Divestment: Mari Petroleum’s stock offer termed overpriced

Govt is offering its 18.39% stake in MPCL to joint-venture partners


Zafar Bhutta February 11, 2017
The company (OGDC) is currently conducting due diligence to assess whether it should buy MPCL shares or not. PHOTO: FILE

ISLAMABAD: The government’s plan to divest its shareholding in Mari Petroleum Company Limited (MPCL) may get derailed as shares it is offering to the company’s joint-venture partners are being considered overpriced.

Earlier, the Cabinet Committee on Privatisation (CCOP), in its meeting held on January 27, approved the sale of 18.39% government stake in MPCL.

It directed that joint-venture partners Fauji Foundation and Oil and Gas Development Company (OGDC) should be offered the shares at a 7.5% discount to the closing stock price on January 27. The stock stood at Rs1,427 that day.

MPCL is a large oil and gas exploration and production company that operates the Mari field in Ghotki, Sindh. OGDC has a 20% stake in MPCL whereas Fauji Foundation has 40% shares. The rest are owned by the general public.

A senior OGDC official told The Express Tribune that the government had sent a share transfer notice to the company to allow it to use its “first right” to purchase government shares in MPCL.

“The board of directors of OGDC, a state-owned company, will meet on Wednesday next week to take a decision,” he said.

The company, according to the official, is currently conducting due diligence to assess whether it should buy the shares or not. However, he said, the stock looked overpriced in the first place.

He was of the view that OGDC would require a huge investment to buy the stock and the company was assessing how much dividend it would receive after making such a massive capital injection.

He believed that it may not be possible even for the Fauji Foundation to acquire MPCL shares due to the inflated price.

“We have fears that OGDC may incur a loss due to the high MPCL stock price; a final decision will be taken by the board in its upcoming meeting,” he said.

The Cabinet Committee on Privatisation noted in its meeting that if the joint-venture partners refused to exercise their first right of purchase, the government would not be able to float MPCL shares in the stock market below the offered price.

The Ministry of Petroleum and Natural Resources told the committee that audit companies might not be able to determine a fair value of MPCL shares as it would require a comprehensive analysis of oil reserves and other allied information.

Still, it said, MPCL had been told to ask the auditors about the information needed to determine the fair value of government shareholding and also the time frame required to undertake the valuation exercise.

MPCL was of the view that only an auditors’ certificate was required for reaching an agreement on the stake sale and no stock valuation was needed from any consulting firms and auditors.

The original agreement was reached among three major shareholders in 1985 when MPCL was not a listed company. However, now the company is traded on the stock exchange and the market value of its shares reflects all the necessary considerations.

Therefore, MPCL proposed that the fair share valuation may be based on the average stock price for the previous six months. However, the proposal was rejected.

Published in The Express Tribune, February 12th, 2017.

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