Despite a dip in share prices, the government will complete its plan to divest 7.5% stake in the Oil and Gas Development Company Limited (OGDCL) in order to secure the next $1.1 billion tranche of the International Monetary Fund (IMF) loan, the country’s top privatisation czar said on Thursday.
Talking to reporters at a news conference in Islamabad, Privatisation Commission (PC) Chairman Muhammad Zubair said the next tranche of the $6.7 billion bailout programme was tied up with the OGDCL transaction.
“Yes, it is a depressing time… it isn’t the right time for a capital market transaction… but the government does not have the option of postponing the deal,” he said when asked about the significant decline in the share values of OGDCL.
The transaction will be carried out at London Stock Exchange and Karachi Stock Exchange (KSE) simultaneously and the book-building process will take place between November 5 and 7. The change in OGDCL’s share value has so far resulted in the anticipated loss of over $100 million or Rs10.3 billion.
Initially, the government was anticipating $815 million to $850 million in receipts by selling 7.5% shares of the company since its shares were being traded for Rs250 at the time, Khurram Schehzad, a member of the PC board, said.
On Thursday, the OGDCL’s shares dipped by 3.88% over previous day’s trading and closed at Rs227.77, according to KSE’s website. On the basis of the current value of the share, the anticipated earnings will be around $730 million. The indications are the government will also offer discount to the investors on the closing share value, which will further reduce its earnings.
“Sometimes one has to make a compromise on price on hope of better returns for the country in long terms,” said Zubair. He said there could be an argument that the transaction might be delayed for a better time but there was no surety that the markets will improve.
Still, he said, there were four working days left before the book building process begins and hoped that the share prices may recover.
On the other hand, he blamed Pakistan Tehreek-e-Insaf’s sit-in and a stay order issued by Peshawar High Court for the ‘loss of precious time’. “The government would have been in a better position if these two things didn’t happen,” the PC chairman said.
The OGDCL transaction has been planned to arrange funds for budget financing besides shoring up foreign currency reserves that are again on the decline. The reserves held by State Bank of Pakistan (SBP) decreased to $8.568 billion by October 24 – a dip of $219 million in a single week, according to SBP.
The next most important thing will be the floor price of the OGDCL share that will be determined on the eve of November 5 by the board of PC, said Zubair. He said the OGDCL’s share prices went down due to reduction in crude oil prices in the international market. “The world equity markets are also depressing”, said Zubair.
“For the government, the most important thing at the moment is building foreign exchange reserves”, he added. He said the situation was precarious and urgent.
Zubair said talks for the IMF’s next loan tranche of $1.1 began in Dubai on Thursday. He told reporters that he would leave today [Friday] to update the IMF about progress on the privatisation programme. He appealed to the political parties and employees of the company to remain calm, as the government was not going to privatise OGDCL.
The company’s first quarter results were also announced on Wednesday, showing the quarterly profits at Rs28.3 billion – a reduction of 16% over previous quarter’s profit. But Mohammad Rafi, the Managing Director of the OGDCL, said that the company’s fundamentals were strong and the reduction in profit was due to increase in exploration activities.
Published in The Express Tribune, October 31st, 2014.
COMMENTS (8)
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The way govt r selling pakistan assests i m affraid after some time we dont have any thing to sell
@Jamshed M: Because we need dollars and have no alternative but to privatize public sector industries. We need dollars to avoid defaulting on our external debt. If we defaulted our importers would not be able to open LCs and there will be a shortage of imported commodities like fuel. Interest rate on future debt will increase too. The value of the rupee will plummet and inflation will increase. All sorts of bad things happen when you default.
There are other reasons too for privatizing OGDCL in particular. Pakistan has a pretty bad image and is considered a high risk country. If you want dollars you have to offer investors a great deal and OGDCL is just that. Our loss making SOEs like PIA and PSM cannot be sold because no one will buy them.
Then there are the reasons for privatization in general. Socialism doesn't work. If today OGDCL is profit making then it might turn into a loss making entity in the future due to political interference. That is what happened to PSM. Efficiency should improve with private sector management because the profit motive is there and political interference is not possible. Unfortunately I don't think they will be handing over management to the private sector with this transaction. It is just the 7.5% stake that they are selling.
@URWA:
BP was public sector once
Pakistan is not India. Our situation is different. For instance we have a few weeks import cover while they have many months worth of forex reserves.
No time for all that. Dollars are urgently needed to avoid default.
The amount is actually $800 million and etisalat will not hand over that money until the government hands over PTCL's land according to the terms of the privatization agreement. Because the government has delayed doing this for so long the value of the land has appreciated well beyond $800 million and so now the government is too greedy to let it go.
Read above for why private sector industries are more efficient. Selling your assets is not beggary. Would you prefer we take more loans instead?
They are already in private hands.
@Jamshed M:
Actually the profits had decreased not increased. http://www.dawn.com/news/1141194/ogdcl-profit-drops-to-rs283bn-in-first-quarter
Government needs a certain amount of revenue. It can either get it from taxes or it can get it by printing money (which leads to inflation) or it can sell its assets. A mix of all 3 is usually used by developing countries. Certainky we see this in India also. This does not imply corruption.
@URWA: India has divested in ONGC. Divestment where shares are sold is different from privatisation where management control is also transferred.
I think this transaction also is divestment not privatisation.
1).No country in the world has privatized its oil and gas assets 2) Indians are not only managing their own oil and gas but involved in exploration and acquisition activities in foreign countries. Oil and Natural Gas Corporation Limited (ONGC) currently has 14 projects across 16 countries. Why PMLN wants to sell state assets? Why not make foreign acquisitions like Indians? 3) All provinces of Pakistan are shareholders why no debate conducted on privatization of state assets in these provinces? Decisions imposed by one family on national issues are rejected. 4) If Government of PMLN is so hungry for money they should 1st get and recover 03 billion dollars from etisalat on PTCL sale pending for the last 7 years. 5) Why Nawaz and Ishaq Dar cannot manage and run state entities? Because they are business man and can only run their personal mills factories they are now richest family in Pakistan and country is a beggar state. 6) Let the assets of ultra rich PMLN family (mills, factories etc) be privatized and general public should be made shraeholders
You should also blame 35% increase in profit of OGDCL to Rs 124 billion this year. Just wonder if OGDCL is giving profit of Rs 124bn a year then why sell stake in it?.
"He said the situation was precarious and urgent."
They left it till the eleventh hour and now are blaming the courts and the opposition parties. Super Dar also deserves the blame for artificially inflating the value of the rupee leading to the erosure of our forex reserves.
one by one all of our national assets and companies will be bought up the the chinese.. they will bring in money and buy us out, as there are no country interested to put money here
Thanks PTI for the $100 million loss. Hopefully this comment will get approved.