Teams leave to sell OGDC assets amid opposition

Parliamentary panel, economists oppose selling govt assets for budget financing.

ISLAMABAD:

At a time when the Oil and Gas Development Company (OGDCL) is itself facing financial problems in initiating new projects, the cash-starved government has dispatched two teams to the world financial capitals for issuance of over $500 million worth of exchangeable bonds backed by OGDCL shares for budget financing.

The government’s attempt to finance the budget deficit by selling shares of OGDCL – the second most affected company due to circular debt after Pakistan State Oil – does not enjoy parliament’s endorsement. The National Assembly Standing Committee on Privatisation opposed the government’s bid to float shares of the blue-chip company – a term used to describe the most profitable and highly-traded entities. Although the parliamentary panel’s decisions are non-binding in nature, its recommendations are based on economic principles.

Last year, OGDCL, the country’s largest oil and gas explorer, for the first time in its history failed to announce a dividend with its quarterly results due to cash constraints due to the circular debt.

The parliamentary panel and independent economists have opposed the transaction on the ground that the government is selling long-term assets to pay off short-term liabilities.

“The Cabinet Committee on Privatisation has approved the transaction and all the legal requirements have been met before the teams departed for the road shows,” said Finance Minister Dr Abdul Hafeez Shaikh. However, the government has not sought the approval of the company’s board of directors. The government took the managing director and the petroleum minister on board, said an official of the Privatisation Commission.

Two teams have already left for Singapore and London to gauge the investors’ response to issuance of 10 per cent shares of OGDCL in a bid to attract $500 to $650 million. The government is struggling to float the bonds before June 30 for which it appointed a consortium of financial advisers, led by Citibank.

The government intends to raise money at an indicative interest rate of 5.27 to 7.25 per cent for a period of five years with an option for the investor either to en cash the bonds or get OGDCL shares after three years. The government will pay minimum $30 million interest annually. However, final rates would depend upon the cost at which the government floats the bonds.

Privatisation Commission analysts believe that OGDCL’s circular debt may push the coupon price up. The explorer’s receivables have already crossed Rs102 billion, sparking fears that the company’s new initiatives like Kunnar Pasakhi and Tando Allahyar integrated projects worth $450 to $500 million and Uch-II project of $186 million could be adversely affected.





Published in The Express Tribune, June 21^st, 2011.