Investment Banking
The Investment Banking domain tests how capital is raised and how transactions are originated, valued, structured, and executed in Pakistan. Expect questions on IPO and rights-issue mechanics, debt and sukuk issuance, M&A process, valuation football fields, and the roles of SECP, PSX, and the Competition Commission of Pakistan (CCP).
Capital raising
- Equity: IPO via book building, rights issue, preferential allotment. Book building uses a floor price and a strike price determined by demand; SECP approves the prospectus, and PSX grants listing.
- Debt: term loans, TFCs, sukuk. Key terms include coupon or profit rate, tenor, security, and covenants.
- Compare cost, dilution, control, and covenant flexibility before recommending a route.
M&A execution
Typical sequence: mandate and pitch, valuation, non-binding offer, due diligence, term sheet, SPA, regulatory approvals, closing. CCP merger control applies where thresholds are met; timelines affect certainty.
Valuation
Use a football field: DCF, trading comps, precedent transactions, and LBO/affordability. Trading comps use enterprise value/EBITDA; precedent transactions include a control premium.
Worked example: accretion/dilution
Acquirer net income PKR 1,000m, 100m shares, EPS 10. Target net income 200m; price 2,000m, funded 50% debt at 10% and 50% shares at PKR 40. After-tax cost of debt at 25% tax: 1,000 × 10% × 75% = 75m. New shares: 1,000/40 = 25m. Pro forma net income = 1,200 − 75 = 1,125m. Shares = 125m. EPS = 9.00, versus 10.00 standalone, so the deal is 10% dilutive before synergies. Add after-tax synergies to test breakeven.
Traps
- Charging pre-tax interest to net income.
- Ignoring financing fees and new shares.
- Comparing equity value with enterprise value.
- Forgetting control premium in precedent transactions.
- Treating synergy as certain in year one.