Shanghai Electric to buy $1.77b stake in KE

K-Electric, formerly known as Karachi Electric Supply Company, is a publicly listed fully integrated power utility

Salman Siddiqui October 31, 2016
Abraaj Group says it has entered into an agreement with Shanghai Electric to divest its 66.4 pc stake in K-Electric

KARACHI: China’s state-owned Shanghai Electric Power Company Limited (SEP) has reached an agreement with the Dubai-based Abraaj Group to take control of K-Electric (KE) for a price of $1.77 billion, the largest transaction in the history of Pakistan’s private sector.

The transaction is now subject to regulatory approvals. K-Electric has exclusive distribution rights for Karachi and its adjoining areas, serving some 2.5 million consumers.

In a statement issued by the Dubai group, SEP Chairman Wang Yundan said “SEP will leverage its own strengths as a strategic investor and further realise K-Electric’s potential to provide better services to the people of Pakistan and the Government of Pakistan.”

The Abraaj Group owned 66.4% stake in K-Electric via its parent company, KES Power. The power firm was privatised in 2005. The venture capital group took the majority stake in 2009 through its funds. Under its seven years of management, the electric firm “has successfully achieved a landmark turnaround. Operationally, K-Electric has upgraded installed generation capacity by adding over 1,000 MW with overall efficiency levels improving from 30.4% in 2009 to 37.4% in 2016, thereby significantly contributing to the financial performance of the business,” said the statement issued on Sunday.

“The Company was successful in reducing transmission and distribution losses by over 12 percentage points. K-Electric additionally focused on enhancing the reliability of the transmission network through the addition of 12 new grid stations and by augmenting old and building new power lines which resulted in increased transmission capacity of 768 MVA.  In 2012, K-Electric recorded a net positive income for the first time in 17 years and since then has continued to generate positive financial metrics on a year on year basis and demonstrated sustained growth,” it added.

Founder and Group Chief Executive of Abraaj Group Arif Naqvi said: “Today marks a milestone in that partnership {with SEP} as we enter into a definitive agreement to divest our stake in a high performance business and market leader to a strategic buyer who is fully committed to continuing this success story into the future...This is symbolic of a successful public private partnership model where the Government of Pakistan is a core stakeholder.”

SEP is a state-owned enterprise controlled by State Power Investment Corporation, a Fortune 500 company. Listed on the Shanghai Stock Exchange, it is mainly responsible for the power supply of Shanghai.

“Upon completion, this will be one of the largest private sector transactions in Pakistan,” stated the press release issued by the Abraaj Group. The transaction will close once customary closing conditions and requisite regulatory approvals are obtained.

K-Electric, formerly known as Karachi Electric Supply Company, is a publicly listed fully integrated power utility involved in generation, transmission and distribution. It was privatised in 2005. K-Electric is listed on the Pakistan Stock Exchange (PSE). Its share closed at Rs9.10 on Friday, up from Rs0.11 during intra-day trading.

Topline Securities Chief Executive Officer Muhammad Sohail said this would be the largest transaction in the private sector of Pakistan. Otherwise, Privatisation Commission of Pakistan has realised comparatively larger deals, including of Pakistan Telecommunication Company.

He said the transaction may invite the stock specific rally at Pakistan Stock Exchange today (Monday). As per regulations, the acquirer of K-Electric would now offer general shareholders to buy almost 50% of the ordinary shareholding from them. “The offer-to-be should pave the way for a rally.”

Foreign investors’ interest in Pakistan has increased massively in recent days with many of them continuing to increase their stake in PSE-listed companies. Most notably, a Dutch firm has recently acquired Engro Foods from its parent company, the Engro Corporation. Meanwhile, another Chinese firm has shown keen interest in acquiring Dewan Cement. Foreigners were also net buyers at PSE on Friday, even though it maintained its downturn course.

The boost in foreign interest in Pakistani businesses may be attributed to the $46 billion China-Pakistan Economic Corridor.

Published in The Express Tribune, October 29th, 2016.

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