Credit Suisse-led consortium chosen as financial advisers

Will provide advisory facility for privatisation transactions of two power plants

Shahbaz Rana March 21, 2019

ISLAMABAD: The Credit Suisse AG Group has won a bid to provide financial advisory services for one of the biggest privatisation transactions of two-LNG fired power plants that is expected to fetch around $2 billion for cash-starved Pakistan.

The consortium led by Credit Suisse and comprises of Elixir Securities, Ernst & Young Ford Rhodes, Lummus Consultants International, Akhund Forbes and Latham & Watkins has emerged successful for playing the role of the financial adviser, said the Ministry of Privatization on Wednesday.

Headed by Privatisation Minister Mohammad Mian Soomro, the Board of Privatisation approved to hire the Credit Suisse consortium as the financial advisor. The consortium got the highest marks, of close to 97 - higher by four marks than the second consortium led by Lazard Freres.  The financial advisory service agreement is expected to be signed with the Credit Suisse consortium next week, subject to fulfilment of all requirements, said Privatization Secretary Rizwan Malik.

The Board has also setup a Steering Committee for monitoring of the privatisation transaction, which the government wants to complete at the earliest to arrange funds for budget financing.

Although Pakistan expects minimum $2 billion price or Rs280 billion, it hopes that the final price may be higher than this due to interest shown by the investors.

At a benchmark sale price of $2 billion, Pakistan will pay a minimum $11.6 million as success and retention fees to the Credit Suisse consortium. The Credit Suisse had quoted 0.34% of the transaction value as success fee, $4.36 million as retention fee and nearly $500,000 in out of pocket expenses. At the technical stage, the Credit Suisse was at number one position but it quoted second lowest financial bid of $11.6 billion. The Citi Group led consortium quoted the lowest financial bid but it was at number four at the technical stage.

The JP Morgan consortium quoted the highest financial bid of nearly $17.5 million that pushed it at the bottom of among five bidders, according to a senior official of the privatisation ministry.

Pakistan is selling National Power Parks Management Co, the state-owned firm that owns and runs the 1,230-megawatt Haveli Bahadur Shah plant and the 1,223-megawatt Balloki plant. Both plants are located in Punjab province.

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Finance Minister Asad Umar is keen to close the transaction by June this year aimed at containing a yawning budget deficit, which could touch 7% of GDP. However, during their presentation for qualifying the job of the financial advisers, the foreign banks told the privatisation ministry that it would take minimum eight to ten months from the date of their hiring to complete the transaction. The Chinese, Saudi Arabian and Qatar investors have shown interests in acquiring the LNG-fired power plants, said the privatisation secretary.

However, the Ministry of Finance has yet to resolve the issue of Rs33 billion short-term loans that the Pakistan Development Fund Limited (PDFL) provided to the firm that runs these plants. The options in front of it are converting the short-term loan into a long-term loan of 10 years or converting it into equity of PDFL.

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The privatisation secretary said that the government has run a transparent and competitive process to hire the financial advisers. Pakistan had received about 10 bids from groups seeking a financial advisory role.

The Cabinet Committee on Privatisation (CCOP) in October 2018 directed to initiate the process for privatisation of 1223MW Balloki Power Plant and 1230MW Haveli Bahadur Power Plant owned by National Power Parks Management Company (Private) Limited (NPPMCL). Later on, CCOP also decided that financial advisers be appointed to advise the government of Pakistan on structuring the deal keeping in view the financial/legal parameters, so as to optimise the prospective return from the projects.

The government had invited Expression of Interest (EOI) for hiring of financial adviser for privatisation in January this year. The last date for submission of EOI from the IPs was fixed February 8, 2019. On February 11, 2019, an evaluation committee short-listed the six interested parties.  Subsequently, five short-listed interested parties submitted the technical & financial proposals.

The privatisation secretary said that the hiring process included all the requirements as per PPRA Regulations and PC (Hiring of Financial Advisers) Regulations, 2018 and other relevant statuary bindings in arriving at fair transparent evaluation following the relevant provisions of regulatory frame work prescribed for the purpose including approval of Council of Common Interest in this regard.

Published in The Express Tribune, March 21st, 2019.

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