Security Analysis Q.What is Stock Exchange?

The stock exchange provides a market place where stocks,bonds,or other securities can be bought and sold. OR An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations. More over, it is centralized market for buying and selling of stocks. Here the price is determined through demand -supply mechanisms. Individuals and institutions (Business organizations) buy and sell stocks through bid or in an auction-like forum.
Q.What is the importance of Stock Exchange? Stock exchanges perform important roles in the economies of nations. These are the main points of importance of stock exchange. The stock exchanges play these three main tasks in this aspect. It handles transfer of payments It channels savings to investments with a good return for future consumption; It spreads and reduces (local enterprise) economic risks in relation to the players' targeted returns (but note that systemic risk is not thereby reduced It encourages the investment. It is one of the most important characteristics. Stock exchange provides the opportunity of domestic as well as foreign investment too, by providing the market places for buyers and sellers in order to trade different types of securities. With the help of this Investment on one hand, people make profits and on the other hand businesses and govt. expands their operations and projects. Corporations issue new securities which are known as the primary market( usually with the help of investment banks) .The investment bank acquires the initial issue of the new securities from the corporation at a negotiated price and then makes the securities available for its clients and other investors in an initial public offering (IPO). In this primary market, corporations receive the proceeds of security sales. After this initial offering the securities are bought and sold in the secondary market. The corporation is not usually involved in the trading of its stock in the secondary market. Stock exchanges essentially function as secondary markets. By providing investors the opportunity to trade financial instruments, the stock exchanges support the performance of the primary markets. This arrangement makes it easier for corporations to raise the funds that they need to build and expand their businesses. Although corporations do not get direct benefit from secondary market transactions, the managers of a corporation closely monitor the price of the corporations stock in secondary markets. One reason for

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Security Analysis
this concern involves the cost of raising new funds for further business expansion. The price of a companys stock in the secondary market influences the amount of funds that can be raised by issuing additional stock in the primary market. Corporate managers also pay attention to the price of the companys stock in secondary markets because it affects the financial wealth of the corporations owners (the stockholders). If the price of the stock rises, then the stockholders become wealthier. This is likely to make them happy with the companys management. Typically, managers own only small amounts of a corporations outstanding shares. If the price of the stock declines, the shareholders become less wealthy and are likely to be unhappy with management. If enough shareholders become unhappy, they may move to replace the corporations managers. Most corporate managers also receive options to buy company stock at a selected price, so they are motivated to increase the value of the stock in the secondary market. Stock exchanges encourage investment by providing this secondary market. Stock exchanges also encourage investment in other ways i.e. they protect investors by upholding rules and regulations that ensure buyers will be treated fairly and receive exactly what they pay for. Exchanges also support state-of-the-art technology and the business of brokering. This support helps traders buy and sell securities quickly and efficiently. Of course, being able to sell a security in the secondary market increases the relative safety of investing because investors can unload a stock that may be on the decline or that faces an uncertain future. Moreover it also shares the risk and provides expertise Exchanges also act as the clearing house for each transaction, meaning that they collect and deliver the shares, and guarantees payment to the seller of a security. This eliminates the risk to an individual buyer or seller. In the end, the smooth functioning of all these activities facilitates economic growth in those lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the stock exchanges contributes to increase prosperity.

Q.Which are the stock exchange of Pakistan? Stock Exchanges in Pakistan There are three stock exchanges in Pakistan Karachi Stock Exchange Lahore Stock Exchange (Guarantee) Ltd established in1947 (www.kse.net.pk) (Guarantee) Ltd established in 1971 (www.lse.net.pk)

Islamabad Stock Exchange (Guarantee) Ltd established in 1989 (www.Ise.net.pk) Q. What is the Role of Stock Exchange in developing the economy of Country?
Role of Stock Exchange

