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 long-
term 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 bank’s 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 Pakistan’s capital
markets
 Present Scenario of Investment
Banking in Pakistan
• Started in 1980’s since inception showed
strong performance and continued to flourish
till the mid 1990’s

• 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