23389 - ABAMCO COMPOSITE FUND

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Summary of Proposed Investment

Project Number

23389

Company Name

JS LARGE CAP FUND

Date SPI Disclosed

Jun 1, 2004

Country

Pakistan

Industry

other

Projected Board Date

Jun 30, 2004

Status

Completed

Sector

Domestic Mutual Fund/Unit Trust

Department

Equity Portfolio Management

Environmental Category

C - No Impact

Previous Events

Approved : Sep 17, 2004
Signed : Sep 20, 2004
Invested : Sep 21, 2004

Project Description

ABAMCO Composite Fund (the Fund or the company) is a closed-end investment fund, which will be listed on all three Stock Exchanges of Pakistan including the Karachi Stock Exchange (KSE), the Lahore Stock Exchange (LSE), and the Islamabad Stock Exchange (ISE) by end-June 2004. The investment objective of the Fund is to invest in large cap publicly listed securities, pre-IPO positions, and local currency debt/money market instruments in Pakistan. The underlying asset pool will be composed of:

- a minimum 80% of Net Asset Value (NAV) of the Fund in large cap listed or pre-IPO positions with minimum market capitalization of Rs1 billion; and
- a maximum of 20% of NAV in debt/money market instruments.
The Fund will be managed by ABAMCO Ltd. (ABAMCO, or the Fund Manager). IFC has an existing 4.2% stake in ABAMCO. The target size of the Fund is $73.5 million equivalent, of which $20 million equivalent has been allocated for over-subscriptions at the time of listing. The Fund Manager will invest up to $7.2 million equivalent in the Fund.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	5.0

Development Impact

The project is expected to have a strong developmental impact in three main areas:

- Development of the Mutual Fund Industry in Pakistan:

Pakistan’s mutual fund industry is underdeveloped compared to other regional countries, and until recently was dominated by the public sector. There is now a strong need for the development of the mutual funds industry in order to:

- provide viable investment alternatives to local investors, which is especially important due to the rationalization of returns on national savings schemes and the sharp fall in bank deposit rates;
- add stability to a historically volatile stock market; and
- broaden the long-term investor base.

IFC''s support for the Fund will play a key role in developing this nascent industry and help deepen and strengthen the financial markets in Pakistan.

- Privatization:

The Government of Pakistan has been active in privatizing state-owned-enterprises (“SOEs”) since 2002, and has privatized 18 entities for gross proceeds of about $1 billion, of which $138 million were capital market transactions. Another 24 entities worth an estimated $ 1- 1.5 billion are in the pipeline to be privatized over the next two to three years. These entities are primarily in priority sectors, such as telecom, power and oil & gas. The government has adopted a two-pronged strategy to privatize SOEs by:

- strategic sales of leading SOEs; and
- an equitization approach to sell partial stakes in SOEs through the local stock market.

IFC’s equity investment in the Fund would support the Fund’s participation in the privatization process by strengthening its capital resources.

- Pension Reforms:

Introduction of private pension funds is another high priority area for the government, and wide ranging reforms are expected over the next few months. The proposed pension system would encourage the establishment of individually capitalized pension savings accounts managed by private sector professional managers. The government has requested IFC to support the reform process by strengthening the technical capacity of domestic asset managers.

- IFC’s participation will provide added comfort to potential foreign investors in the Fund. Within the context of the substantive economic reforms and associated revitalized privatization efforts, IFC’s investment will help catalyze international portfolio investment in Pakistan. Further, the sponsors believe that an IFC investment would substantially enhance the attractiveness of the Fund to domestic investors who would view this as a vote of confidence for the sponsors.

- IFC’s investment in the Fund will help strengthen and deepen Pakistan’s capital markets by supporting newly listed SOE’s through privatization and equitization programs, which will, consequently, enable an increase in Pakistan’s weighting in the Morgan Stanley Capital Index (MSCI Global) which is followed by most international fund managers, thereby helping to catalyze foreign portfolio equity flows into Pakistan.

Contacts

For Inquiries About the Project, Contact

Najam Ali, CEO
1306-1307, Chapal Plaza
Hasrat Mohani Road
Karachi, Pakistan
92-21-244-1311
92-21-242 5652
najam.ali@abamco.com

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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