CCOP okays structure for PSM sale

Subsidiary of the industrial unit will be set up for transaction

ISLAMABAD:

The Cabinet Committee on Privatisation (CCOP) on Thursday approved the transaction structure for sale of Pakistan Steel Mills (PSM) by setting up a subsidiary of the country’s largest but closed industrial unit.

Headed by Finance Minister Dr Abdul Hafeez Shaikh, the CCOP left the decision on the number of shares to be sold to prospective bidders open. However, it was agreed that the majority of shares of the subsidiary would be sold.

On the recommendation of the committee, chaired by the minister for privatisation, the CCOP approved the transaction structure for PSM, said the Ministry of Finance after the CCOP meeting.

The approved structure will allow transfer of identified core operating assets to a wholly owned subsidiary of PSM through the Scheme of Arrangement (as provided in the Companies Act 2017) followed by the sale of majority shares of the newly formed subsidiary, without transferring full ownership to the strategic private sector partner, according to the Ministry of Finance.

The meeting was informed that the government would try to conclude the PSM privatisation transaction by June next year. The Pakistan Tehreek-e-Insaf (PTI) government has so far failed to either privatise or restructure and revive any loss-making entity during two and a half year.

Financial advisers hired to finalise the transaction structure had estimated that for the revival and expansion of PSM, the investor may need to invest $1.4 billion over a period of three years.

At the initial stage, the Privatisation Commission (PC) board had reviewed two options – whether to set up a wholly owned subsidiary of PSM under the Companies Act 2017 and then sell majority stake of the subsidiary or give the unit on lease for 30 years.

The board recommended setting up a wholly owned subsidiary to sell majority shares in the subsidiary to the private sector investor, as there was no precedent to give an asset on lease for 30 years in the public sector.

Financial advisers have recommended offering 51% to 75% shares in the new subsidiary but the CCOP decided that the final offer would be made after completion of valuation of land to be given on lease to the investors.

After initially wasting a year, in June last year the government decided to revive PSM without full transfer of ownership. An idea had also been floated to give PSM on lease but the proposal was not found feasible.

As per the approved proposal, the core operating assets will be transferred to the wholly owned subsidiary through the Scheme of Arrangement that will be approved by the Securities and Exchange Commission of Pakistan (SECP).

The core operating assets will be carved out, excluding the land. About 7% of the total land or 1,268 acres of core land will be leased out to the subsidiary for the use of PSM. The remaining land value of over Rs310 billion will remain with the PSM Corporation.

PSM will sign a land lease agreement with the new subsidiary for the sole purpose of steel manufacturing, according to the proposed transaction structure.

No decision was taken on the issue of exclusive rights to operate the jetty owned by the Port Qasim Authority, and the Right of Way.

The previous Pakistan Muslim League-Nawaz (PML-N) government had closed PSM in June 2015 and since then the federal government has paid Rs33 billion to its employees. As of June 2019, PSM losses stood at Rs190 billion and its on-balance sheet liabilities were Rs228 billion.

There was also off-balance sheet liabilities of Rs73.8 billion, which would take the total liabilities to Rs302 billion, according to the PC documents. PSM’s bad assets would be retained and a plan for settling its liabilities would be presented to the Economic Coordination Committee (ECC) of the cabinet.

The Rs67.3 billion liabilities of banks, Rs61.7 billion liabilities of Sui Southern Gas Company (SSGC), employees’ liabilities of Rs53.6 billion, litigation and land issues will remain with PSM. There are also Rs33.5 billion worth of contingent liabilities. The federal government has already begun the process of giving golden handshake to over 9,000 employees and approved Rs11 billion for the purpose.

Published in The Express Tribune, December 25^th, 2020.

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