Pakistan to Start Put Options for Overseas Investors: Bloomberg

By Farhan Sharif and Pooja Thakur

Oct. 23 (Bloomberg) -- Pakistan's stock regulator will allow foreign investors to buy put options in seven state-run companies, before lifting trading curbs that have prevented equity sales for almost two months.

The government will guarantee up to 30 billion rupees ($369 million) to enable state-run funds to write put options on Oil & Gas Development Co. and six other stocks, the Securities & Exchange Commission said yesterday. The regulator also approved a 20 billion-rupee fund to buy equities.

The measure may encourage investors to hold onto their shares when trading restrictions are lifted on Oct. 27, capping further declines in the KSE100 Index that has lost more than a third of its value this year. Since the limits were imposed, the government has approached the International Monetary Fund for a bailout to avoid defaulting on its debt, deterring investors.

``If in one year's time, the situation improves globally and in the local market, they will benefit instead of selling their holdings at this point,'' said Tariq Iqbal Khan, chairman of National Investment Trust, Pakistan's biggest asset manager. ``If these foreign investors accept the option, and do not sell in the ready market, the overall selling pressure will be lightened.''

Overseas investors who held shares in the market on Aug. 27, when the government capped a decline in its benchmark KSE100 Index, will be able to buy these options, the regulator said.

A put option is an agreement that gives the buyer the right to sell a specific quantity of a particular security by a certain date. The option is not obligatory and is traded during its life. The holder hopes the stock will drop in price.

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