 135 are active.

Approx. 87% of turnover occurs at KSE, 12% at Lahore and 1% at Islamabad

KSE was previously operating as a non-profit organization with mutualized structure wherein its

Members had trading as well as ownership rights. Now, following the demutualization, KSE stood corporatised & demutualized as a public limited company by shares with effect from August 27, 2012.

Financial institutions (Mutual Funds, Commercial Banks, DFIs, etc), Foreign Investors, Retailers and

High net-worth individuals are main players in the market.

Trading at KSE is screen based through a number of terminals. Each and every trade is recorded.

There is one depository company in Pakistan (Central Depositary Company). On average, circa 99% of

KSE volume settled through CDC and rest in physical shares.

Pakistan’s weight in MSCI Frontier (MSCI FM) has increased to circa 7.2%.

The Karachi Stock Exchange KSE-100 Index is the benchmark for our Karachi market, it comprises of

the top companies from each of the 34 sectors on the KSE, in terms of market capitalization.

There are two other indices; KSE-30 Index, which is based on free float capitalization of top 30

companies and KSE all shares Index which is based on full market capitalization of all listed companies at the Exchange.

The most quoted index is the KSE-100. It comprises of the 100 largest companies on the Stock

Exchange and is updated minute by minute during trading hours.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

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KSE at Glance

Country Brief| Pakistan August 2014

First Capital Equities Ltd

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Pakistan

KSE - 5 YEARS PROGRESS 2010-2014

Up to Up to Up to Up to Up to

31-12-2010 30-12-2011 31-12-2012 31-12-2013 04-08-2014

Total No. of Listed Companies 644 638 573 560 558

Total Listed Capital - PRs mn 919,161 1,048,444 1,094,367 1,129,787 1,151,732

Total Listed Capital - US$ mn 10,805 12,169 11,731 11,104 11,271

Total Market Capitalization - PRs mn 3,268,949 2,945,785 4,242,278 6,056,506 6,992,333

Total Market Capitalization - US$ bn 38 34 45 60 70

KSE-100TM Index 12,022 11,348 16,905 25,261 29,648

KSE-30TM Index 11,588 10,179 13,764 18,809 20,626

KSE All Share Index 8,359 7,857 11,964 18,664 21,810

New Companies Listed during the year 6 4 4 3 4

Listed Capital of New Companies - PRs mn 33,438 16,011 8,161 4,545 19,871

Average Daily Turnover - Shares in mn 133 97 197 239 232

Average value of daily turnover - PRs mn 4,405 3,506 4,675 7,604 8,988

Average value of daily turnover - US$ mn 52 41 50 75 88

Foreign Investors Gross Buy - US$ mn 1,214 684 936 2,000 1,463

Foreign Investors Gross Sell - US$ mn 688 811 811 1,602 1,102

Source: KSE, NCCPL, FCEL Research

Page 23: PAKISTAN - COUNTRY BRIEF

Investing in Stock Market Foreign investors are freely allowed to operate in Pakistani capital market without any retention

period.

There are no restriction on the extent of foreign ownership stake and also no limit for holding the

shares for trading purposes.

Funds invested in the capital market are freely transferable along with dividend income.

Foreign investors are treated at par with local investors in tax treatment.

Dividend tax is 10% (except 7.5% for Power Generation).

Foreign investors held 8.4% of the total market cap as of Jul 18, 2014. As % of free float, the foreign

holding arrived at 29%.

Special Convertible Rupee Account (SCRA) is preferable to transfer funds efficiently.

Settlement System is T+2 for Ready/Cash. Incase of corporate announcement, spot transaction are

carried out on T+1 for specified period.

Cash settled future is a standardized contract where all settlement occurs purely on cash basis.

Depending on the contract, settlement occurs 30, 60 & 90 days after the contract is purchased.

Blank sales are not permissible. Short sales can be made if 1) Prior contractual borrowing

arrangement has been made. 2) Sale is made at up tick and 3) Trade is identified as a ‘Short sale’ at the time of placement of order

Stock Index Futures Trading is a specified number of contracts whose mark-to-market difference is

settled through National Clearing Company standard pay-in-collect system on daily basis.

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Pakistan

Page 24: PAKISTAN - COUNTRY BRIEF

Stock Market - Legal framework The securities market and the corporate sector are regulated by the provisions of the Companies

Ordinance 1984.

The Securities and Exchange Ordinance 1969 and Rules framed there under in 1971.

The Securities & Exchange Commission Act 1999.

There are also Federal legislations relating to specific areas like

Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970.

