With all fiscal deficit funding being done through domestic channels as external sources are largely dried up, the government has finally come up with a privatisation process plan to raise almost Rs30 to Rs35 billion shape to fund its deficit.
The government will sell-off parts of its shareholding in major local corporations in local and global capital markets among other measures, after the Privatisation Commission’s proposal of Capital Market Transaction Road-Map has been reportedly approved by the Cabinet Committee on Privatization, says an InvestCap research note issued on Monday.
Listed companies on the cards include Pakistan Petroleum Limited, Habib Bank Limited, National Bank of Pakistan and Kot-Addu Power Company while non-listed public sector holdings include State Life Insurance Company, Pak-Arab Refinery Company, National Insurance Company, Government Holding Pvt Ltd), Islamabad Electric Supply Company and Faisalabad Electric Supply Company.
The process has been reported to commence next month, exactly when the new Capital Gains Tax (CGT) regime is scheduled to take effect.
The government will raise the capital through three main sources, initial public offerings (IPO), Secondary Public Offerings (SPO) and Global Depositor Receipts (GDR).
The International Monetary Fund suspended the $11.3 billion loan programme in 2010 due to failure to implement fiscal and power sector reforms, a move that shied away almost all external lending institutions.
Ironically, the government has not included any of the highly uneconomic government entities like Pakistan International Airlines, Pakistan Railways and Pakistan Steel Mills among the available companies being offered for privatisation, says the note. However, putting up profitable companies for sale first would not be a bad idea to get the privatisation process off the mark for the government.
This is expected to lower the fiscal deficit by 0.2% to 6.3% of the Gross Domestic Product (GDP) in fiscal year 2012, adds the note.
However, viability of the government’s privatisation plan is largely contingent upon timely materialisation of newly proposed Capital Gains Tax (CGT) regime and price levels the government may fetch, says the note.
Not all secondary public offerings and global deposit receipts can fetch price premiums especially banks, given their portfolio mix with uncertain ratings due to their rising stake in government instruments, concludes the note.
Published in The Express Tribune, March 6th, 2012.