Topics to be Covered

Investment Banking Concept and Functions Role of Investment banking in offering common stocks Evolution of Investment Banking

Topics to be Covered
Investment Banking in Pakistan Investment Banking Activities Some key Investment Banks in Pakistan

Present Scenario of Investment Banking in Pakistan

Investment Banking
Investment banking is primarily concerned with the primary function of assisting the capital market in its function of financial intermediation These Financial Institutions assist Business Corporations and Government Bodies to raise funds for long term capital requirements both equity and debt through the sales of shares, stocks and bonds

Functions of Investment Banks

Investment banks have been classified as : Originators:

As originators they bring out new issues of the securities.

Underwriters

They underwrite the new issues of business corporations

Retailers They retail the securities to individuals and institutional investors.

Functions of Investment Banks

Advisory services Advice is given for helping the issuing firm to analyze its financing needs and suggest ways to raise funds Administration services The investment banker shares with the issuer the responsibility of conforming to the securities laws Underwriting services Underwriting refers to the provision of guarantee by the investment banker about the issuer of new securities

Functions of Investment Banks

Pricing of IPO After underwriting the Investment Bankers sometimes must stabilize the price of an IPO during the distribution period to prevent it from drifting down words. Distribution services Investment bankers distribute securities to investors also. They may simply act as an intermediaries in bringing together the issuer and investors

Role of Investment Banks in offering Common Stock

Investment Banks sell common stock without the involvement of investment banker: To general public Rights to Shareholders Private Placement

Role of Investment Banks in offering Common Stock

The involvement of Investment banker adds only commission on two : General public Rights to Shareholders

In private placement it may sale to one large investor and charges heavy retail price

Evolution of Investment Banking

In Europe traced back in Greece and Rome where Investment Banking activities started In middle ages these banks used to provide finance to Govt. In Twelfth and Thirteenth centuries the Lombard Banks in Italy combined trading operations with long-term loans to various rulers.

Evolution of Investment Banking

Investment Banks have been leaders in the American and Euro markets Began in 1800 in USA Loan contractor was considered the Investment Bank

Evolution of Investment Banking

In 20th century it gained popularity

Some leading Investment Banks of the world include Gold Man Sachs & Co, Alex Brown & Sons
The Investment Banker acts as a Global Coordinator linking underwriting syndicates throughout the world in selling equity issues

Investment Banking Industry in Pakistan

Investment Banking in Pakistan is a mixture of USA based investment Banking and UK based merchant banking It was mainly concentrated in public sector

Huge global investment came to Pakistan during Afghan war

Investment Banking Industry in Pakistan

The need of the hour was to have specialized banking system to manage the investment SBP issued notification announced to standardize the upcoming new Investment Banks. SBP vide their circulars 585(1)(87)

Investment Banking Activities

Investment Banking Activities includes: Capital Market Activities

Money Market Activities

Project Financing Activities Corporate Financial Services

Capital Market Activities

Trading in listed securities, both equity and non-equity instruments
Providing professional analysis of securities

Issuing of long-term certificates of deposit and underwriting of stocks and shares

Capital Market Activities

Floating and managing both open-end and close end mutual funds
Providing margin loans

Offering of cash management accounts

Money Market Activities

Issuing short-term papers

Trading in commercial papers issued by its clients, Government securities etc Assisting in the issue of commercial paper, including introduction of the companies to the money market, preparation of documentation, distribution and market making.
Acting as broker or on its own account in the Call Money Market

Project Financing Activities

Making investments in projects though underwriting of public issue of stocks and shares and securities, short-term and longterm Participation Certificates and Term Finance Certificates of varying features. Guaranteeing and counter-guaranteeing loans and obligations

Corporate Financial Services

Acting as advisor and financial agent for companies Assisting companies in private placement Acting as advisor of companies

Acting as advisor to companies in mergers

Corporate Financial Services

Assisting companies with cash management systems
Preparing feasibility, market or industrial study for companies, both domestic and foreign Raising equity, such as through venture capital

Some key Investment Banks in Pakistan

IGI Investment Bank Limited Security Investment Bank Limited

Escorts Investment Bank Limited

ORIX Investment Bank Pakistan Limited Trust Investment Bank Limited

IGI Investment Bank Limited

Formally known First International Investment Bank Changed its name to IGI Investment Bank LTD It has close relation with IGI Insurance company IGI is main share holder in it

IGI Investment Bank Limited

Serves individual consumers, small businesses and large corporations and institutions with a broad range of investment banking products and services PACRA has awarded IGI Investment bank a credit rating of A in long term credit and A1 in short term credit lending.

IGI Investment Bank Limited

Paid up capital of PKR 2.1 billion IGI reported after tax profit of Rs 46.4 million for the half year ended December 31 2009,as compared to loss of 178.73 Rs in million in the corresponding period of last year

Security Investment Bank Limited

Established in 1991 Very active in money market activities includes making short-term investments in government securities, shares, lending, borrowing etc The company is incorporated in Pakistan as a public limited company, and was listed on the stock exchange of the country on January 06, 1992

Escorts Investment Bank Limited

Escorts Investment Bank Limited has come a long way since it was established in 1996 Most progressive Investment bank in terms of products and services assets and liabilities Maintained the medium to long-term entity rating of Escorts Investment bank limited (EIBL) at A (Single A) with a Stable outlook and upgraded short-term rating of the bank from A-2 (A Two) to A-1 (A One)

Escorts Investment Bank Limited

Short-term ratings reflect the banks currently strong liquidity profile
EIBL plans to launch fresh schemes for mobilizing retail funds

ORIX Investment Bank Pakistan Limited

(OIBP) is a joint venture sponsored by ORIX Corporation, Japan, ORIX Leasing Pakistan Limited, International Finance Corporation, Asian Finance & Investment Corporation, Saudi Pak Industrial & Agricultural Investment Company (Private) Limited and Pak Kuwait Investment Company (Private) Limited

ORIX Investment Bank Pakistan Limited

IBP was incorporated as a Public Limited Company in1995. Listed in the Karachi and Lahore Stock Exchanges

ORIX Corporation, Japan is a major sponsor of OIBP.

ORIX Investment Bank Pakistan Limited

Areas of Service & Operations: Corporate Finance Credit & Marketing Money Market & Equity Brokerage Services

Treasury Operations

Trust Investment Bank Limited

Established in 1992 Formerly Trust Leasing & Investment Bank Limited The bank is a corporate member of Lahore Stock Exchange.

Long-term entity rating of AA- and short term rating of A1+ assigned by PACRA

Trust Investment Bank Limited

Branch network of 16 branches all over Pakistan Provides with expert advice, innovative financial solutions, outstanding execution and comprehensive access to Pakistans capital markets

Present Scenario of Investment Banking in Pakistan

Started in 1980s since inception showed strong performance and continued to flourish till the mid 1990s This was because of wide range of services and boom in the stock market These financial Institutes could not diversify their portfolio and thus failed

Present Scenario of Investment Banking in Pakistan

The significant weaknesses of investment banks included: Limited capacity for expansion High cost of funds

Investment banks were unable to develop stable source of long-term funds

Present Scenario of Investment Banking in Pakistan

Lack of expertise and trained personnel Incompetency for delivering non-finance based services Small capital base with limited ability to absorb shocks

Present Scenario of Investment Banking in Pakistan

Only few institutions dominate the markets at present Macro environment is a challenge Its development is mainly dependent of capital markets which do not exist

This lack of investment has led to the closure of many Investment Banks