Decision on Roosevelt Hotel put off due to backpedalling by stakeholders

PC board gives nod to transaction structures

ISLAMABAD:

The Privatisation Commission (PC) board on Wednesday approved transaction structures for five government entities but put off decision on the fate of Roosevelt Hotel due to backpedalling by stakeholders.

The PC board approved four transaction structures for the privatisation of House Building Finance Corporation (HBFC), First Women Bank Limited, Jinnah Convention Centre and Services Hotel Lahore. Headed by Privatisation Minister Mohammad Mian Soomro, the board also approved the divesting of 20% shares in the profitable Pakistan Reinsurance Company Limited.

The transaction structures will now be placed before the Cabinet Committee on Privatisation (CCOP) and subsequently before the federal cabinet for endorsement, according to a statement of the planning ministry. The board put off decision on divesting shares in blue-chip firms like Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL) and Mari Petroleum Limited. The board will meet next week again to discuss these transactions.

The meeting agenda showed that the Pakistan Tehreek-e-Insaf government did not have an immediate plan to get rid of loss-making power sector and other such entities.

At present, the Ministry of Privatisation is processing the divestment of 18 public sector enterprises (PSEs) but heavy loss-making entities are not part of the list. The board discussed the privatisation of Roosevelt Hotel, New York - an entity owned by Pakistan International Airlines Investment Limited (PIAIL) that was profitable till 2019.

The board was informed that PIAIL refused to upgrade the valuation study despite a decision by the CCOP on July 2, sources told The Express Tribune. PIAIL in July last year had engaged the services of Deloitte Transactions and Business Analytics LLP to conduct the feasibility study. Deloitte in its draft report dated July 18, 2019, after analysing multiple options, recommended that “the highest and best use of Roosevelt Hotel is to redevelop the site into a mixed use of primarily office tower over retail and condominium”.

Sources said PIAIL decision suggested that it did not want to complete the transaction at this stage, which was what experts and political parties were suggesting due to a slump in the realty market.

The CCOP had also directed the Privatisation Commission to engage a financial adviser to convert the hotel property as a joint venture project. However, the Commission has shown its inability to hire the financial adviser due to high cost of engaging companies that are considered the best in Manhattan New York real estate. It has decided to request the Ministry of Finance to bear the cost of financial adviser that may runs into millions of dollars.

In November last year, the CCOP had set up a cabinet task force for privatisation of the hotel but it had to de-notify the taskforce as it was in violation of the Privatisation Ordinance 2000.

HBFCL

The board approved the transaction structure for the privatisation of the HBFCL. It has approved to sell equity stake of up to 100% along with management control in HBFCL. The HBFCL will be allowed to diversify its product portfolio to include other products such as SME Financing, Consumer Financing, Project Financing, Leasing and Asset based financing. The diversified portfolio is to be restricted to 30% of the funds available for deployment.

FWBL

The board also approved transaction structure of the First Women Bank Limited. The financial adviser had proposed to issue new banking license to the buyer and relaxation in Minimum Capital Requirement (MCR).

The board approved to sell 82.64% shareholding of the government in FWBL. The condition on new buyer in the definitive transaction agreements will be to adhere with memorandum & articles of association of FWBL with respect to undertaking the conduct of all forms of business of a banking company in a manner designed to meet special needs of women, and to encourage and assist them in promotion and running of trade and industry and practice of professions.

It is approved that the State Bank of Pakistan (SBP) allows a reduced MCR of Rs6 billion on staggered basis over a five-year period. In the year of privatisation, the limit will be Rs3.5 billion. In the first year it will be Rs4 billion, second year Rs4.5 billion, third year Rs5 billion, fourth year Rs5.5 billion and fifth year onward Rs6 billion.

The FWBL will continue to comply with reduced MCR equivalent to 60% of applicable MCR for commercial banks operating in Pakistan as prescribed by SBP from time to time. No dividend payments will be allowed till compliance with prescribed MCR of Rs6 billion.

The potential bidder must be a financial institution or commercial batik, local or foreign incorporated under the relevant laws and procedures of their home country.

Services International Hotel

The board also approved sale of Services International Hotel Property in Lahore through a bidding process. The area of the property to be sold is 15 Kanal, 3 Marla and 113 Square Feet with four-storey structure having built-up area of 93,850 square feet. The property is to be sold as commercial property and maximum allowable height as communicated by Pakistan Air Force.

Convention Centre

The board also approved sale of Jinnah Convention Centre property with a total area of 7.59 acres through competitive bidding. The existing Jinnah Convention Centre structure will remain intact and prospective investors would be allowed to develop the vacant land.

Pak Reinsurance

The board also approved to divest 20% shares in the Pakistan Reinsurance Company Limited, which will reduce overall government shareholding to 59%. The proposed divestment will allow the government to retain management control of the company.

The shares will be offered to institutional, high net worth individuals and retail investors via publication of Offer for Sale Document at the Pakistan Stock Exchange.

Published in The Express Tribune, July 23^rd, 2020.

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