The document discusses the Islamic banking industry in Pakistan and the potential for initial public offerings (IPOs). It provides an overview of the industry's growth over the past decade and outlook for continued expansion. However, it also notes that the IPO market in Pakistan has been weak in recent years, with declining numbers of listed companies and net capital outflows. Several factors are analyzed that could impact an IPO, including the lengthy process, weak market performance, and challenges in Pakistan's economic outlook like fiscal deficits and energy issues. While the Islamic banking sector has opportunities to grow, the current environment presents risks and uncertainties for undertaking a public offering.

1. 1
Overview of Islamic Banking Industry of Pakistan
& Potential for Initial Public Offering
October 2013
Umair Munaf Moon
Manager Operational Risk
Albaraka Bank Pakistan Ltd
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

2. Karachi Stock Exchange
2
Five Years Progress Chart
6,000
660
651
5,000
5,259
640
638
Amount in Rs. (Billion)
4,242
620
4,000
3,269
3,000
600
2,946
2,706
580
573
2,000
564
1,000
560
540
-
No. of Listed Companies
644
520
Dec-09
Dec-10
Total Market Capitalization
Dec-11
Dec-12
Sep-13
Total Number of Listed Companies
Reasons for Delisting:
i) Violation of listing regulations
ii) Voluntary delisting
SOURCE: KARACHI STOCK EXCHANGE
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

3. Reasons for Decline in Listed Companies at KSE
Establishment of a more stringent regulatory framework through a number of
initiatives, most recently in the shape of a corporate governance code, played an
important role in scaring away at least a few companies that wished to go public.
Poor economic conditions in recent years, as fewer companies considered it viable
to raise capital through a public offering.
After the 2008 Global Crisis, world industrial growth suffered and there was no
appetite for investment, which resulted in fewer IPOs.
Declining trend in IPOs is not Pakistan-specific. Rather, it is a global phenomenon.
Number of IPOs in 2012 slumped to lowest level since financial crisis, as signs of
economic slowdown curbed demand & prompted companies to push back sales.
The annual global IPO tally declined for a second straight year… In Asia, the
biggest region for IPOs, proceeds fell 43% to $46.7 billion. (BLOOMBERG)
Tax rates in Pakistan are also skewed towards non-listed entities, which discourage
companies from going public. The current corporate tax rate for both listed and nonlisted companies in Pakistan is 35%.
SOURCE: Nadeem Naqvi, Managing Director, KSE.
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon
3

4. Karachi Stock Exchange
4
Newly listed Companies at KSE – Last Five Years
Net Capital flow from listing and delisting
of Companies in Rs (Million)
70
68
20,000
50
14,066
15,000
10,000
5,000
30
8,444
4
9
7
4
6
4
2
1,184
11
10
2
-10
Dec-09
Dec-10
Dec-11
Dec-12
(5,000)
Sep-13
(4,547)
Capital Inflow / Outflow of Companies
New Listed Companies
-30
Number of Delisted Companies
SOURCE: KARACHI STOCK EXCHANGE
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon
Number of New Delisted / Listed Companies
24,495
25,000

