Govt's remaining stake in Kot Addu Power Company to be sold

ISLAMABAD: The board of Privatisation Commission (PC) on Monday approved the offloading of government’s remaining 40.25% stake in Kot Addu Power Company (Kapco) on the stock market aimed at paving the way for last round of talks with the International Monetary Fund (IMF).

Headed by PC Chairman Mohammad Zubair, the board did not take decision on the price of Kapco shares, terming it a premature move.



The share price of Kapco went up 2.35% to Rs91.91 on the Pakistan Stock Exchange (PSX) on Monday after reports that the government was set to sell its remaining stake in the company by March next year as a strategic sale to prospective local or international bidders.

The board also agreed to resolve a decades-old dispute with the Schon Group of Companies over outstanding payments of three enterprises that the group had acquired during the first tenure of the PML-N government. As a result, the government would recover over Rs523 million from the Schon Group and the group would have the right to sell 1,400 kanals of land of Pak-China Fertilizer Company that it acquired in May 1992.



The PC board met just days before the last round of Pakistan-IMF talks under the $6.2 billion bailout package. After failing to push the government to privatise the loss-making energy enterprises, the IMF has now agreed to a strategy of divesting shares of these companies in stock markets.

The offloading of shares on the stock market will give billions of rupees to the government for budget financing but will not resolve the chronic issue of losses as these companies will remain under state control.

Under an agreement with the IMF, the government will give an advertisement by July 15, 2016 to invite Expressions of Interest from prospective bidders for selling its remaining 354.33 million or 40.25% shares through a capital market transaction.

The government will also sell a minority stake in the Faisalabad Electricity Supply Company (Fesco) on the stock market by November this year, according to IMF documents. After that, Iesco and Lesco shares will be sold through the capital market.

So far, the government has earned more than $1.7 billion through easy capital market transactions. Such transactions do not meet the objectives of privatisation such as improved service delivery to the people and minimising losses to the public exchequer.



Kapco has a power generation capacity of 1,600 megawatts and is a combined-cycle power plant. It is listed on the PSX with market capitalisation of over $750 million as of June 30 this year.

Kapco is at an early stage of purchasing a 660MW coal-fired fast-track power plant under the China-Pakistan Economic Corridor through a wholly owned subsidiary. Wapda, financial institutions and reputable industrial groups jointly own the company.

The PC has already appointed a consortium comprising Dubai Islamic Bank, Deloitte, Lummus Consultants International, Mohsin Tahebal & Co and Latham & Watkins as financial advisers for the Kapco transaction.

Pricing

The advisers valued Kapco under the Discounted Cash Flow (DCF) model and market-based valuation. Depending on various conditions, the advisers valued the government’s 40.25% stake in the range of Rs24.4 billion to Rs28.2 billion under the DCF model, if Kapco’s power purchase agreement is not extended beyond June 2021.

In case of a 10-year extension in the agreement, the stake is valued in the range of Rs33.3 billion to Rs37.3 billion under the DCF model.

Under market-based valuation, the 40.25% stake is valued in the range of Rs24.4 billion to Rs28.1 billion.

However, the PC board was of the view that the pricing would be determined later and it did not discuss the models in detail, said the officials who attended the meeting.

One-tenth of government’s shares or 35.43 million will be offered to the eligible employees of Wapda and Kapco for subscription, according to the PC board decision.

Published in The Express Tribune, July 12^th, 2016.

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