Govt to float shares of profitable power company

CCOP also approves sale of remaining 18.3% govt stake in Mari Petroleum


Our Correspondent January 28, 2017
CCOP also approves sale of remaining 18.3% govt stake in Mari Petroleum. PHOTO: REUTERS

ISLAMABAD: The government on Friday decided to float shares of Gujranwala power distribution company - probably the only profitable state-owned distribution firm - at the Pakistan Stock Exchange (PSX) to raise money for bridging the budget deficit.

It also approved the transfer price for selling remaining stake in Mari Petroleum Company Limited (MPCL). The Cabinet Committee on Privatisation (CCOP), which met on Friday, took these decisions but again put off a decision on offloading 5% more shares in Oil and Gas Development Company (OGDC) as the timing was not considered appropriate.

Pakistan to sell 40% of stock exchange

The CCOP also approved the transaction structure for the privatisation of SME Bank Limited.

Market forces were at play even before the CCOP meeting and share prices of both MPCL and OGDC dropped significantly during Friday’s trading.

The CCOP approved divestment of 18.3% government shareholding in MPCL either through joint-venture partners including Fauji Foundation and OGDC or the domestic stock exchange.

It approved the transfer price at a 5% discount to the closing stock price on the day prior to which the transfer notice would be served to the joint-venture partners.

MPCL share price dropped Rs27.77 or 1.92% to Rs1,402 on Friday in anticipation of the CCOP decision.

At the 5% discount to the stock price of Rs1,402, the government will fetch about Rs26.8 billion by selling its remaining stake and the money will be used for meeting the budget deficit. Fauji Foundation has a 40% stake in MPCL while OGDC has 20% shareholding.

Gepco

The CCOP agreed to initiate the process of listing Gujranwala Electric Power Company (Gepco) shares at the PSX through an initial public offering.

The government is expected to offload a minimum of 5% shares in the stock market. In fiscal year 2015-16, Gepco posted a profit of Rs10.2 billion while Faisalabad and Islamabad power distribution companies registered heavy losses, though they were profitable earlier. Gepco had net assets of Rs102 billion at the end of last fiscal year.

OGDC

The CCOP deferred the divestment of 5% residual shareholding in OGDC after its members objected to the sale at a time when its share price was declining. OGDC’s stock dropped Rs2.63 or 1.67% to Rs155.26 on Friday.

The Ministry of Petroleum and Natural Resources supported the summary for the share float, but the CCOP, in its collective wisdom, deferred the matter, said Petroleum Minister Shahid Khaqan Abbasi.

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

It was the second time that the government deferred the decision. Earlier, in November 2014, it scrapped the OGDC transaction after investors subscribed only half of the shares offered to international and domestic institutions.

The Pakistan Peoples Party (PPP) and OGDC employees also voiced their reservations about the proposed offloading of a 10% stake.

CCOP members objected, saying it was an ill-timed move and instead of offloading shares, the government should address the circular debt issue as the company’s receivables had crossed Rs150 billion. They argued that the move to sell its stake would adversely affect its stock price in the market.

SME Bank

The CCOP approved the transaction structure for the privatisation of SME Bank in line with the State Bank of Pakistan (SBP) guidelines.

The SBP will issue a new banking licence of a specialised nature (with at least 50% advances for the SME sector) to the investor at a reduced minimum capital requirement (MCR) of Rs6 billion.

The investor will have to inject Rs2 billion upfront and Rs1 billion each for the next four years. However, no dividend and bonus payment will be allowed during the five-year MCR relaxation period.

The SBP will also allow the Capital Adequacy Ratio at 10% for five years. Net worth of the bidder has been set at $50 million and in case of a consortium, a minimum $5 million for each member.

The bank has a paid-up capital of Rs2.39 billion only and is operating 13 commercial branches.

The CCOP also recommended inclusion of the House Building Finance Corporation (HBFC) and First Women Bank Limited (FWBL) in the privatisation programme for their early implementation.

Published in The Express Tribune, January 28th, 2017.

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