5. Karachi Stock Exchange
5
IPO Price to Book Ratio
Year
2013
2012
2011
2010
2009
2008
Share offered @
Premium of Rs.
Company Name
Lalpir Power Ltd
Next Capital Ltd
TPL Trakker Ltd
Aisha Steel Mills Ltd
International Steels Ltd
Pakgen Power Ltd
Engro Foods Ltd
TPL Direct Insurance Ltd
Ghani Gases Ltd
Fatima Fertilizer Company Ltd
Safe Mix Concrete Products Ltd
Agritech Ltd
Amtex Ltd
Wateen Telecom Ltd
Media Times Ltd
Nishat Power Ltd
Nishat Chunian Power Ltd
Arif Habib Bank Ltd *
Invest and Finance Securities Ltd
Thatta Cement Company Ltd
Dawood Equities Ltd
Engro Polymer & Chemicals Ltd
KASB Securities Ltd
First Credit and Investment Bank Ltd
Descon Oxychem Ltd
Rs. 12.00
Rs. 4.06
Rs. 9.00
Rs. 15.00
Rs. 4.00
Rs. 3.50
Rs. 2.50
Rs. 20.00
Rs. 3.00
Rs. 11.00
Rs. 12.50
Rs. 7.50
Rs. 8.00
Rs. 57.50
-
*IPO P/B Ratio = Current Share Price / Net Issue Price
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon
Net Issue Price
in Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
22.00
10.00
10.00
10.00
14.06
19.00
25.00
10.00
14.00
13.50
12.50
30.00
13.00
10.00
10.00
10.00
10.00
21.00
10.00
22.50
17.50
18.00
67.50
10.00
10.00
Share Price as
at 09-Oct-13
(Rs.)
Price To
Book Ratio
Rs. 18.99
Rs. 4.28
Rs. 7.00
Rs. 8.05
Rs. 17.70
Rs. 20.00
Rs. 100.43
Rs. 8.99
Rs. 15.82
Rs. 24.80
Rs. 8.50
Rs. 12.25
Rs. 2.29
Rs. 4.50
Rs. 3.16
Rs. 31.01
Rs. 37.26
Rs. 29.50
Rs. 14.00
Rs. 25.79
Rs. 2.03
Rs. 13.04
Rs. 6.16
Rs. 3.00
Rs. 5.80
0.86
0.43
0.70
0.81
1.26
1.05
4.02
0.90
1.13
1.84
0.68
0.41
0.18
0.45
0.32
3.10
3.73
1.40
1.40
1.15
0.12
0.72
0.09
0.30
0.58
SOURCE: KARACHI STOCK EXCHANGE

6. Karachi Stock Exchange
6
Listing of Companies (2008-2013)
Listing By Sectors
Power, 4
Financial Sector, 6
Other, 8
Fertilizer, 2
Chemical, 2
Steel, 2
Bank, 1
Price to Book Ratios (x)
Issue Price
12 @ Par
15
10
15 @ Premium
2
NA
P/B Above 1
P/B Below 1
SOURCE: KARACHI STOCK EXCHANGE
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

7. Karachi Stock Exchange
7
Newly listed Companies at KSE – Last Five Years
Not a single bank was listed during the last five years, last Bank to get listed was
ARIF HABIB BANK on 11-Feb-2008.
Total number of new listings at KSE was 20 as compared to 97 delisted companies
since year 2009.
Net capital Outflow in year 2013 shows lack of interest from investors in IPO
Market.
Total Listed Companies at KSE are 27 since year 2008. Out of 27 Listings, 15 issued
their shares on Premium.
Out of 27 Listings, shares of 9 companies were subscribed by underwriters due to
its unpopularity in Stock Market.
Price to Book (P/B) Ratios of most of the companies is below 1.
Only Power & FMCG Sectors witnessed a better P/B Ratios amongst all 27 Listings.
SOURCE: KARACHI STOCK EXCHANGE
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

8. Banking Sector
8
Future Outlook
Outlook for Pakistan's banking system remains negative, reflecting banks' large and
increasing holdings of government bonds, which render their balance sheets vulnerable
to sovereign credit risk and the challenging domestic operating environment which will
continue to pressure asset quality.
These negative pressures are only partly mitigated by banks' low cost and stable
deposit-funded profiles.
Banks' high and increasing exposure to Pakistani government debt will remain a
major source of credit risk, as the government will continue to run large deficits over
the outlook period, which will be financed in a large part by domestic banking sector.
Operating conditions will also remain challenging due to low growth rate, significant
fiscal imbalances, low foreign exchange reserves, fragile political environment and
structural problems, particularly in the energy sector where power outages have
depressed manufacturing activities and led to a fall in private investment.
This will suppress demand for credit and lead to increases in NPLs which stood at
14.7 percent as of March, 2013. Also, reported NPL figures understate the full extent of
asset-quality deterioration in the banking system due to high level of problematic
government guaranteed loans that are not classified as NPLs.
SOURCE: Moody's Investors Service, 22nd July, 2013
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

