K-Electric acquisition: Shanghai Electric receives nine-month extension

Deal may be executed at 15-20% discount over price of $1.77b agreed in Oct 2016

KARACHI: China’s state-owned Shanghai Electric Power Company has got a nine-month extension for the acquisition of a majority stake in K-Electric from Dubai-based Abraaj Group, but it has yet to determine the price at which the long-pending deal will be executed.

This is the fourth time the Chinese firm has submitted a public announcement of intention (PAI) to acquire the Karachi-based integrated power company since October 2016 as it has yet to win required approval from regulatory authorities.

In October 2016, the Abraaj Group had announced that a deal had been struck at $1.77 billion. Several quarters have speculated a downward revision in the final price after the power-sector regulator made a less-than-expected increase in power tariff for end-consumers.

“The deal may be executed at a 15-20% discount from the earlier price ($1.77 billion) agreed in October 2016,” said an official involved in negotiations on the Shanghai Electric Power and K-Electric deal.

However, he rejected the speculation suggesting that the price may go as low as $1 billion. The fresh announcement has once again given nine-month time to Shanghai Electric Power to get the required approvals, he said.



“It is hereby informed that K-Electric has received fresh public announcement of intention (PAI) from Shanghai Electric Power Company (SEP) to acquire up to 66.4% voting shares in K-Electric Limited…subject to receipt of requisite regulatory and other approvals,” K-Electric Company Secretary Muhammad Rizwan Dalia said in a notification to the Pakistan Stock Exchange (PSX) on Monday.

The multinational firm resubmitted the public announcement as the previous one expired on December 21.

K-Electric emerged as the second highest volume leader with trading in 6.4 million shares at the PSX on Monday. Its share price inched up Rs0.01, or 0.17%, and closed at Rs6.03.

The official said Shanghai Electric had accepted the latest multi-year power tariff of Rs12.82 per unit announced by the National Electric Power Regulatory Authority (Nepra) against the demand for Rs16.1. The tariff has been announced for the period July 2016 to June 2023.

Besides, the Abraaj Group has also accepted the government’s demand for disclosing the sale-purchase agreement (SPA) it signed at the time of its acquisition of K-Electric in 2005.



“K-Electric has agreed to submit SPA to the regulatory authorities, including Nepra and the Privatisation Commission,” he said, adding they were also expected to resolve the issue of managing pending liabilities, better known as the circular debt, on K-Electric’s balance sheet after the acquisition.

“I think almost all the pending issues for the required regulatory approvals are near their logical end…the fresh nine-month extension should be enough to execute the deal this time around,” he voiced hope. The Abraaj Group owns 66.4% stake in K-Electric via its parent company, KES Power. The power firm was privatised in 2005. The venture capital group took the majority stake in 2009 through its funds.

The 66.4% stake is equivalent to 18.33 billion shares, according to the manager to the offer, Arif Habib Limited.

K-Electric is an integrated power generation, distribution and transmission firm. It has exclusive distribution rights for Karachi and its adjoining areas, serving some 2.5 million consumers.

Published in The Express Tribune, December 25^th, 2018.

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