Privatisation of PSM to take longer than expected

Govt efforts to hire financial adviser get subdued response

ISLAMABAD: The government has received a subdued response to its offer to hire financial advisers for privatising the loss-making Pakistan Steel Mills (PSM), underscoring that it will have to face challenges in completing some major transactions and getting a fair price due to economic slump and political uncertainty.

The lukewarm response underlines the challenges that the government will face in completing one-and-a-half dozen privatisation transactions.

These include divestment of 7% shares of Oil and Gas Development Company Limited (OGDCL) and 10% stakes in Pakistan Petroleum Limited (PPL).

Compared with the 2014’s offered share price, the Pakistan Tehreek-e-Insaf (PTI) government would earn Rs40 billion less today due to a decrease in share prices of these enterprises.



Till the extended last day, only three consortiums had come forward in response to the Privatisation Commission’s Expression of Interest (EoI) to hire a financial adviser for finding a partner in the closed PSM, the government officials told The Express Tribune on Thursday.

Two of them provided complete documentation while one sought more time, they added.

The consortiums of the Topline Securities, Citi Bank, and Pak-China Investment Bank submitted documents.

One of them sought more time and the decision would be made in the coming days during the evaluation process.

The consortium of Pak-China Investment Bank (lead firm), China Development Bank Securities, M/s Fergusons & Co (PWC), Cornelius, Lane & Mufti (CLM), Abacus Consulting, M/s SinoSteel and M/s Iqbal Nanjee & Co had also been hired in 2015 as financial advisers for the privatisation of PSM. But the last Pakistan Muslim League-Nawaz (PML-N) government had prematurely shelved the programme.



The officials said that Prime Minister Imran Khan was eager to complete the PSM transaction at the earliest after Adviser to the Prime Minister on Commerce Abdul Razak Dawood claimed in October last year that he could do the job in just three months.

However,  the expert group, which had been set up to explore various options to decide the fate of the country’s largest but the closed industrial unit, took six months to give its report to the prime minister.

In October last year, the PTI government had delisted the PSM from the active list of privatisation and decided to revive it. But subsequently, the government decided to restore the PSM on the active list of privatisation last month and initiated the process to hire financial advisers.

Although the PSM had been closed for the last almost four years, the government was paying monthly Rs355 million in salaries to the employees – a financial black hole that it now wanted to plug at the earliest.



It would not be easy for the government to complete these transactions and get a fair price, particularly when the stock market was depressed and there was also political uncertainty in the country. The statements made by some cabinet members about the possibility of war with India could also unnerve the investors.

The Privatisation Commission on Thursday issued fresh six EoIs to hire financial advisers for divestment of the OGDCL and the PPL shares and the privatisation of Guddu Power Plant, Heavy Electrical Complex, House Building Finance Corporation Limited (HBFCL) and First Women Bank Limited (FWBL).

The sources said that the government’s plan was to divest shares of the two blue-chip companies in the next few months to raise funds for budget financing if the outright strategic sales of some loss-making enterprises were not possible.

However, the PTI was following the footsteps of the PML-N that too sold shares in the profitable enterprise, like the PPL and some commercial banks. But today the economic conditions were not ripe to undertake these transactions due to a slump in the stock market.

At Thursday’s closing share price of the OGDCL and PPL, the PTI government would get Rs40 billion less than the offering price of these entities by the PML-N in 2014.

In 2014, the PML-N government had earned Rs15.4 billion by offloading only 5% shares of the PPL at Rs219 per share. On Thursday, the PPL’s share price decreased 4.8% to Rs107.67, according to the PSX summary.

At Thursday’s rate, the PTI government would earn Rs15.2 billion by divesting 10% shares –a potential loss of Rs15.4 billion.

Similarly, the PML-N government had offered the OGDCL share at Rs216 per share, but it canceled the transaction after it was not fully subscribed by the investors. The OGDCL share price also went down by 4.5% to Rs108.7 per share on Thursday.

At today’s rate, the PTI government would earn Rs24.4 billion less by selling 7% stakes in the OGDCL.