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Security Analysis
Stock exchanges are playing vital role in developing the economy of country, following are the main pillars in this regard. Raising capital for businesses: The Stock Exchange helps current and newly-formed companies in order to raise their capital for building and expanding their businesses through selling shares to the public investors. Creating an investment opportunities for small investors: The Stock Exchange provides an opportunity for small investors and for those who have small amount of saving like the big investors to own shares of the same or different companies. With the help of this small investor can also get good returns on their investment. Mobilizing savings for investment: When people draw their savings and invest in shares, it leads to a more objective allotment of resources because funds, which could have been consumed, or kept in idle deposits with banks, are here used to mobilize and to promote business activity that benefits several economic sectors like agriculture, commerce and industry, resulting in a stronger economic growth as well as higher productivity levels of their investment too. Government capital-raising for development projects: Governments at various levels may decide to borrow money for financing infrastructure projects like motor ways, dams, roads and water treatment works or housing estates by selling another category of securities, known as bonds. These bonds are raised through the Stock Exchange where public buy them, thus loaning money to the government. The issuance of such municipal bonds can prevent the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. Catalyst to promote company growth In order to expand product lines, expansion of distribution channels, to increase market share or to acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion. Economic Growth With the help of the domestic and foreign investment, economy of country boost and govt. can utilize these investments in order to maximization of the wealth of people. Redistribution of wealth Stocks exchanges do not exist to redistribute wealth although casual and professional stock investors gain through increase in stock prices (that may result in capital gains for the investor and dividends get a chance to share in the wealth of profitable businesses). Barometer of the economy

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Security Analysis
At the stock exchange, share prices rise and fall depending largely on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis would eventually lead to a stock market crash.

Q.What is an index(stock)? Stock index Index based on a statistical compilation of the share prices of a number of representative stocks. OR A stock market index is a listing of stock and a statistic reflecting the composite value of its components. It is used as a tool to represent the characteristics of its component stocks, all of which bear some commonality such as trading on the same stock market exchange, belonging to the same industry, or having similar market capitalizations. Q. Why there is need to make multiple stock exchanges? There are two main reasons to make multiple stock exchanges Firstly, Multiple stock exchanges are necessary to increase the market participation(by making more stock exchanges at different locations) because if there will be more exchanges it will be easy for investors to sell and buy shares and get information to make informed decisions. with the help of this market capitalization will increase and more money will come into the market which will enhance the growth of country Secondly it is necessary to avoid competition between all sectors, means each sector should develop exchange such as MCB, NBP, AKBL, BAFL should work under the head of banking. and there competition should prevail with in the sector and it should not influence the other sector as well. With the help of this speculation trade in the market will reduce and investor will feel more comfort and also high gains in shape of profit too. Wide variety of
national stock exchanges in order to access local populations of investors more effectively

Last but not least, making of multiple stock exchanges is o increase competition among exchanges as well as companies listed on those exchanges. In Pakistan there is a need to make multiple stock exchanges for the development of various sectors of the economy for

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Security Analysis example our textile sector is not doing well because there is a lack of investment in this sector. For its development we should make a separate stock exchange which will deal in the securities or shares of textile companies, otherwise our textile companies have to face competition with the foreign companies as there is less or almost no competition in the country. This step will induce more investors to invest in textile companies and create an ease for textile companies to raise capital. It will easy for SECP in order to make policies and rules and regulations for each sector with their proper understanding. this will help out in order to reduce conflicts betweens SECP and in industry as well. Q.What is KSE-100 index and KSE-30 index? Explain their respective significance? KSE-100 index In the simplest form, the KSE100 index is a basket of price and the number of shares outstanding. The value of the basket is regularly compared to a starting point or a base period. In our case, the first base period was 1st November, 1991 and now Jan 2002 is using as a base period. Companies with the highest market capitalization are selected. However to represent full market representation, the company with the highest market capitalization from each sector is also calculated. As a whole KSE-100 index indicates the market, its rise or fall. When prices of these 100 or heavy weight companies go up index is pulled up and vice versa. KSE is a capital weighted index (Value added index) and consists of 100 companies representing about more than 82% of market capitalization of the Karachi stock exchange.

KSE100 Index Companies Oil and Gas Development(OGDC) Pakistan Telecommunication(PTCL) Muslim Commercial Bank(MCB) National Bank of Pakistan(NBP) Arif Habibib Securities Limited (AHSL) Lucky Cement(LUCKY) Bank of Punjab(BOP) D.G.khan cement(DGKC) KSE-30 Index A new index of 30 companies has launched from September 1, 2006. This index launched by Karachi stock exchange based on free floating of shares (free floating refers to the proportion of total shares issued by company that readily available for trading at stock exchange and in

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Security Analysis this those share not included who is with name of permanent directors etc) of shares as on June 30, 2006. Accordingly, the KSE 30 index is implemented along side the existing two indices i.e KSE all share index and KSE 100 index. The index has base value of 10,000 points. The future re-composition of KSE 30 index will be carried out on the basis of free float of shares as on December 31 and June 30 every year. Objectives The objective of KSE 30 index is to have a benchmark by which stock price performance can be compared to over a period of time particularly the KSE 30 index is designed to provide investors with a sense of how large companys scripts in equity market are performing. Thus KSE 30 index is similar to other indicator that track various sectors of the countrys economic activity such as the gross national product, consumers price index etc. Points of Differences The main difference between KSE 100 index and KSE 130 index is that it is not necessary of free floating for KSE 100 index but it is compulsory for KSE 30 index to fulfill the criteria of free floating The new index has high weight age in the banking sector. 9 banks are included with overall weight of 33.57%. In the KSE 100index, banking sector has 16.43% weight .this table clearly showing the differences between KSE100 index and KSE 30 index on the base of weights.

