Shanghai Electric extends KE offer date

Renews commitment to acquiring Karachi-based private power utility

KARACHI:

China’s state-owned Shanghai Electric Power Company (SEP) has renewed its commitment to acquiring K-Electric (KE) as pending financial disputes of billions of rupees on KE books and regulatory approvals delayed the transaction for over half a decade.

In a notification to Pakistan Stock Exchange (PSX) on Thursday, KE said that it had received intimation from transaction manager Arif Habib Limited (AHL) on behalf of SEP that the “acquirer (SEP) is extending the date for public announcement of offer by 90 days pursuant to regulation…Substantial Acquisition of Voting Shares and Takeovers.”

“Therefore, the time for making the public announcement of offer in respect of the transaction is extended till June 27, 2023. This has been notified to the target company (K-Electric) on March 29, 2023.”

Over six years ago in October 2016, the Chinese firm had agreed to acquire 66.4% shares in KE from the existing foreign shareholders at a price of $1.77 billion.

Sources close to the deal told The Express Tribune that the previously offered price stood null and void and SEP would re-evaluate KE and come up with a new price when it got the required approvals.

Citing reasons, they pointed out that KE had been awarded new power tariffs for end-consumers since October 2016. Besides, the rupee has devalued by more than 100% against the US dollar in six years. Accordingly, KE’s value has changed significantly.

The manager to the deal said in a notification that parties under the transaction had taken all reasonable steps for obtaining regulatory approvals as required under the applicable laws of China as well as from the domestic regulatory bodies as required under the laws of Pakistan.

“Certain of these approvals are, however, yet to be issued and as such the parties under this transaction cannot complete the transaction before receipt thereof.”

A source said that Pakistan’s interior ministry had yet to issue a no-objection certificate (NOC) for the transaction. “The ministry considers it a ‘strategic transaction’ and wants to make sure no national interest is compromised.”

The ministry wanted to know whether the Chinese firm could sustainably supply electricity to KE’s existing consumers which included around 2.7 million household, industrial and commercial users, he said. Moreover, KE is yet to resolve the issue of receivables of billions of rupees from the government and Karachi Water and Sewerage Board. On the other hand, the Karachi-based private power utility is to clear outstanding dues of Sui Southern Gas Company (SSGC) for gas supply.

He was of the opinion that the “Chinese firm may not execute the sale-purchase agreement (SPA) in the extended 90-day period as well, as the government is pre-occupied with political issues and busy dealing with the IMF to end economic crisis and revive the $6.5 billion loan programme.” He hoped that the transaction would take place once the new government was formed and some time was given to resolve the pending issues pertaining to the KE transaction.

The AHL notification added that parties under the transaction would continue to apply all efforts in expediting the approvals and processes.

“We may mention, however, that a number of these conditions require the relevant regulatory authorities to seek internal approvals from various line ministries and departments with processes beyond the control of acquirer.”

The deadline for making the public announcement of offer was March 29, 2023. However, the acquirer would like to intimate Securities and Exchange Commission of Pakistan (SECP) and Pakistan Stock Exchange (PSX) that the acquirer is extending the date for the public announcement of offer by 90 days, it said. Earlier, Prime Minister Shehbaz Sharif had formed a task force in June 2022 and assigned former prime minister Shahid Khaqan Abbasi, who headed the task force, the responsibility of resolving all pending issues hampering the KE business deal within three months.

Published in The Express Tribune, March 31^st, 2023.

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