The Abraaj Group considering divesting stake in K-Electric

Company’s share price increased 2.4% Monday following the notice to PSX

KARACHI: A little over two weeks after K-Electric dismissed acquisition rumours, terming them incorrect and speculative, the company announced that its majority shareholder was evaluating the possibility of divesting its stake in the company, according to a early-morning notice sent to the Pakistan Stock Exchange (PSX).

The company’s share price increased 2.4% Monday, closing at Rs9.09 per share.



The notice comes after weeks of rumours, speculation and news reports that either reinforced or downplayed the possibility of The Abraaj Group, K-Electric’s majority shareholder, considering divestment of its stake in the power distribution and transmission company.

“We would like to notify that Abraaj is evaluating the possibility of divesting (directly or indirectly) its shareholding in K-Electric…,” Muhammad Rizwan Dalia, Director Finance and Company Secretary K-Electric, said in the notification to Pakistan Stock Exchange.

The announcement, coupled with disclosure of its (K-Electric) plan to invest $2.2 billion to improve its generation capacity and to upgrade its current transmission and distribution network, invited significant attention of investors, Nabeel Haroon at JS Global Research said in a post-market comment.

It emerged as the volume leader of the day with close to 50 million shares changing hands. Its share price increased Rs0.21.

The company has remained in the headlines in the last few weeks in connection with its possible acquisition by a couple of Chinese firms and a local conglomerate. However, K-Electric and Engro Corporation refuted media reports.

Equity investors, however, continued to take an interest in the share, which has gone up by Rs0.76, or 9.12%, to date since May 2.

Chinese state-backed firms including Shanghai Electric Power, China Southern Power Grid and Golden Concord Holdings are said to be among about half a dozen possible bidders of K-Electric.



Murtaza Hussain, Company Secretary, KES Power Limited added in the notification to the Exchange that the likely divestment will be subject to a prescribed sales process, due diligence and execution of binding documentation (including receipt of applicable regulatory approvals and satisfaction of other conditions precedent).

Background

Abraaj Group, a Dubai-based private equity, in partnership with Al Jomaih Group of Saudi Arabia and National Industries Group of Kuwait, holds a total shareholding of 66.4% in K-Electric. The three-firm consortium operates in the name of KES Power, which is the parent company of KE.

The financial health and share price of the company kept improving since The Abraaj Group bought the stake in 2008. The company posted a profit in fiscal year 2012 for the first time in the last 17 years.

K-Electric’s net profit surged 40 percent on year-on-year basis to Rs22.79 billion in the nine-month period ended March 31, 2016. The surge was backed by boost in sales and drop in cost of purchase and production of electricity.

K-Electric supplies power to over 22 million people living in Karachi and Gharo in Sindh and Hub, Uthal, Vindar and Bela in Balochistan, KE added.

What analysts have to say

Muhammad Sohail, Chief Executive at Topline Securities, said it was not a negative development if The Abraaj Group was considering selling its stakes in KE.

“Abraaj is a private equity firm. Its business model is like this - it makes [risky] investments, improves working of the firms and sells them when it finds time favourable,” he said.

“KE is one such successful turnaround case. Universities in US are using it as a case study,” he said.

He said this remained a successful year for mergers and acquisitions in Pakistan. Acquisition of Dawlance, Engro Foods and Mobilink-Warid mergers are some of the examples.

“Another three-four such developments are in the pipeline,” he said.

Syed Fakhar Ahmed, Chief Marketing & Communication Officer, K-Electric, commented that KE has invested $1.2 billion and added 1,037 megawatts in the grid with a commitment to further invest $2.2 billion as part of its overall future investment plan.

KE’s upcoming projects also include a 700MW coal-fired at Port Qasim and two dual fuel (gas & HFO) power projects of 250MW and 200MW in Korangi and Baldia respectively.

Published in The Express Tribune, August 30^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.