Investment Companies and Investment Advisors Rules 1971.

Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980.

Companies (Issue of Capital) Rules 1996.

Leasing Companies (establishment and Regulation) Rules 1996.

Asset Management Companies Rules 1996.

Insurance Companies Ordinance 2000.

Guidelines for insiders trading.

In addition to above, the listed companies are also subject to the Rules and Regulations of the stock

exchanges.

Strengthened Regulatory Regime post 2008 Crisis

Strong risk management system & State-of-the-art technology Platform.

Seamless electronic integration of Trading (KSE), Clearing & Settlement (National Clearing Co.) and Custody (Central Depository Co.).

Fit & Proper Criteria for brokers; KYC & Anti Money Laundering guidelines implemented.

Universal Identification Number (UIN) for every investor & auto-tagging of CDC sub-account with the UIN and KSE’s KATS code for investor protection.

Country Brief| Pakistan August 2014

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Pakistan

Page 25: PAKISTAN - COUNTRY BRIEF

Stock Market - Legal framework Capital gain tax

The CGT was scheduled to increase from 10% to 17.5% (for less than six months holding period) and

to 9.5% (from 8%) for more than 6 months and less 12 months in FY15 as per Finance Bill 2013.

For Tax Year FY15, capital gains tax rate has been reduced to 12.5% for securities held for a period

up to 12 months as against prescribed rate of 17.5% and rate of 10% is now applicable for securities held for a period between 12 to 24 months. Tax on capital gains for securities held for more than 24 months will be exempted.

Current dynamics of KSE

KSE was Demutualized on August 23, 2012 and turned into a company limited by shares with an

equity base of nearly $80 million.

The Board of Directors of KSE now has 6 public interest directors nominated by the SECP including

the Chairman, 4 representatives of previous members of the Exchange and the MD.

Within 24 months of Demutualization 40% stake with management control has to be sold to strategic

investor, 40% will be retained by ex-members/now shareholders and 20% will be IPO’d, as per the Demutualization Act 2012.

Strategic investor can only be a (i) stock exchange; (ii) derivatives exchange; (iii) commodities

exchange; (iv) depository company, with 10 years’ experience, US$200million capital & high reputation.

As per the Demutualization Act 2012, KSE’s organization has been segregated into separate

regulatory and commercial functions to avoid any conflict of interest.

Country Brief| Pakistan August 2014

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25

Pakistan

Page 26: PAKISTAN - COUNTRY BRIEF

KSE - Sector Concentration

The sector concentration of KSE is high compared to the rest of Asia.

Top 4 sectors – Oil & Gas, Commercial Banks, Food producers and Chemicals make up around 70% of

the total market capitalization.

Country Brief| Pakistan August 2014

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26

Pakistan

Sector Concentration at KSE (Aug 6, 2014) Market Cap (US$ mn) % Share

Oil and Gas 20,310 29%

Commercial Banks 15,318 22%

Food Producers 6,877 10%

Chemicals 5,652 8%

Construction and Materials 3,823 5%

Personal Goods (Textile) 3,468 5%

Tobacco 3,353 5%

Electricity 2,023 3%

Others (26 sectors) 10,084 14%

Source: KSE & FCEL Research

Page 27: PAKISTAN - COUNTRY BRIEF

KSE - Stock Concentration

KSE Index is a market capitalization based total-return index of 100 companies.

Stock concentration follows the similar pattern as that of sectors with largest E&P company, OGDCL

occupies 11% weightage in Index.

MCB is the 2nd largest company with 9% index weightage.

Country Brief| Pakistan August 2014

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27

Pakistan

Top 10 Companies KSE -100 Index Weightage (Aug 6, 2014) Bloomberg Code Weight

1 Oil & Gas Development Company OGDC PA 11%

2 MCB Bank MCB PA 9%

3 Pak Petroleum PPL PA 6%

4 Fauji Fertilizer FFC PA 5%

5 Pak Oilfields POL PA 4%

6 Hub Power Company  HUBC PA 3%

7 Lucky Cement LUCK PA 3%

8 PSO PSO PA 3%

9 Engro Corp ENGRO PA 3%

10 United Bank UBL PA 3%

Source: KSE & FCEL Research

Page 28: PAKISTAN - COUNTRY BRIEF

KSE - Top Turnover Stocks

KSE is a fairly liquid bourse with last 12-months average daily turnover of US$80mn.

Turnover/Market Cap ratio of 31% in last 12 months.

