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| Summary of Project Information (SPI) |
| This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
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| Project number | 23389 |
| Project name | ABAMCO COMPOSITE FUND |
| Country | Pakistan |
| Sector | Collective Investment Vehicles |
| Department | Private Equity and Investment Funds |
| Company name | UTP - Large Cap. Fund |
| Environmental category | C |
| Date SPI disclosed | June 1, 2004 |
| Projected board date | June 30, 2004 |
| Status | Active |
| Previous Events | Invested: September 21, 2004
Signed: September 20, 2004
Approved: September 17, 2004 |
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| Description of company and purpose of project |
ABAMCO Composite Fund (the Fund or the company) is a closed-end investment fund, which will be listed on all three Stock Exchanges of Pakistan including the Karachi Stock Exchange (KSE), the Lahore Stock Exchange (LSE), and the Islamabad Stock Exchange (ISE) by end-June 2004. The investment objective of the Fund is to invest in large cap publicly listed securities, pre-IPO positions, and local currency debt/money market instruments in Pakistan. The underlying asset pool will be composed of:
- a minimum 80% of Net Asset Value (NAV) of the Fund in large cap listed or pre-IPO positions with minimum market capitalization of Rs1 billion; and
- a maximum of 20% of NAV in debt/money market instruments.
The Fund will be managed by ABAMCO Ltd. (ABAMCO, or the Fund Manager). IFC has an existing 4.2% stake in ABAMCO. The target size of the Fund is $73.5 million equivalent, of which $20 million equivalent has been allocated for over-subscriptions at the time of listing. The Fund Manager will invest up to $7.2 million equivalent in the Fund. |
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| Project sponsor and major shareholders of project company |
| ABAMCO first became acquainted with IFC in 1995, when IFC participated in ABAMCO as a seed investor with an initial 20% stake. IFC played a pivotal role in establishing ABAMCO, the first asset management company in Pakistan. ABAMCO, currently the largest asset management company in Pakistan, is a subsidiary of JSCL, which is the largest listed financial services company in Pakistan. Due to political upheavals during the late 90s, the Pakistani stock markets remained bearish, stalling progress in the development of this nascent industry. Consequently, ABAMCO did not raise any new funds between 1997 and 2002. As the economy started recovering in 2001, ABAMCO explored opportunities in new products and considered raising new capital. During 2002, ABAMCO raised a fixed income fund (UTP Growth Fund) and an Islamic fund (UTP Islamic Fund), and won a bid to manage a pool of privatized funds (ICP Mutual Funds, Lot “A”) by the Government of Pakistan (GOP). Currently, ABAMCO’s total assets under management are about $180 million. In addition to IFC, other shareholders include Jahanghir Siddiqui & Co. Ltd. (54%), AMVESCAP Plc. (6%), Muslim Commercial Bank Ltd. (4%), and Saudi Pak Commercial Bank Ltd. (2%), and individual investors (29%). |
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| Total project cost and proposed IFC investment |
| The target size of the Fund is $73.5 million with IFC’s proposed investment of $5.0 million. |
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| Location of project and description of site |
| The Fund is expected to be listed on all three Stock Exchanges of Pakistan including the Karachi Stock Exchange (KSE), the Lahore Stock Exchange (LSE), and the Islamabad Stock Exchange (ISE) by end-June 2004. |
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| Project Development Impact and IFC's Role |
The project is expected to have a strong developmental impact in three main areas:
- Development of the Mutual Fund Industry in Pakistan:
Pakistan’s mutual fund industry is underdeveloped compared to other regional countries, and until recently was dominated by the public sector. There is now a strong need for the development of the mutual funds industry in order to:
- provide viable investment alternatives to local investors, which is especially important due to the rationalization of returns on national savings schemes and the sharp fall in bank deposit rates;
- add stability to a historically volatile stock market; and
- broaden the long-term investor base.
IFC's support for the Fund will play a key role in developing this nascent industry and help deepen and strengthen the financial markets in Pakistan.
- Privatization:
The Government of Pakistan has been active in privatizing state-owned-enterprises (“SOEs”) since 2002, and has privatized 18 entities for gross proceeds of about $1 billion, of which $138 million were capital market transactions. Another 24 entities worth an estimated $ 1- 1.5 billion are in the pipeline to be privatized over the next two to three years. These entities are primarily in priority sectors, such as telecom, power and oil & gas. The government has adopted a two-pronged strategy to privatize SOEs by:
- strategic sales of leading SOEs; and
- an equitization approach to sell partial stakes in SOEs through the local stock market.
IFC’s equity investment in the Fund would support the Fund’s participation in the privatization process by strengthening its capital resources.
- Pension Reforms:
Introduction of private pension funds is another high priority area for the government, and wide ranging reforms are expected over the next few months. The proposed pension system would encourage the establishment of individually capitalized pension savings accounts managed by private sector professional managers. The government has requested IFC to support the reform process by strengthening the technical capacity of domestic asset managers.
- IFC’s participation will provide added comfort to potential foreign investors in the Fund. Within the context of the substantive economic reforms and associated revitalized privatization efforts, IFC’s investment will help catalyze international portfolio investment in Pakistan. Further, the sponsors believe that an IFC investment would substantially enhance the attractiveness of the Fund to domestic investors who would view this as a vote of confidence for the sponsors.
- IFC’s investment in the Fund will help strengthen and deepen Pakistan’s capital markets by supporting newly listed SOE’s through privatization and equitization programs, which will, consequently, enable an increase in Pakistan’s weighting in the Morgan Stanley Capital Index (MSCI Global) which is followed by most international fund managers, thereby helping to catalyze foreign portfolio equity flows into Pakistan. |
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| Environmental and social issues - Category C |
This is a Category C project according to IFC's environmental and social review procedure. There are minimal environmental and social impacts associated with this project; therefore, no further environment and social review is necessary.
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| To contact the project company, please write to: |
Najam Ali, CEO
1306-1307, Chapal Plaza
Hasrat Mohani Road
Karachi, Pakistan
92-21-244-1311
92-21-242 5652
najam.ali@abamco.com |
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