UAE offers quid pro quo bailout deal

Abu Dhabi wants to acquire 10% stakes in public listed blue chip firms

ISLAMABAD:

In response to Pakistan’s request for multibillion dollars in fresh loans, the United Arab Emirates has offered to buy minority shares in publicly-listed government-owned companies at a negotiated price and a seat on each of the firm’s boards.

The offer, if accepted, could give a big boost to the cash-starved government and will mark a departure from the traditional lender-borrower relationship between Islamabad and Abu Dhabi.

The development comes amid China’s decision to rollover another $2 billion Pakistani debt that matures from June 27 to July 23, providing a sigh of relief after transferring $2.3 billion last week.

Highly-placed sources told The Express Tribune that the UAE government has offered to acquire 10-12% shares in government-owned companies that are listed at the stock market through its sovereign wealth funds.

“There is a proposal from a friendly country to purchase Pakistani companies’ stocks on buy-back basis, which means buying secured-loan based securities,” said Finance Minister Miftah Ismail while talking to The Express Tribune.

The sources said that the UAE had made a clean offer for acquisition of stakes in the firms. But the government wanted to add a provision in any such contract where it will have a right to buy back these stakes after a certain period, they added.

The UAE has made the offer on the lines it invested $2 billion in Egypt through the purchase of stakes in a number of state-owned companies in April this year aimed at bailing out the Egyptian government. The UAE had acquired stakes in the Egyptian companies through the Abu Dhabi Developmental Holding -- a sovereign wealth fund based in Dubai.

The offer came in response to Prime Minister Shehbaz Sharif’s request for a multibillion-dollar bailout package during his visit to the UAE in April. The sources said that in response to the prime minister’s request, the UAE had sent a delegation to Pakistan that met with Shehbaz Sharif in the first week of May in Lahore.

Read Miftah invites UAE investment

However, unlike in Egypt where the UAE sovereign wealth fund had managed to conclude $2 billion deals in less than a month, Pakistani authorities have not been able to come up with a firm response due to confusion over legality of such negotiated transactions.

Like Pakistan, the Egypt economy has been struggling since long and has been surviving due to bailouts extended by the International Monetary Fund and friendly neighbouring countries from time to time.

Pakistan is also trying to revive the IMF programme and waiting for the draft Memorandum for Economic and Financial Policies (MEFP) document before reaching a staff-level deal with the fund.

Yet despite all the assistance that Pakistan and Egypt received from the IMF and many friendly countries, both the countries have not been able to fully turn their economy around and remain deeply vulnerable to external shocks.

The sources said that this time the UAE was not inclined to hand over another cheque of $2 billion to Islamabad, after Pakistan failed to pay back the $2 billion loan received in February 2019. In March this year, the UAE rolled over $2 billion debt for one more year.

The sources said that UAE sovereign funds – the Abu Dhabi Investment Authority (ADIA) and Mubadala Investment Company or the Abu Dhabi National Oil Company (ADNOC) -- can take exposure in Pakistan.

Read Pakistan-IMF deal likely to be sealed today

Their interest in Pakistan could give a big boost to the share price of about 20 listed public sector companies, including companies controlled by the military’s commercial arms. The sources said that Fauji Foundation companies were also on the plate and the foundation’s managing director recently participated in the meetings.

The top five Saudi sovereign funds from the UAE are: the Abu Dhabi Investment Authority (ADIA), the Investment Corporation of Dubai (ICD), the Mubadala Investment Company, the Abu Dhabi Developmental Holding Company and the Emirates Investment Authority (EIA). The companies are ranked among the top 20 in the top 100 list of the sovereign wealth fund institute.

There are around one-and-a-half dozen government companies that are listed at the stock exchange and open for grabs. The big ones are: Oil and Gas Development Company Limited in which the government has 67% stakes. Pakistan Petroleum Limited (68% GOP share), Sui Southern Gas Company Limited (53%), Pakistan State Oil Company Limited (22%), Sui Northern Gas Pipelines Limited 32% and Mari Petroleum Limited. Fauji Fertilizer Company Limited, Fauji Cement Company Limited along with other companies owned by the military.

The Pakistan Reinsurance Company Limited, Pakistan National Shipping Corporation, Pakistan International Airlines Corporation, National Bank of Pakistan and Pakistan Telecommunication Company Limited are other companies.
The sources said that Pakistan can immediately get an investment of $1 billion to $1.3 billion by selling 10% stakes of the blue chip companies.

But the bureaucracy was reluctant to go ahead with the transaction, delaying the whole process and irritating the UAE government.

“The Privatisation Commission Ordinance of 2000 does not have a provision for a negotiated and non-competitive sale,” according to the Privatisation Commission documents.

They further stated that the rules and regulations of the PC provide further safeguards for undertaking the transparent and competitive process of privatisation.

The ordinance and regulatory framework take negotiated sale out of the purview of the Privatisation Commission that is not the result of a competitive and transparency process.

The commission had recommended a “competitive transaction for the Block Trade of Shares of the listed SOES to institutional investors including government and government entities as per the existing law, rules and regulations without any new legislation.

But the sources said that the UAE was not interested in the bidding process. It has offered Pakistan that both sides should independently appoint financial advisors who should work out their prices and a final price should be decided on the basis of their inputs.

In order to find a solution, the matter may soon land in the federal cabinet, as the time is not on Pakistan’s side.
The Privatisation Commission didn’t comment on the news.