KARACHI: With the distinct sound of the gong struck at 9:30am sharp, trading in shares of Sindh Modaraba commenced on the Karachi Stock Exchange (KSE) on Friday.
Standing beside KSE Deputy Managing Director Haroon Askari, Sindh Modaraba CEO Javed Iqbal hit the gong that formally kicked off the trading of 13.5 million shares, or modaraba certificates, of the company.
Modaraba is an Islamic contract of doing business in which one party participates with money while the other one manages it.
Speaking to The Express Tribune, Sindh Modaraba Chief Financial Officer Zulfiqar Ali said it will be the first modaraba that is owned by a provincial government.
Sindh Modaraba is sponsored and managed by Sindh Modaraba Management Company, which is 100% owned by the government of Sindh.
The sponsor owns 70% of the company, as its equity portion is represented by 31.5 million certificates with a face value of Rs10 each.
The present issue was aimed at raising Rs135 million from the general public by selling a 30% stake in the company through 13.5 million certificates. However, a subdued response from the general public resulted in the under-subscription of the Initial Public Offering (IPO).
The company could raise only Rs21.5 million, which translates into just 16% of the public offer. The rest of the 84% of the issue was then subscribed by Askari Bank and Summit Bank, which had underwritten the offer.
Under the listing laws, underwriters must subscribe to and pay for those modaraba certificates that fail to get subscription during the IPO.
As per their underwriting commitments, Summit Bank had underwritten 96.3% of the total issue while Askari Bank was responsible for 3.7% of the 13.5 million certificates on offer.
With both underwriters paying for 11.3 million certificates, Sindh Modaraba raised a total of Rs135 million through the issue.
According to the company CFO, the lack of interest in the IPO was a manifestation of the overall performance of the modaraba sector in the equity market.
“It’s because of the perception about the modaraba sector. Most modaraba scrips have been trading at a substantial discount on the stock exchange,” Ali noted.
Indeed, the closing rate of only one-fifth of the modarabas traded on January 23 was higher than Rs10 a certificate.
By the end of the first day of trading, the Sindh Modaraba stock had shed 8% of its face value. The closing price was Rs9.20 with a total turnover of 38,500 shares on Friday.
There were 27 operational modarabas at the end of the last fiscal year with total assets of Rs31.3 billion.
Published in The Express Tribune, January 24th, 2015.