Sectors
Banking Insurance Cement Power Auto Oil and gas

Weight in KSE 30
33.57% 1.88% 6.49% 6.34% 5.73% 22.02%

Weight in KSE 100

16.44% 0.54% 2.48% 2.72% 2.21% 33.19%

Q.What is badla and what is the mechanism of badla financing? Definition Badla is a mechanism to carry over a speculative transaction. It is also known as the Carry over Transaction (COT). In simple words,Badla Financing means putting money on interest. This was started in Pakistan in the start of the month of March 2003. Mechanism of Badla
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Security Analysis Example: Let suppose Mr.Ali has Rs 100,000 in his account + holding of shares of Rs50,000 too.. if he want to buy shares or securities of extra amount than in this order, if that customer avails this opportunity than that customer will pay amount of interest for holding days. this type of financing which broker or any other party allowed him. For moreunderstanding,in this a person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla. In stock exchange, The financier(broker/third party) gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated. Example: Let suppose if "A" has purchased 100 shares of BOP @ Rs. 100/share through this financing (sattelment1), he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (who is providing badla financing) takes delivery at the prevailing interest rate. In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.25 in settlement no.1, "A" will have to buy BOP @ Rs. 50.25 per share from "C". The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier. Main Features Interest rates were between 18%-24% No limit of fix margin. means people can buy more than ten times from their actual investment. In day of closing of books,bonus,dividend were transfer to the third party rather than who gets the finance. What is CFS? How is it different from badla financing ?

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Security Analysis

CFS is the abbreviation of continuous funding system (old name was Badla Financing) As the name continuous referring providing of the financing facility on continuous basis Since there was no restriction on a badla financier regarding withdrawal of his finance. The financier withdrew their finance when badla in the market was on its peak which was one of the reasons causing the crash in March 2005. The Karachi stock exchange faced a huge liquidity crunch after this crash. So to run the market smoothly the government introduces a new system for retail investor and speculators, which replaced the old badla or COT system and is called CFS. SECP has accorded its approval to the Continuous Funding System (CFS) Regulations, 2005 to replace COT/ badla financing with effect from 22nd August 2005. CFS has been introduced as an interim measure to replace COT / badla financing in order to enhance the level of liquidity in the market. The SECP has ensured that the necessary measures for the minimization of market abuse and the mitigation of risk have been incorporated into the CFS Regulations in order to ensure the preservation of market integrity, investor protection and the restoration of investor confidence. The financier shall keep the CFS financed securities in a separate account maintained with the Central Depository Company of Pakistan Limited in order to ensure that these securities are not used for loaning against blank and short selling. Every Broker shall maintain his leverage position in respect of CFS and other derivatives not exceeding 15 times of his Net Capital Balance. Main Features Of CFS The maximum amount for the purpose of CFS is capped at Rs. 54 Billion. CFS facility will be allowed in 25 top volume approved securities to be selected in accordance with the criteria laid down by the Board. These criteria will check right after six month and amended will on the basis of average turnover. The CFS facility shall be available for a period of 22 days at the option of the fiance. CFS facility shall only be provided against purchases in Ready Market. Interest rate fix for period of 22 days than it can be change The CFS Market shall be available for the entire trading period. The CFS Market shall run parallel to the Ready Market and transactions there under shall take place through the Karachi Automated Trading System (KATS).