9. Islamic Banking
9
Islamic Banking in Pakistan has tremendous growth potential
Islamic banking in Pakistan has witnessed significant growth during the last decade and
now constitutes over 10 percent of the country’s banking system with an asset base of
above Rs 900 billion and a network of more than 1,100 branches
Given the interest of all stakeholders and relatively high level of financial exclusion in
the country, this expansionary trend is likely to continue and the industry is well set to
double its market share by 2020
Promoting Islamic finance as a viable and competitive component of the financial
system through enabling legal, regulatory and supervisory environment has remained an
important component of SBP‟s strategic goals. SBP have accordingly developed the five
year Strategic Plan for Islamic Banking industry again through a rigorous and meaningful
consultation with all the key stakeholder
SOURCE: SBP, Islamic Banking Bulletin Apr-June 2013
16
1,097
14
751
10
800
651
Full Fledge Islamic Banks
515
8
6
600
400
289
4
150
17
48
1200
1000
886
12
2
1,115
200
70
0
0
FY03
FY04
FY05
FY06
FY07
The 8th GSM, Nov 2009, Manama, Pakistan
FY08
FY09
FY10
FY11
FY12
Prepared By: Umair Munaf Moon
FY13
Conventional Banks with IB Branches
Total No. of Branches*

10. Constraints to Pakistan’s Economic Growth
The fiscal deficit has widened from 5% of GDP in FY 2008 - 2009 to about 8.8% of
GDP in FY 2012 – 2013.
Depleting Foreign Exchange reserves further weakens the domestic currency by 9%
against USD since Jan 2013.
According to IMF, on-going currency depreciation and reduced energy subsidies will
likely result in higher inflation in Pakistan.
A circular debt of Rs 100 billion has resurfaced in the power sector despite
clearance of the previous circular debt of Rs 503 billion.
World Bank has identified macro economic instability, massive cuts in electricity
access, leading to high country risk and a sudden stop in external, domestic
financing and government failures as some of the major constraints of growth in
Pakistan.
Persistent deterioration in the law & order situation of the country further act as
a barrier to economic growth.
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon
10

11. Comparable Analysis
11
Domestic Price to Book (x) Multiple of Mid Tier Banks
P/B (x)
Silk Bank
0.81
JS Bank
0.46
Faysal Bank
0.50
Soneri Bank
0.67
Summit Bank
0.80
Bank of Punjab
0.46
Habib Metro
0.86
Bank Islami
0.53
Meezan Bank
2.23
Bank of Khyber
0.57
Samba Bank
0.31
Average
0.75
Note: P/B = Current Market Price (10/10/2013) / Last Qtr Book value per share
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

12. Valuation
12
Pakistan Price to Book (x) Multiple Valuation
Approach: P/B (X) Multiple for
Pakistan Mid Tier banks
P/B (X)
Multiple
Book Value per
share
PKR Value per
share
Conservative Case
0.31
8.78
2.72
Base Case
0.75
8.88
6.66
Aggressive Case
2.23
9.00
20.07
Average P/B (x) for 11 Mid Tier banks is 0.75x
Tier III banks data set includes 9 listed conventional and 2 listed Islamic Banks
Islamic Banks data set includes Meezan Bank and Bank Islami
Lowest, Average and highest P/B(x) considered as conservative, base and
aggressive case scenario respectively
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

13. Factors to be Considered For IPO
13
Factors
Assessment
Duration of IPO Process
LENGHTY
IPO Market Performance
WEAK
Country’s Economic Outlook
WEAK
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon

14. 14
Thank You
The 8th GSM, Nov 2009, Manama, Pakistan
Prepared By: Umair Munaf Moon