Govt decides to divest 18.3% stake in Mari Petroleum

Expects to earn minimum of Rs25b from sale, amount to bridge budget deficit.

ISLAMABAD: The government has decided to divest its 18.3% stake in Mari Petroleum Company Limited (MPCL) at the stock market after two other joint venture partners refused to buy these shares at a price approved by the Cabinet Committee on Privatisation (CCoP).

The Board of Privatisation Commission on Wednesday allowed the government to hire a financial advisor to undertake the transaction, according to the commission’s officials. The government took the decision after Fauji Foundation that controls 40% and Oil and Gas Development Company (OGDC), having 20% shares, exercised their “first right of refusal”.

Since the government has not appointed a new privatisation chairman, Aziz Nishtar chaired the board meeting.

It has not yet been decided whether the government would offload these shares at the Pakistan Stock Exchange (PSX) or decide to tap international markets. However, chances are that the government may conduct a domestic transaction, as the company is not listed at the London Stock Exchange.

The MPCL is a large oil and gas exploration and production company that operates the Mari field in Ghotki, Sindh. The blue-chip company’s share price rose to Rs1,585.66, for a gain of Rs41.49 or 2.7%, on a day the KSE-100 Index also advanced by 0.43%.

The CCoP had approved the transfer price for selling 18.3% stake at a 5% discount to the closing stock price on the day prior to which the transfer notice had been served to the joint-venture partners. The stock stood at Rs1,427 that day, meaning that the transfer price would be Rs1,355 per share.

However, the joint venture partners were of the view that the government had “overpriced” its share.

At the stock price of Rs1,355, the government will fetch a minimum Rs25 billion with the money being used to meet the budget deficit.

Even in the case of divesting the stake at the stock market, the government cannot sell the shares below Rs1,355 per share. In its meeting, the CCoP had noted 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.

Government’s repeated moves

The PML-N government’s privatisation programme has so far largely remained restricted to divestment of profitable companies at the stock markets. In its tenure, the government has earned $1.7 billion by undertaking five divestment transactions in banking, oil and gas sectors.

As international oil prices start to rebound, there are expectations that the government will fetch a good price. Stock market investors seem to have an appetite for MPCL shares due to certain arrangements that benefit the company’s future investment plans, according to officials.

Till 2024, the company cannot pay dividend beyond a certain threshold, which has built sufficient capital for future investments, according to officials having knowledge of these agreements. The dividend had been capped after the government paid relatively higher tariffs to the company on its explorations.

Management dispute

The MPCL’s management is in the hands of Fauji Foundation despite it controlling only 40% of total shares. Sources said that the Fauji Foundation insisted that as per 1985 agreement, the management should remain in the hands of Fauji Foundation even after the government sells its residual shareholding. At present, 20% shares are in the hands of public.

However, Board members refused to accept Fauji Foundation’s plea, arguing that the demand was unrealistic. They were of the view that as per the Companies Ordinance 1984, the management will vest in the hands of those who have majority shares. In case of a conflict between shareholders agreement and the Companies Ordinance, the law will prevail over any other arrangement.

Published in The Express Tribune, April 13^th, 2017.

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