K-Electric stake sale: Abraaj Group to get only half of receipts

Has 50% stake in holding company of power utility.

ISLAMABAD: The Abraaj Group that has sold its stake in K-Electric to a Chinese company for $1.77 billion will get only half of total receipts as the first buyer of the country’s largest integrated power utility still keeps its investment through an offshore entity.

As per the shareholders agreement, the Abraaj Group has a 50% stake in KES Power - the holding company of K-Electric - and will get half of the total price, said sources. It means if the deal materialises, the Abraaj Group would have claim over $785 million.



But the deal between the Abraaj Group and Shanghai Electric Power, announced in August last year, has not yet been cleared by the federal government. The Abraaj Group had sold KES Power - the offshore entity that controls 66.4% of K-Electric shares - to the China-based company.

The deal is contingent upon settlement of issues between the government and the seller. Pakistan has not yet given the requisite regulatory approvals.

Saudi Arabian AlJomiah Group had bought 66.4% stake in the then government-owned Karachi Electric Supply Company (KESC) at a price of $265 million in 2005. Now, subject to the government’s clearance, the remaining $785 million will be distributed among three partners -AlJomiah Group, National Investment Group of Kuwait and a Pakistani businessman.

In October 2008, the Saudi investor-led holding company, which owned majority shares in KESC, had handed over a 50% stake along with management control to Abraaj Capital.

In the past eight years, the Abraaj Group has been credited with turning around the loss-making entity and it will now reap the benefit in shape of huge returns on investment.

The Abraaj Group would get close to half of the total sale price of K-Electric, a senior official of K-Electric confirmed to The Express Tribune. He said there was a well-defined structure among K-Electric shareholders.



After the Abraaj Group could not timely conclude the deal, it sought an extension from the buyer as well as the regulator. The seller and the buyer had agreed to conclude the deal by March 17 this year, which has been missed.

The delay occurred because of the failure to settle financial dispute between Pakistani authorities and the Abraaj Group, resulting in withholding of the National Security Clearance Certificate to Shanghai Electric.

The amount in question was $1.24 billion, which K-Electric owed to two government entities, said officials of the Ministry of Water and Power and Sui Southern Gas Company.

In order to give the security clearance certificate, the Privatisation Commission needs no-objection certificates from the Ministry of Water and Power, Ministry of Finance, Federal Board of Revenue, Ministry of Petroleum, Ministry of Defence and Ministry of Interior.

Last week, the commission sent a reminder to all the departments, but so far no response has been received, said the sources. The FBR is currently dealing with Rs1.2 billion in outstanding tax claims against K-Electric and a hearing is going to take place on Friday. Without reaching a settlement, the FBR cannot give clearance certificate.

“Meeting statutory requirements was the most important issue at the moment and there is good progress on that,” claimed the senior official of K-Electric.

He said both the Abraaj Group and Shanghai Electric Power were still committed to the deal.

The deal is very important for the citizens of Karachi as Shanghai Electric Power has announced a plan to expand the generation and distribution capacity with an investment of $9 billion in the company.

Published in The Express Tribune, April 27^th, 2017.

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