ISLAMABAD: Pakistan scrapped Oil and Gas Development Company’s (OGDCL) transaction after investors subscribed to only half of the total shares offered to international and domestic institutional investors, dealing the first blow to an ambitious privatisation agenda.
The government had pitched 311 million shares at a minimum price of Rs216 per share, but received offers for 162 million shares, or 52%, of the total shares at the conclusion of a three-day bidding process, said Chairman Privatisation Commission Mohammad Zubair.
The decision was taken by the Cabinet Committee on Privatisation (CCOP) that met on Saturday after the closure of the book-building process that ran for three days.
The government had initially hoped to receive $830 million by selling 7.5% of the company’s stakes. However, last week it lowered the expectations to $696 million when the CCOP approved the minimum share price at Rs216 per share. Authorities sustained a blow after the closure of the book-building process when it was revealed that investors offered only $342 million for 52% of the offered shares.
The decision to scrap the deal would save the national exchequer from a loss of at least Rs15 billion that the government would have caused due to the compulsion to sell the stakes under a condition of the International Monetary Fund.
However, the move may serve as a blow to the expectations of the government from the privatisation plan.
For the current fiscal year, it has anticipated receiving $4.5 billion from the privatisation proceeds, including $830 million from the OGDCL transaction. The next big upcoming privatisation transaction is that of Habib Bank Limited, which is expected to be undertaken early next year.
The government hopes to get $1.2 billion by off-loading its remaining 42% shares in bank.
“Under the circumstances, it was not appropriate and feasible to go ahead with the divestment plan of the OGDCL,” said Finance Minister Ishaq Dar.
He said the shares would only be offered for sale when the situation in the international market improves to Pakistan’s best advantage.
Dar said Pakistan’s economy had the resilience to go through this difficult phase, and that there was no need to go ahead with the deal in an unfavourable atmosphere.
“Had all 311 million shares been fully subscribed, the government would still have gone ahead with the deal to sell its stakes at Rs216 per share,” said Zubair while talking to The Express Tribune.
He said $342 million would not affect the economic condition of the country in a big way, thus, there was no need to offload the share at this price.
Zubair said the reduction in oil prices in the international market was the single most important factor that kept the investors at a distance, adding that British Petroleum share prices dropped by 25% in last two months.
In the eyes of the investors, the price per price at Rs216 was too high. Financial advisors hired for the transaction had advised the government to set the price at Rs206 per share, however the government did not accept the advice due to losses it would have caused to the national exchequer, said Zubair.
The Pakistan Peoples Party (PPP) and OGDCL employees had voiced its reservations against the transaction that would have seen the government sell 10% of its stake OGDCL.
Privatisation Commission (PC) Chairman Mohammad Zubair said the government has offered an olive branch to the opposition.
The government, which has faced several obstacles in its attempt to go ahead with the transaction, is already struggling to come up with a credible strategy to justify the poor timing that will reduce its earnings by at least Rs15 billion.
Zubair admitted that the government was undertaking the transaction during difficult times.
COMMENTS (9)
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@Muslim Leaguer:
Agreed sir that the process is "deferred" but what the Government does not realize is the blow back this will have on future capital market transactions. Pulling a transaction after the book build has occurred is the kind of stupidity which makes foreign investors refrain from investing in our capital markets to begin with. Further, if the Government believes it is so competent at gauging investor demand based on their view of what the Floor Price should be, why hire Financial Advisors when they end up disregarding their recommendations to begin with? Once the price point by the Financial Advisors was recommended, the Government had the option to pull the plug right then rather than let the book build go on. Not only has this move frustrated international investors but has undermined the trust of domestic investors in our capital markets as well.
@Ussama Yaqub: Coz they buy for themselves.
Wise move. It's like you wanna sell your car, but if u don't think that u r getting the right price in current scenario, u may postpone it for a more suitable time. No harm done.
This highlights one of the main reasons why the govt drags it's feat on privatization - after pumping Billions into these enterprises they simply can't find buyers willing to pay enough to avoid recognizing a significant loss on disposal. The harsh reality is that those losses exist whether you privatize or not - they are worth what they are worth whether you sell them or not.
Good move to withdraw.
Privatizing banks makes much more sense than ogdcl.
Why is it that privatization under PML-N always starts from the most profitable organizations? Shouldn't it be the other way around!
The upside of this transaction not going through is that people will understand that offer prices are dictated by supply and demand (as opposed to a conspiracy theory whereby PML-N gets globally renowned funds to front for them in order to purchase national assets at discount rates LOL). The government was offering way too much supply at a ridiculously high price, given the context of crash in global oil prices.
I expect HBL and ABL to receive an overwhelming response when the Government offloads it's shares in the market. In fact, I predict a premium to floor price as the final strike price.
The divestment is NOT scrapped But only postponed in view of low oil prices in the international market. There is a fear that these prices will remain suppressed for some time. Under these circumstances it is a wise decision to postpone the off-loading of shares to fetch higher price in future.