The international equity markets have shown sign of improvements following the approval of the austerity measures by the Greek Parliament, paving the way for Pakistan to issue $500 million worth of bonds-backed by the Oil and Gas Development Company (OGDCL) shares by July 15, says top government functionary.
Secretary Privatisation Shahid Raja told The Express Tribune that Islamabad may hit the international capital markets again, as financial advisers have given a ‘positive response’. Islamabad had postponed the bond issuance two weeks ago as foreign investors advised the government to let the Greece debt crisis be resolved first.
The authorities wanted to raise $500 to $650 million before June 30 to finance the yawning budget deficit by selling up to ten per cent of its share in OGDCL. The Privatisation Commission had issued a statement, announcing postponement of the issuance till international equity markets improve.
“Desperate time has passed and Islamabad is not that desperate now,” he said. The economic managers faced criticism for wrong timing and above all selling a highly valued company’s shares for budget financing.
The economic managers were also slammed for converting the deal show into a ‘no-deal’ event by deciding a day before the road show not to disclose the size of the bond and the interest rate to potential investors.
Raja said the financial advisers have yet not reported or claimed the expenses for road shows. However, expenses for the road shows are capped at $49,000 under the Financial Advisery Services Agreement.
“The out of pocket expenses are capped at $1.4 million till July 20. However, these may be marginally increased, if lawyers need to rework or update any of the documents they have already produced,” he added. The out of pocket expenses are for services provided by third parties such as auditors, lawyers and other miscellaneous expenses like the road shows. The largest out of pocket expense was $500,000 for a lengthy document depicting state of the local economy.
However, the secretary said that significant increase in out of pocket expenses remains unlikely as nothing in the context has materially changed that would require rework from lawyers.
The secretary said the government has not paid any fee to the Financial Advisery Consortium. “The fee will only be paid if the transaction is successfully launched”. He added that the fee levels are well below the regional fees level which is estimated to average around 1.5 per cent to 2 per cent of the bond value. “The fees agreed with the financial adviser is one of the lowest ever negotiated by the privatisation commission compared with similar transactions in the past including OGDCL and United Bank Global Depository Receipts.
He said the commission managed the entire process of hiring financial advisers in a transparent manner. Raja added there was no plan to review the agreement with the financial advisers inspite of the fact that they failed to advise the government on the timing of entering the international market.
Published in The Express Tribune, July 8th, 2011.
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