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AKD Quotidian about — NIT-SEF 7 The Market

Karachi: News reports indicate that NIT’s -PKR20bn State Enterprise Fund (NIT-SEF), launched on Jan 13’09, may look to divest underlying shareholding with its 3yr mandate coming to an end. Recall that the NIT-SEF was launched to stabilize the local market following the imposition of the price floor.

According to AKD Securities, this fund was mandated to purchase shares of 8 companies – OGDC, PPL, PSO, PTC, KAPCO, SNGP, SSGC and NBP with funding provided by a banking consortium led by NBP as well as state-owned entities (State Life Insurance and EOBI). While the market has stabilized greatly since the crisis of late CY08/early CY09, the KSE-100 Index is down 10% from its CYTD peak of 12,681.94 points. As such, a fresh bout of selling has the potential to add further pressure on the market. That said, AKD Securities believes key stakeholders are likely to seek a rollover until a final solution is reached.

In this regard, precedence exists whereby the GoP issued Letters of Comfort to 4 unit holder banks (including NBP) and the NIT-LOC fund was managed separately until its eventual dissolution (underlying shares transferred prorata to the 4 unit holders) which led to sizeable capital qains. AKD Securities believes a similar solution could be adopted this time around as well, with state-owned unit holders of NIT-SEF getting the bulk of underlying shares with an agreement not to sell immediately in view of market interest. Capital gains upon eventual NIT-SEF settlement are likely considering NIT-SEF has outperformed the KSE-10O Index by 40.4% since inception to Sep 30’11.

Banks: Contained provisions so far in 4QCY11
Gross systemic loans have been recorded at PKR3.36tn on Nov 25’11, down O.8%YoY, while systemic investments (primarily in GoP securities) have been recorded at PKR2.96tn, up 55%YoY. While these numbers are slightly distorted due to the Nov 4’11 conversion of banks’ circular debt exposure into T-bills and PIBs, AKD Securities may soon ends up in the unprecedented situation of stock of investments exceeding the stock of loans. Considering lending to quasi-sovereigns is included in loans, AKD Securities may already be at a point where the GoP/GoP-owned entities account for the bulk of credit in Pakistan.

In this regard, AKD Securities reiterates that Nov’11 CPI clocking in at 10.19% may stoke expectations of monetary easing resuming in the Jan’12 MPS. Another key takeaway from recent data is the apparent flattening in the stock of provisions which could be partly attributable to the recent enhancement in FSV benefit Should this trend sustain (AKD Securities cautions that provisions typically tend to spike in 40), banks could post a strong end to the year particularly as Oct’11 spreads were recorded at a strong 7.67% (up 4bpsMoM). AKD Securities’ top picks include MCB (TP: PKR180/share), UBL (TP: PKR70/share) and BAFL (TP: PKR13.75). Moreover, NBP (D/Y: 15%; TP: PKR54/share) also has the potential to Outperform in the near- term.

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