Rs1.4b bid received for HEC sell-off

ISLAMABAD:

The IMS Engineering Company on Monday placed Rs1.4 billion bid -- 1.7% higher than the reserve price -- for the acquisition of the Heavy Electrical Complex (HEC), marking the first privatisation transaction of an enterprise during the three-and-half years of the government.

The IMS Engineering gave the highest per share bid of Rs99.999 for the acquisition of 96.6% shares in the government-controlled entity, according to the three sealed envelopes opened in front of the audience.

The bidding took place at a local hotel in which three parties participated but the other two bidders appeared only fulfilling the formality as their bid price was many times lower than the reserve price. Earlier in the day, the Cabinet Committee on Privatisation approved the Rs98.23 or Rs1.385 billion minimum price.

The Pak Electron Limited (PEL) gave only Rs17.73 per share or Rs250 million bid price while the Waves-Singer company submitted Rs26.25 per share or Rs370 million price for the acquisition of the company.

The credit to sell the HEC at Rs1.4 billion price in the third attempt goes to the current board of the Privatisation Commission that had also refused to accept the financial advisers’ recommendation to sell the entity at Rs82.35 per share or Rs1.16 billion.

This helped the government get Rs250 million over and above the price, which the financial advisers had recommended but was not accepted by the board and the CCoP.

The Rs1.4 billion price is very good and above the minimum reserve price, said Mohammadmian Soomro, the federal minister for privatisation, after the conclusion of the bidding process.

The government has now called a meeting of the Privatisation Commission board today (Tuesday) to formally approve the price and send the same to the CCoP for onward submission to the federal cabinet.

The HEC is owned by the State Engineering Company (SEC), working under the administrative control of the Ministry of Industries and Production. It manufactures power transformers of 132 kilovolts and 66 kilovolts and is located in Hattar, Khyber-Pakhtunkhwa.

Earlier, the attempt to privatise HEC was made in 2014, however, due to poor response the process was abandoned in December 2014.

Read: PC puts off decision on HEC sale

The last attempt to privatise HEC was made in March 2015, when three parties pre-qualified but only one deposited the earnest money. Later, the CCOP approved the bid offered by Cargill Holding Limited but HEC could not be privatized. The bidder’s earnest money of Rs25 million was accordingly forfeited.

The Express Tribune had unearthed in 2015 how a company was registered in Kenya just a month before the HEC privatisation process began. The company subsequently defaulted on its commitments and gave a cheque that was bound to bounce back after a series of stories appeared in this newspaper.

So far, the PTI government has conducted two real estate transactions in past over three years. The HEC marks the first corporate sector transaction, although its size remains small.

Mohammadmian Soomro hoped that at least two more privatisation transactions will be completed by June this year.

The IMS Limited is an engineering company, providing complete engineering procurement construction and commissioning services in four different verticals, according to the company’s profile.

The government has informed to bidders that 513 kanals of land in Taxila which is still in the name of HEC, will not be part of the privatisation transaction. This land is presently in possession of Heavy Mechanical Complex and the ministry of industry has indicated that they are initiating a summary for ECC as title of this land needs to transferred out of revenue record from HEC to avoid any complications during post privatisation process.

The financial advisers hired by the government along with the director-general of the commission recommended a price of Rs82.35 per share or a valuation of over Rs1.1 billion for HEC.

However, a majority of the PC board members recommended the price of Rs98.23 per share or a valuation of Rs1.4 billion. The finance advisers recommended the valuation that had been worked out on the basis of a terminal growth rate of 2.9% for the next 10 years, which was less than the official growth projections.

The board members, however, were of the view that both GDP growth and inflation would have to be considered in the growth rate. They said that the 2.9% growth factor would mean that HEC’s future growth would not be consistent with the GDP growth and inflationary factors beyond 10 years.

A majority of the board members proposed a minimum terminal value of 4.5% instead of 2.9%, which would increase the minimum value of the entity to Rs1.4 billion.

Strict procedures and timelines are given in the Privatisation Ordinance that the privatisation ministry cannot ignore, said Soomro while explaining the reasons behind virtually no real privatisation in past three and half years. He said that the success of the privatisation transactions also depend upon other ministries and prevailing circumstances.