Around 40% of volume occurs in 10 stocks. Over the years, this concentration has declined as in 2007

around 50% of volume used to occur in 6 stocks.

Country Brief| Pakistan August 2014

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28

Pakistan

Average daily turnover (Jan-Aug 2014)

S. No. Vol (mn) Val (US$ mn) % Share

1 PSO 2.2 8.6 10%

2 ENGRO Corp 3.7 6.8 8%

3 DG Khan Cement 3.9 3.5 4%

4 Pak Petroleum 1.4 3.1 4%

5 Nishat Mills 2.5 3.1 4%

6 Maple Leaf Cement 8.3 2.5 3%

7 National Bank 3.9 2.2 3%

8 Attock Refinery 1.0 2.2 3%

9 Lucky Cement 0.6 2.2 2%

10 EFOODS 2.0 2.1 2%

Source: KSE & FCEL Research

Company

Page 29: PAKISTAN - COUNTRY BRIEF

KSE - Share Free Float

Free float in Pakistan is circa 29% on average. This is likely to improve as the Government plans to

divest its holdings in listed companies.

Currently, 12 companies have float adjusted Market Cap of over US$300mn each.

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29

Pakistan

Top Free Float Companies Free Float Mkt Cap Free Float % of Co's Cap

S. No. Company (US$ mn) %

1 OGDC PA 1,697 15%

2 MCB PA 1,356 40%

3 PPL PA 944 21%

4 FFC PA 781 55%

5 POL PA 622 46%

6 HUBC PA 534 75%

7 LUCK PA 507 40%

8 PSO PA 485 46%

9 ENGRO PA 469 49%

10 UBL PA 466 20%

Source: KSE & FCEL Research

Page 30: PAKISTAN - COUNTRY BRIEF

KSE - Improving Float Adjusted Mkt Cap KSE size has jumped from US$20bn in Jan-09 to US$70bn in Aug-14. Free float of the market arrives

at 29% (US$20bn).

Though still lower than avg. emerging market free float, there is a high chance that this will improve as many secondary offerings/divestments (of state owned enterprises) are in pipeline.

1 or 2 international offerings a year is possible looking at reviving Pakistan’s acceptability in the international capital market, thanks to improving economic indicators & effective recovery measures by the Govt, and improving perception.

Pakistan current weight in MSCI FM Index is 7.2%. This could improve further inline with the improving free float of Pakistan market.

Potential candidate for IPO: PARCO, Lahore Electricity Supply Company, State Life Insurance Corp,

National Insurance Co, Govt Holding (Pvt Ltd).

Country Brief| Pakistan August 2014

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30

Pakistan

Company Mkt Cap Govt. Share Current Mkt Px Premium P x with Premium Govt Stake Offered # of shares Total Sale Value

(PRs mn) % PRs/share % PRs/share % mn PRs mn

OGDC 1,140,004 75 265 10 292 10 430 125,400

PPL 448,230 64 227 10 250 10 197 49,305

HBL 279,157 42 190 10 209 15 220 46,061

NBP 127,268 76 60 10 66 15 319 20,999

Total 241,766

Total cash generation of PRs242bn or about: US$ 2,451mn

Potential Realizable Value to GoP From Secondary Offerings to Public

Source: KSE & FCEL Research

Page 31: PAKISTAN - COUNTRY BRIEF

KSE - Market Performance

Stock market bull run began at the start of 2002 in the wake of GDP growth acceleration,

expansionary Monetary Policy, strong corporate profitability, improved code of Corporate Governance, risk management measures, political stability and consistent economic policies.

Average annual gain in last 3 years was 31% (21% in US$). Last 5-year (2009-13) return arrived at 36%

(29% in US$). Last 10-year gain was 26% annually (20% in US$).

Consistently superior asset class.

Country Brief| Pakistan August 2014

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31

Pakistan

-0.75-0.5

-0.250

0.250.5

0.751

1.251.5

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

YTD

PKR US$

KSE-100 - Annual Returns 10-Year average annual return for asset classes

0 0.05 0.1 0.15 0.2 0.25 0.3

Bank Deposits

T-bills

Saving Certificate

PIBs

Gold

KSE

Bloomberg News, November 21, 2012:

KSE 100 Index, the benchmark for Pakistan's equity market, was the top gainer among

72 markets worldwide, when adjusted for price swings in 2012, according to the BLOOMBERG RISKLESS RETURN RANKING.

Over five years, Pakistan's risk- adjusted returns ranked eighth in the world.

