Global share float depends on investor confidence

Govt plans to sell shares of HBL, NBP and Kot Addu in the London market.

ISLAMABAD:

The government’s plan to list shares of Pakistani companies on the London Stock Exchange depends on the success or failure of the upcoming exchangeable bonds of the Oil and Gas Development Company (OGDCL), which will test the interest of international investors in Pakistani companies.

The Privatisation Commission intends to float Global Depository Receipts (GDRs) – a term used for listing of companies’ shares outside the country – of Habib Bank Limited (HBL), National Bank of Pakistan (NBP) and Kot Addu Power Company (Kapco) in the London market.

Privatisation Commission sources said 12 companies have been approved for floating their shares in capital markets over two years. The government is planning to generate $830 million by tapping both the international and domestic markets. Three of them are suggested to be listed on the London stock market.

After an unsuccessful attempt to issue $4.5 billion worth of GDRs in 2008, the government is again considering tapping the international market. Had the government succeeded in floating the earlier GDRs, it would have been able to avoid the balance of payments crisis that forced the country to seek a bailout package of $11.3 billion from the International Monetary Fund (IMF), believe many independent experts.

The government is in the process of raising $500 million by issuing 10 per cent shares of OGDCL in the international market and has appointed a consortium of financial advisers, led by Citibank. However, it has faced a major setback as the Standing Committee on Privatisation has opposed the transaction, questioning the legality and rationale of the deal.

A successful completion of the share float will not only depend on market dynamics but also the level of confidence that international investors have in a country marred by political instability and security problems.

This time, the government plans to raise only $150 million through GDRs but experts are looking at the trust investors will show by investing in government-backed financial instruments. Last time, Pakistan successfully completed an international transaction in 2007 when the Shaukat Aziz-led government issued euro bonds.

The government wants to sell five per cent shares of NBP in the international market and expects to generate $57 million, according to Privatisation Commission documents. Currently, the government holds 66 per cent shares in the bank.

It also wants to float five per cent shares of HBL and expects to generate $72 million. It has a 37 per cent stake in the bank. The government also wants to list five per cent shares of Kapco in the international market, estimating $22 million worth of subscriptions.

Besides, the government is also planning to offload two per cent shares of HBL in the domestic stock market through a Secondary Public Offering, meaning only those shareholders can buy shares who already own shares of the bank. This is expected to generate Rs24 billion ($28 million).

The National Insurance Corporation Limited – a company in the midst of a corruption scandal – is also on the list for the capital market transaction. The government wants to make an Initial Public Offering by selling 10 per cent shares of the company.

Another state-owned insurance company, the State Life Insurance Corporation, is also on the list with the government planning to sell 20 per cent shares through an IPO.

Published in The Express Tribune, May 28^th, 2011.