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Security Analysis The rates of margin as shall be determined by the Board for the purpose of CFS market shall be graduating automatically. The Margin shall be increased in proportion to the increase in KSE-100 Index. No limit of fix margin. means people can buy more than ten times from their actual investment In day of closing of books, bonus, dividend are transfer to the person who gets this finance rather than third party. Q.How many types of securities are trading in Pakistan? Make list and explain it? Types of securities working in Pakistan Following are the main types of securities which Govt of Pakistan issued and currently working in Pakistan. Common(ordinary) shares of listed companies Unit Trust Schemes Mutual funds Certificates o Close ended mutual fund o Open ended mutual fund Corporate Bonds o Convertible bonds o Sukuk o Certificates of investment (COIs) o Term finance certificates (TFCs) Derivative securities o Futures Government Securities

o Treasury bills o Federal Investment bonds (FIBs) o Special US-dollar bonds o Foreign-exchange bearer certificates

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Security Analysis

o Defense savings certificates

Common (Ordinary) Shares of Listed Companies An ordinary share shows the ownership in the company assets. Stock or share represents an indirect claim in the shape of piece of paper on the real asset of the company. As you acquire more shares, your ownership stake in the company becomes greater. Its also called an equity. Unit Trust Schemes A unit investment trust (UIT) is a registered trust in which a fixed portfolio of incomeproducing securities is purchased and held to maturity. UITs usually hold a large amount of municipal bonds, but they may also consist of government bonds, corporate bonds, or even common stocks. Common stock is held in a stock trust that mainly relies on dividends and capital appreciation of stock prices to make money. A unit trust is sort of like a mutual fund, but once the UIT selects the securities it will hold them- the portfolio is not managed like mutual funds are. It is not unlike the bonds held in the UIT mature that the trust is dissolved. Mutual Funds Certificates A mutual fund is simply a large group of people who has small investment and the combine this small portion of their money together and gives it to a management company to invest it on their behalf. A mutual fund manager proceeds to buy a number of stocks from various markets and industries. Depending on the amount you invest, you own a part of the overall fund. For the most part, investors should buy mutual fund as a long term investment. The nice thing about mutual funds is that the objectives change from fund to fund. Each mutual fund has different strategy- it is your job to decide what your objectives are and which fund best suits those objectives. Mutual fund strategies include growth/aggressive, low risk, balanced, momentum, and many others. These are of two types a) Close ended mutual fund b) Open ended mutual fund

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Security Analysis (a)Close ended mutual fund Its based for some fixed period of time,not sell before maturity,but it can be traded in stock exchange traded in stock exchange e.g:picic growth fund (b)Open ended mutual fund Open ended mutual funds can buy and sell on daily basis. e.g: Nafa stock fund

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Security Analysis

Corporate Bonds
Following corporate bonds are currently working in Pakistan.

Convertible bonds In Pakistan it is currently working as in 1999 ptcl given the opportunity to there stock holders that the can convert their bonds of debt after ten years into shares. More over in end of this month OGDCL also going to issue these bond. Sukuk Sukuk is an islamic mode of bond. It was firstly launched in Pakistan in month of march.it is riba free instrument of debt and on this interest rate vary according to the fluctuations. This is using in Pakistan for the purpose of development of capital projects such as construction of motorways. Certificates Of Investment (COIs) COIs are issued by DFIs , investment banks and housing finance companies to raise deposits from the general public. Their duration of maturity varies from three months to five years, and determines their rates, which also vary depending on market conditions, the credit of the borrowing institution, and deposit size. There is no secondary market in COIs. Term Finance Certificates (TFCs) TFCs are corporate bonds normally with a tenor of three to five years. They can be listed or unlisted, and can be issued by listed or unlisted companies. Rating is mandatory for listing. The structure of the TFC is similar to that of a zero-coupon bond: the issuer and the investor agree on its sale and repurchase. The issuer must create a redemption reserve to repay the TFC and appoint a trustee for each issue. Individuals, associations, and pension/provident funds enjoy complete tax exemption on rated TFCs. All other institutions, including corporate entities, must pay tax on TFCs, based on their normal tax rates. Listed TFCs are exempt from capital gains tax.

Derivative Securities
Futures These are also trading in all three stock exchanges. Here one party take responsibility in case of any fluctuation. Here payment of that security will settle on some future date with their delivery.

