KARACHI, Jan 21: The Bank of Khyber (BoK) will be the first security this year to make an initial public offering (IPO) and the 21st bank to be listed at the bourses. It will also be the second provincial bank, after Bank of Punjab, to enter the capital market.

The government of NWFP, currently holds 87 per cent of the equity in the bank and the remaining 13 per cent is vested in a foreign shareholder DEG.

The bank is offering 41.1 million shares at the par value of Rs10 to the general public at a premium of Rs5 per share. The IPO, which shall open on Jan 25, will close at the end of banking hours on third day (Jan 27). The Bank’s stock has already started trading on the provisional counter and it closed at Rs34.90 on Friday. The market is placing premium of 133 per cent over the offer price.

Commenting on the move, Faisal Jiwani, banking sector analyst at InvestCap said: “As everything seems cheap at some price, we believe that the price at which the scrip is being offered to the general public is quite attractive and one should subscribe to the issue, but the price at which it is currently trading is not very attractive.” The comment is probably a recommendation that an investor should go for IPO rather than accumulating stock from the market.

Hifza Zia, analyst at First National Equities, argues that the investors should subscribe to the IPO, for the bank is offering shares at lower price-to-earning (p/e) multiple of 5.33 (on annualized earning per share of FY’05, based on nine months results), compared to its peers.

According to the analyst, on Jan 18, share in Muslim Commercial Bank (MCB) was trading at p/e multiple of 10.92 on forecasted earnings per share for FY’05. National Bank of Pakistan (NBP) traded at the p/e of 11.46 and Bank of Punjab (BoP) at 9.95.

The current paid-up capital of the BoK is Rs1.231 billion. The purpose of the upcoming IPO worth Rs411 million,(of which Rs8.2 million has been reserved for the employees) was understood to be to comply with the prudential requirement of the State Bank that requires paid-up capital of banks to reach Rs2 billion by the end of December 31, 2005. The shortfall of Rs358 million in the capital of the bank, after the IPO, would be met through the issuance of bonus shares.

As per the offering documents released by the bank on December 30, the new shareholders would also be entitled to the bonus issue.

BoK began operations in 1991 and was converted into a scheduled bank in 1994. The bank currently has 29 branches with major concentration of eight branches in Peshawar. Two are located in Karachi and the remaining are scattered in various cities of the country. The bank has plans to open six new branches during 2006.

During the year 2004, the after tax profit of BoK had witnessed a fall of 16 per cent to Rs308 million from Rs 265 million the earlier year. For the first nine months of 2005, the bank increased its net profit by 54 per cent to Rs257 million, from Rs169 million in the corresponding period of the previous year.

The government’s decision to reduce the number of shares per application from 1,000 to 500 has been aimed to accommodate larger number of shareholders. But it is also to the disadvantage of investors to go through extra hassle for sometimes smaller gains.

Much of the market is rating the BoK scrip at around Rs30, which is twice the price of IPO, but at discount to its ruling rate on the provisional counter.