The newly-elected government of Pakistan Muslim League – Nawaz has been planning to resume the long-halted and much-awaited, at least by the capital market, privatisation process that should quickly fetch a handful of funds.
There are a total of 37 entities, of which 14 are listed and 23 unlisted, that the government directly or indirectly holds in its portfolio. At the current market prices, a proposed 5-10% stake offload by the government across various entities should generate around Rs166-233 billion ($1.2-2.3 billion), according to report sent by Arif Habib Securities to its clients.
As far as listed companies go, the government’s stake accounted for 26% of the total market capitalisation of the Karachi Stock Exchange and 62% of the entities that contain government holdings. Sequences divestments of these entities can generate a handful of funds for the government, the report said.
Even if the government goes for privatisation of the oil and gas sector, initially, which includes Oil and Gas Development Company, Pakistan Petroleum and Pakistan State Oil, divesting only 10% stake in each of the companies, at the current value, it will be able to raise Rs151 billion ($1.5 billion).
This could be followed by secondary public offerings of the banking sector including National Bank of Pakistan, Allied Bank, Habib Bank and United Bank, which can result in Rs56 billion inflow from divestiture of only 10% stake offload in the big four banks.
If timings along with attractive packaging are of vital importance to the government while making divestment decision, then, it will be no better than now for the government to capitalise on flourishing market volumes and historic peaks where it is easier to divest a large stake at a higher price.
The government through sequenced divestitures through the capital market will also be able to mobilise savings of individuals, households and institutions, take greater ownership in other successful businesses, help improve and strengthen the local equities markets and attract foreign investment as foreigners are upbeat on the oil and gas, and banking sectors.
In the past, the government has successfully divested holdings in banking, oil and gas, telecom sectors among few others. These sectors are the leading market movers of today and the investors have benefitted, not only through capital gains, but also with hefty dividend payouts.
The government has been able to complete/approve about 167 transactions between 1991 and 2001 to raise Rs476 billion. The source of proceeds was mainly driven by telecoms (39% of total proceeds), banking and capital markets (37%), which included key major capital market transactions such as Pakistan Telecommunication Company, Oil and Gas Development Company, Pakistan Petroleum, Pakistan Oilfields, Sui Southern Gas Company, DG Khan Cement, National Bank of Pakistan, Habib Bank, United Bank, MCB Bank, Bank Alfalah, Attock Refinery and Kot Addu Power Company amongst many.
Published in The Express Tribune, July 19th, 2013.