Source: KSE, SBP & FCEL Research Source: KSE, SBP & FCEL Research

Page 32: PAKISTAN - COUNTRY BRIEF

KSE - Coming full circle

Country Brief| Pakistan August 2014

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32

Pakistan

KSE-100 Index

4000

9000

14000

19000

24000

29000

34000

Jan-

08

May

-08

Oct

-08

Mar

-09

Jul-

09

Dec

-09

Apr

-10

Sep-

10

Feb-

11

Jun-

11

Nov

-11

Mar

-12

Aug

-12

Jan-

13

May

-13

Oct

-13

Mar

-14

Jul-

14

Previous All Time High

Apr 18, 2008 (15,676)

Market Floor Oct

09, 2008 (9,181)

Market Low

Jan 26, 2009 (4,815)

Current

Index Aug 06,

2014 (29,383)

Mkt Cap / GDP = 45% Mkt Cap / GDP = 30%

Source: KSE, SBP & FCEL Research

Page 33: PAKISTAN - COUNTRY BRIEF

16.1

-48

9265 70

341

-94

81

36

233

-150

-100

-50

0

50

100

150

200

250

300

350

400

1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 3QCY13 4QCY13 1QCY14 2QCY14

KSE - Foreign Portfolio Investment

Country Brief| Pakistan August 2014

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33

Pakistan

Net Flows (US$ mn)

US$ mn Gross Buy Gross Sell

1QCY12 192 176

2QCY12 281 329

3QCY12 223 131

4QCY12 269 203

1QCY13 230 160

2QCY13 898 557

3QCY13 434 528

4QCY13 414 333

1QCY14 554 518

2QCY14 692 459

Source: NCCPL

Foreign Portfolio Investment

Source: NCCPL & FCEL Research

Page 34: PAKISTAN - COUNTRY BRIEF

KSE versus Regional markets

Country Brief| Pakistan August 2014

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34

Pakistan Performance during Jan-Dec 2013

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Paki

stan

MSC

I FM

Viet

nam

Mal

aysi

a

Indi

a

Hon

gKon

g

Phili

ppin

es

Chi

na

Thai

land

Performance during Aug 2013 - Aug 2014 (YoY)

0%5%

10%15%20%25%30%35%40%45%

Indi

a

Paki

stan

MSC

I FM

Viet

nam

Hon

gKon

g

Phili

ppin

es

Chi

na

Thai

land

Mal

aysi

a

Source: KSE, Bloomberg, FCEL Research

Source: KSE, Bloomberg, FCEL Research

Page 35: PAKISTAN - COUNTRY BRIEF

Things to note for offshore investors The foreign investors are freely allowed to operate in the capital market without any retention period

Funds invested in the capital market are freely transferable along with dividend income.

Offshore investors are treated at par with local investors in tax treatment. If holding period of securities is under 12 months the final tax liability on capital gains will be 12.5%. If a security is held for more than 12 months but less than 24 months, tax at 10% would be payable on capital gains. Securities held for more than 2 years will continue to be exempt from tax.

Dividend tax is 10% (except 7.5% for Power Generation) , Capital Value Tax is 0.01% (on purchase) and FED is 0.02% (on sale).

There is no limit for holding the shares for trading purposes.

Short selling is allowed on certain conditions particularly the evidence of pre existing interest.

Cash settled future is a standardized contract where all settlement occurs purely on cash basis. Depending on the contract, settlement occurs 30, 60 & 90 days after the contract is purchased.

Special Convertible Rupee Account (SCRA) is essential to operate In Pakistani Equities Market. Balances held are freely repatriable. Following is required to open SCRA account in Pakistan:

Completely Filled SCRA account

Resolution of Board of Directors to open SCRA along with names of authorized directors on company’s letter head duly attested by company secretary

Attested Copy of Articles and Memorandum of Association

Attested Copy of Certificate of Incorporation of company

List of Directors with their signatures on letter head and attested by company secretary

Passport copies of directors and authorized personnel attested by company secretary

Undertaking to the bank to debit or credit SCRA subject to receipt of trade instruction from account holder for buying/selling shares through account maintained with the broker.

Country Brief| Pakistan August 2014

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35

APPENDIX 1

Page 36: PAKISTAN - COUNTRY BRIEF

Things to note for offshore investors Foreign investors can own up to 100% equity.

Foreign investors are required to obtain a prior SBP approval to own more than 5% of paid up capital in banks.

Shares are transferred on settlement date (T+2) to the buyer, and the buyer pays the seller through the clearing banks within the same settlement period. This means that transactions done on Monday must be settled by Wednesday. Settlements of accounts are done in the clearing house through National Clearing & Settlement System (NCSS), which is a fully automated electronic settlement system.

