Credit Suisse-led consortium makes bid for advisory services

Govt is looking to sell 18.39% stake in oil and gas exploration company to finance budget

ISLAMABAD: The government may hire a Credit Suisse-led consortium to offload 18.39% stake in Mari Petroleum Company Limited amid its desperation to raise about Rs30 billion for budget financing as its books come under stress.

In response to the Privatisation Commission’s request for Expression of Interests (EOI), only the Credit Suisse-led consortium submitted technical and financial bids till the deadline that expired on Monday, according to Privatisation Commission’s officials. The other members of the consortium are Arib Habib Limited and Elixir Securities. The EOI had been given to hire a party as financial advisor.



This has limited the government’s option to either engage Credit Suisse as financial advisor for the transaction, subject to successful vetting of its bid, or re-advertise the EOI. At Monday’s closing, Mari’s share price was Rs1,548.4 per share, with the government’s 20.2 million or 18.39% valued at Rs31.4 billion or $299 million.

The officials said that due to the successful track record of Credit Suisse, chances are that the government may decide to hire the services of the single bidder. Credit Suisse was also the financial advisor for the two successful capital market transactions of Habib Bank Limited and United Bank Limited.

They said that it was the right time to conclude the transaction due to better financial results of MPCL. During the previous fiscal year, the company earned after-tax profit of Rs9.13 billion - up 50.98% over the previous year. The main reason behind the increase in profit was reduction in expenses on account of Gas Development Surcharges. The company’s gross sales during the last fiscal year amounted to Rs96.8 billion - higher by 1.87% over the previous year.

However, the consortium’s technical and financial bids will be first scrutinised by an evaluation committee that will submit its report to the Board of the Privatisation Commission. The final decision to accept the single-party bid will be taken by the Board.

Due to a single bid, the government will have to take extra care about the fees that it will pay to the financial advisors. The government has decided to divest its 18.3% stake in 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 CCOP had approved Rs1,297 per share transfer price, which the joint venture partners did not accept.

The Fauji Foundation that controls 40% and Oil and Gas Development Company (OGDC) having 20% shares exercised their first right of refusal. Now, the Rs1,297 per share price is the minimum benchmark for the Privatisation Commission.

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 has been on decline since the government gave Expression of Interest a month ago. Before the issuance of the EOI, the Mari gas’s per share price had peaked to Rs1,800.



Although the government will list the transaction at the PSX, international investors will be eligible to participate, hoping that it will get over a quarter of the transaction receipts in dollars.

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

The government’s budget and external accounts came under pressure by the end of the last fiscal year. It booked a record budget deficit of Rs1.863 trillion and $12.1 billion current account deficit - also the highest deficit in a single year.

Due to politically uncertain environment and opposition from within, the government is not in a position to undertake strategic sale of assets and has restricted its options to divestment of its shareholdings in only profitable entities.

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. The dividend had been capped after the government paid relatively higher tariffs to the company on its explorations.

The MPCL’s management is in the hands of Fauji Foundation despite it controlling only 40% of total shares.

Published in The Express Tribune, September 26^th, 2017.

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