Govt to sell stakes in three firms

Decision comes amid depressed outlook for energy sector

ISLAMABAD:

The federal government on Friday decided to sell stakes in three profitable companies, including two oil and gas exploration companies, amid depressed outlook for the sector that may carry serious pricing implications.

Headed by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh, the Cabinet Committee on Privatisation (CCOP) approved the offloading of 7% stake in Oil and Gas Development Company (OGDC) and 10% shares in Pakistan Petroleum Limited (PPL) - the two blue-chip companies.

The CCOP also approved the sale of 20% stake in Pakistan Reinsurance Company Limited (PRICL), according to a Ministry of Finance statement.

The CCOP approved the “divestment of up to 7% government-owned shares in OGDC” through public offerings and gave directive for initiating the process of appointing financial adviser, stated the Ministry of Finance. Divestment of up to 10% government shares in PPL through public offerings was also approved by the CCOP, it added.

The CCOP gave approval for the privatisation of Guddu Power Plant (747 megawatts) and gave directives to all divisions/entities for resolving issues of the power plant to facilitate the privatisation process.

It cleared the transaction structures for privatisation of Services Hotel International, Lahore, Jinnah Convention Centre, House Building Finance Corporation Limited (HBFCL) and First Women Bank Limited (FWBL).

At present, the Ministry of Privatisation is processing the divestment of 18 public sector enterprises (PSEs) but heavy loss-making entities are not part of the list.

On the recommendation of the Aviation Division, the CCOP gave directives for putting on hold the valuation report of the now controversial Roosevelt Hotel, Manhattan. The CCOP had earlier directed Deloitte to update its July 2019 report.

“The reports may be held in abeyance till revival of economic and business environment in Manhattan, New York. The report update will also cost a fee of ($) 30,000 to 35,000 while the overall business environment prevailing in Manhattan is not favourable (as of lesser use now),” according to the finance ministry.

PIA Investment Limited, which owns the hotel, in July last year had engaged the services of Deloitte Transactions and Business Analytics LLP for conducting a feasibility study.

Deloitte in its draft report dated July 18, 2019, after analysing multiple options, recommended that “the highest and best use of Roosevelt Hotel is to redevelop the site into a mixed use of primarily office tower over retail and condominium”.

Last month, members of the Privatisation Commission (PC) board had refused - for the second time in a week - to own a decision of the federal cabinet on giving Roosevelt Hotel on lease for a joint venture and instead decided to first get third-party advice.

Divestment decisions

The cabinet committee decided to go ahead with the decision to offload 7% stake in OGDC despite a slump in the oil and gas sector.

The PC board had expressed reservations about the OGDC transaction and status and some members had argued that the transaction should be put on hold until market conditions improved.

Due to low oil prices in the international market, there is no appetite in the market.

The Petroleum Division had informed the PC board last month that recent per share value of OGDC was far below the earlier offered divestment price of Rs216 in 2014.

They also expressed that, “being the administrative ministry of OGDC, they feel it incumbent to request that the PC may review the ongoing process and not resort to selling the government’s 7% shares in OGDC at this stage”. Yet, the CCOP went ahead with the decision.

Historically, OGDC’s share has seen the highest value of Rs276 in December 2013 and post-December 2014 it has not exceeded the Rs200 mark. It dipped to Rs77 at the end of March this year and traded around Rs115 this month. OGDC’s share price dipped 2.33% to Rs114.92 on Friday, which should be a matter of concern.

The government also approved the divestment of 10% shares in PPL. The last government had divested 5% shares in PPL in June 2014 at a price of Rs219 per share. In March this year, the share was traded at Rs69 and was around Rs87 at the end of June 2020. PPL’s share price dipped 3.4% to Rs100.26 on Friday.

Pak Reinsurance

The CCOP also approved the divesting of 20% shares in Pakistan Reinsurance Company Limited, which would reduce the overall government shareholding to 59%. The proposed divestment will allow the government to retain management control of the company.

Shares will be offered to institutional, high net worth individuals and retail investors via the publication of Offer for Sale Document at the Pakistan Stock Exchange.

HBFCL

The CCOP approved the transaction structure for the privatisation of HBFCL. It has approved the sale of equity stake of up to 100% along with management control in HBFCL.

HBFCL will be allowed to diversify its product portfolio to include other products such as SME financing, consumer financing, project financing, leasing and asset-based financing. The diversified portfolio is to be restricted to 30% of the funds available for deployment.

Published in The Express Tribune, August 22^nd, 2020.

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