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Security Analysis

Government Securities
A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. These includes treasury bills (T-bills) federal investment bonds (FIBs), Pakistan investment Bond (PIBs) and special US Dollar bonds. Instruments Issued By The Government And Statutory Corporations Treasury Bills (T-bills) A T-bill is a debt instrument with a maturity of three, six, or twelve months. Its short maturity makes it the most liquid government security in the money market. It is also freely traded and transferable. T-bills are issued at a discount to their face value of Rs 100 through auctions organized by the SBP. The bidder must indicate the total bid amount and the price at which he is willing to buy the T-bill. The face value is guaranteed by the government and repaid at maturity. T-bills are treated as liquid assets for financial institutions. Federal Investment Bonds (FIBs) FIBs are issued in maturities of three years (with a coupon of 13 percent per year), five years (14 percent), and ten years (15 percent). The coupon is paid every six months. Coupon payments and redemption of principal are guaranteed by the government. Issues are made through closed-bid auctions held monthly by the SBP. Bids are placed through primary dealers at discount, at par, or at a premium to the face value of Rs 100. FIBs are freely traded in the secondary market and are treated as liquid assets for financial institutions. Special Us-Dollar Bonds These are registered bonds denominated in US dollars and issued at par with maturities of five, seven, and ten years. They were introduced in 1998 to induce foreign-currency account (FCA) holders to convert their holdings into these bonds. Profits, at a rate that varies between LIBOR and LIBOR + 2 percent, are paid semiannually. Resident Pakistani FCA holders who purchase these bonds are paid their profits in rupees at the official exchange rate on the date of accrual of profits. Nonresident buyers are paid in US dollars. The face value may be cashed in at maturity in US dollars or rupees. Bonds and proceeds are exempted from wealth tax for six years, as well as from income tax and zakat.

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Security Analysis Foreign-Exchange Bearer Certificates (FEBCs) First introduced in 1985, these rupee-denominated certificates are issued at par with a maturity of three years. FEBCs can be exchanged for cash from the issuing institution at any time after issue, but with a penalty in terms of interest payments. FEBCs may be purchased without limit by Pakistanis and foreigners, against payment in foreign exchange. The par value of the certificates is paid either in rupees or in foreign currency at the holders discretion, at the spot rate as of the day of purchase. The holder bears the entire foreignexchange rate risk. Defense Savings Certificates (DSCS) DSCs are issued with a maturity of ten years. They have a guaranteed rate of return of 42.50 percent at maturity, on the average, based on an internal rate of return of 18.04 percent per year. The profit is entirely tax free. Zakat is payable only once, at the time the certificates are cashed in. If the principal is not withdrawn at maturity, it is automatically reinvested. What are T-Bills, what is their issuance mechanism in Pakistan ? The T-bill is a debt instrument with a maturity of three, six, or twelve months and a face value of Rs 100, and is issued at a discount The government guarantees the face value and the profit.. As in Pakistan, T-bills are auctioned by the central bank and all commercial banks may participate. first auction of six month T.bills were held onn #rd March1991, till 2007, 791 successful auctions were conducted first auction of three and twelve month T-bill was held in june1998 together with six month. T-Bill and Pakistani Scenario In Pakistan, state bank of Pakistan (SBP) issued T.bills.in pakistanT.bills are sold through Dutch auction system (high to low). The cut off yield is determined by the Auction Committee of SBP., keeping in view monetary targets, prevailing economic and financial conditions and expected market response. The Six months T-bill is considered the most important benchmark by the money market and is considered to be the signaling tool of SBP for interest rate movements. Mechanism Of Issuance In Pakistan

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Security Analysis Auction of T-bill are conducted on alternate Wednesdays or some times on Thursday . In this some selected financial institutions i.e. Primary Dealers and some major commercial banks which fulfill the criteria of SBP are allowed to take participationin this auction. Auction targets are announced Two days prior to conducting of auction of TBills by keeping the real fact about Government borrowing position, SBP monetary policy stance and money market situation. Two days prior to opening of bids a tender Notice, inviting sealed bids in TBills auction, is publicized in Newspapers and displayed on Reuters. Tender applications are dropped by the PDs in a Tender Box upto 11.15 a.m. on Tuesday and Wednesday. Sealed bids are opened on Wednesday at 11.30 am. Computer generated detailed bid report is prepared. After getting final decision from Committee a Press Release of Auction Result, face value and discounted value of amount offered and accepted along with accepted cut-point and weighted average yields are published. Q.What is the concept of sukuk and its importance in Pakistan scenario. Give example of sukuk in Pakistan? Overview Generally an alternative to conventional bonds, Sukuk Al-Ijarah is an Islamic bond as the issuance is backed by the buying, selling and leasing of properties where the structure is endorsed by the appropriate syariah experts as fully compliant to all the requirements of the Islamic law. Duration Structure The Sultanate will be one of the pioneering countries in the world to issue short-term sukuk as other Islamic countries who have issued Sukuk Al-Ijarah such as Malaysia, Qatar, Bahrain and Pakistan are all long-term sukuk.Though only short-term sukuk will be issued at this stage, the long-term sukuk will be considered at an appropriate time