Important Websites:

Karachi Stock Exchange (www.kse.com.pk)

State Bank of Pakistan (www.sbp.org.pk)

Securities and Exchange Commission of Pakistan (www.secp.gov.pk)

National Clearing Company of Pakistan Limited (NCCPL) (http://www.nccpl.com.pk/)

Ministry of Finance (www.finance.gov.pk)

Country Brief| Pakistan August 2014

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36

APPENDIX 1

KSE TRADING TIMINGS

MONDAY TO THURSDAY

FRIDAY

First Session Second Session

Regular (Pre-Open) 9:15 AM - 9:30 AM 9:15 AM - 9:30 AM 2:15 PM - 2:30 PM

Regular (Open) 9:30 AM - 3:30 PM 9:30 AM - 12:00 Noon 2:30 PM - 4:00 PM

Regular (Suspend) 3:30 PM 12:00 Noon 4:00 PM

Page 37: PAKISTAN - COUNTRY BRIEF

APPENDIX II Analyst Certification

All of the views expressed in this document accurately reflect the personal views of the responsible analyst(s) about any and all of the subject

securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the

specific recommendations or views expressed by the responsible analyst(s) in this report. As of 8 August 2014, First Capital and the covering analyst

do not have any interest in any companies recommended in this research report .

Important Disclaimer

This information and opinion contained in this report have been complied by our research department from sources believed by it to be reliable and

in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and

estimates contained in the document constitute the department’s judgment as of the date of this document and are subject to change without

notice and are provided in good faith but without legal responsibility.

This report is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any securities. First Capital Equities Limited

(the company) or persons connected with it may from time to time have an investment banking or other relationship, including but not limited to,

the participation or investment in commercial banking transactions (including loans) with some or all of the issuers mentioned therein, either for

their own account or the account of their customers. Persons connected with the company may provide or have provided corporate finance and other

services to the issuer of the securities mentioned herein, including the issuance of options on securities mentioned herein or any related investment

and may make a purchase and/or sale, or offer to make a purchase and/or sale of the securities or any related investment from time to time in the

open market or otherwise, in each case either as principal or agent.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”,

“estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”,

“could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and

information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from

those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forwardlooking statements. FCEL

expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after

the date of this publication or to reflect the occurrence of unanticipated events.

Country Brief| Pakistan August 2014

First Capital Equities Ltd

Page 38: PAKISTAN - COUNTRY BRIEF

Exchange rate fluctuations may affect the return to investors. Neither the company or any of its affiliates, nor any other person, accepts any liability

whatsoever for any direct or consequential loss arising from any use of this report or the information contained therein.

First Capital Equities, their respective affiliate companies, associates, directors and/or employees may have investments in securities or derivatives

of securities of companies mentioned in this report, and may make investment decisions that are inconsistent with the views expressed in this

report.

This research report prepared by First Capital Equities is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule

15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer

registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this

report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All U.S. persons receiving and/or accessing this report and wishing to effect

transactions in any security mentioned within must do so with: Maybank Kim Eng Securities USA Inc. 777 Third Avenue 21st Floor New York, New

York 1- (212) 688-8886 and not with the non-US Broker Dealer, the issuer of this report.

This report is not directed at you if MKEUSA is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to

you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you

under relevant legislation and regulations .

Country Brief| Pakistan August 2014

First Capital Equities Ltd

Page 39: PAKISTAN - COUNTRY BRIEF

Country Brief| Pakistan August 2014

First Capital Equities Ltd

Pakistan Contact Information

Mian Ehsan-ul-Huq (CEO) [email protected]

Pakistan Research Team

Faraz Farooq [email protected]

Abrar Hussain [email protected]

Muhammad Rehan Khan [email protected]

Muhammad Faizan Sarmad [email protected]

Hayat Khan [email protected]

Pakistan Sales Team

Farooq Habib (COO) [email protected]

Muhammad Junaid (ED) [email protected]

Hamid Siddiqui [email protected]

Shahood Javed [email protected]

North American Sales Contact

Maybank Kim Eng Securities USA Inc. 777 Third Avenue

Floor 21

New York, New York 10017

(212) 688-8886

Published by First Capital Equities Limited 4th Floor, Lakson Square Building No.1, Sarwar Shaheed Road, Karachi Ph: (92-21) 111-226-226 Fax: (92-21) 35656710 http://www.firstcapital.com.pk