Business

Govt’s strategic sale: Under-valued sale of Heavy Electric Complex approved

Price set by Privatisation Commission is much lower than fair market value of entity.

Shahbaz Rana March 09, 2015

Price set by Privatisation Commission is much lower than fair market value of entity. CREATIVE COMMONS

ISLAMABAD:

The Privatisation Commission Board on Monday approved to fix the reference price to sell Heavy Electric Complex at over Rs500 million – which is around two-and-a-half times lower than the forced sale price and three times lower than the fair market value of the entity.

Headed by Privatisation Commission Chairman Mohammad Zubair, the Board fixed the reference price of the HEC at just Rs35.72 per share, a senior official of the PC told The Express Tribune. The Board also approved to sell the HEC on a sole bid basis. Against the three pre-qualified bidders, only Cargill Holdings deposited Rs25 million as earnest money.

The CCoP ratified and confirmed the decision taken by the PC Board subject to the bidding results, which will open on Tuesday with the condition that whoever acquires the HEC will continue to do industrial business on the complex for a specified number of years that will be decided later by the PC Board, according to a handout issued by the Finance Ministry.

The government had hired Deloitte Pakistan as financial advisor but the PC Board went against its advice.

The official said Deloitte Pakistan had recommended the PC Board that the representative range for determining reserve price should be between Rs85.57 per share, valuing the company at Rs1.248 billion, to Rs101.08 per share, valuing it at Rs1.475 billion. The representative range was worked out under the asset based approach of valuation.

But the PC Board fixed the reference price, which was 250% less than even the forced sale value. It was also 295% less than the fair market price of the entity, said the official. He said these prices had been worked out by the financial advisor on the basis of April 2014’s financial results of the company. The financial advisor recommended the Board to adopt an asset-based approach where the company has been valued by comparing it with similar assets that have been sold in the recent past making adjustments of different size, quantity and quality, said an official of the Ministry of Finance and Privatisation.

The HEC will be the first strategic sale by the PML-N government — so far its privatisation programme was restricted to selling stakes in profitable entities. The government wants to sell 97% or 1.4 million shares to the buyer.

The HEC is engaged in manufacturing of powers transformers with a total annual capacity of 3,000MVA and is spread over 81 acres.

Two parties – Elahi Electronics and Fauji Fertilizer Company Limited – did not submit the earnest money. This has left Cargill Holdings Limited as the sole party vying for the HEC. The PC Board has additionally setup a negotiation committee that will consult the final sale price with the sole bidder, said the Ministry of Finance and Privatisation official.

On the basis of the financial advisor’s evaluation, the Ministry of Finance and Privatisation had moved the summary to the PC Board. The official said that during the PC Board meeting, Deloitte Pakistan briefed the board that on the basis of financial results of the company for the period ending on December 2014, the forced value would be roughly Rs990 million. The official said the presentation did not have a legal base and the decision had to be taken on the basis of the summary moved by the Ministry of Finance and Privatisation.

In a fair market price, the HEC’s fixed assets have been estimated at Rs1.132 billion and other assets at Rs387.4 million. After making adjustments, the net fair market prices of the assets have been valued at Rs1.475 billion.

According to the HEC’s balance sheet for the period ending December 2014, the company’s total assets were Rs1.614 billion

The PC Board would meet again on Tuesday to approve a negotiated price. During an evaluation meeting, Cargill had expressed concerns over the physical condition of the HEC’s main machine, which according to HEC officials would cost Rs250 million to the buyer.

Published in The Express Tribune, March 10^th, 2015.

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COMMENTS (2)

smalee | 9 years ago | Reply AoA, Let me clear, none of them is honest. so no need to take tension. As far as steel mill is concern, Govt is doing everything to prove that Musharaf was right. so dont think about schools and think about another motorway or metro from 100 Billion :)

AsR | 9 years ago | Reply When the karachi steel mill was going to be privatized, the same stories appeared. But look now it is still in loss and government has almost given it 100 billion rupees so far. Imagine if stell mill had been privatized, this money could be saved and thousand of new schools could be built with this money.

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