Difference Between Sukuk And Bond

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Security Analysis 12The main distinction between Sukuk Al-Ijarah and conventional bond is that SukukAlThe structure of sukuk does not have any element of "Riba", a conduct prohibited in

Ijarah does not involve the payment of fixed interest rates. Islam.. Sukuk, as in conventional bond, is usually issued or sold by government or corporation with the view to raise capital to finance new projects or business expansion. Concept from Example The basic structure of -sukuk is-that supposedly company ABC requires $100 million for the purpose of expanding its business, ABC may sell a piece of its property valued at $100 million to a Special Purpose Company (SPC) and ABC may also promise to buy back the property at the same value at the end of 10 years.SPC will therefore issue a 10-year sukuk and offer them to the public/investors where the sukuk will reach its maturity at end of 10 years, which means SPC will buy back the sukuk from the public/investors at a price of $ 100 million.The property will also be leased out by SPC to ABC for a period of 10 years with ABC paying rent for maybe every six months to SPC, based on mutual agreement by both parties. The rent, as an example, could amount to $10 million per year, so SPC will collect annual rents for the period of 10 years and subsequently distribute them to investors/ sukuk holders, proportionate to the amount invested in the sukuk.If an individual buys and holds ABC sukuk at a face value of $100,000 he will receive a return of $10,000 annually over the next 10 years and at the end of the 1011 year, the sukuk holder will be able to sell back his sukuk to SPC at the same face value of $ 100,000. Activity Level Investors will also be able to sell the sukuk they hold before the maturity date where the price will be based on the market prices and on the agreement of both the buyers and sellers.From the perspective of the issuer or the seller, this is viewed as a way of capital resources to expand one's existing business. Meanwhile, from the perspective of the public or the buyer/sukuk holder, this is seen as a saving deposit or an investment as the issuer of the sukuk promise to buy back the sukuk at a later stage and the issuer will distribute the proceeds from the lease of property to the sukuk holders. Pakistani Scenario And Sukuk

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Security Analysis Capital market is hoped to provide the benchmark to determine the rate of cost of funds that is more accurate to the business communities both from within and outside the economy as well as to provide the benchmark to determine the rate of returns on investments in an economy. With the issuance of the government sukuk, it is hoped to encourage major corporations in the country to issue their respective sukuk in order to prevent major corporations from too overly dependent on bank loans as sources of funding for business expansion. In Pakistan, This was third sovereign Sukuk issuance arranged, following those for Malaysia and Qatar in 2002 and 2003 respectively. A formal signing event to mark the successful launch and closure of Pakistan's inaugural Sukuk issue was held by the Government of Pakistan on 16 March 2005 for the purpose of constructing of motor ways in Pakistan and it is backed by NHA(National high way authority)of Pakistan The USD 600 million 5 year international Sukuk offering was launched by Pakistan in January. It was priced at 6-month US$ Libor + 220 bps and was structured to comply with Shariah principles, as well as with international bond conventions. HSBC and Citigroup acted as Joint Lead Managers and Joint Book runners for the issue. Road shows were held in Hong Kong, Singapore, Kuala Lumpur in Asia; Jeddah, Riyadh, Kuwait, Bahrain, Abu Dhabi and Dubai in the Middle East; and Geneva, Zurich and London in Europe. The response to the issue, with investors submitting orders of around US$ 1.2 billion, was one of the largest to a Sukuk offering to date. The size of the issue was originally targeted at US$ 500 million, but was increased in view of the strong and high quality demand from investors. Pakistan was also able to achieve an extremely attractive cost of funding through this innovative transaction. The issue appealed to both conventional as well as Islamic institutions, and attracted demand from a wide geographic base. Central Banks and Government Agencies accounted for 25% of the transaction, and Asset Managers some 23%. Islamic Institutions claimed 20%, and banks 18%, with the remainder being taken up by private banks, retail intermediaries and insurance companies and corporate. The geographical distribution was also very balanced. The Middle East accounted for 47% of the issue, Asia 31% (out of which Malaysia represented 16%) and Europe 22%. Bibiliography\References Special Thanks To:

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Security Analysis Mr. Muhammad Rashid (CFA) Mr. Muhammad Ilyas(Research Analyst in LSE) Mian Nusrat Ud Din (Member in Stock Exchange Room # (509) Muhammad Arif (Senior Joint Director Financial Markets Strategy & Conduct Department)

Websites:

www.wikipedia.com(http://en.wikipedia.org/wiki/Karachi_stock_exchange) www.sbp.org.pk www.secp.gov.pk www.kse.net.pk www.businessrecorder.com

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