Wafi Energy acquires majority stakes in Shell Pakistan

Saudi Arabia’s Wafi Energy has acquired a majority stake in one of the oldest foreign firms operating in Pakistan, Shell Pakistan, gaining management control at Rs118 per share. This acquisition translates into a total purchase price of Rs19.55 billion ($70 million), according to a bourse filing.

Wafi Energy Holding, a leading oil marketing company running fuel stations in the Middle Eastern country, has bought all sponsor shares from the outgoing Dutch owners (Shell Petroleum Company Limited), totalling 165.70 million shares or 77.42% stakes, making a strategic acquisition in Pakistan.

In a notification to the Pakistan Stock Exchange (PSX), Arif Habib Limited, the manager to the offer, announced that Wafi Energy LLC would acquire an additional 24.16 million shares, equivalent to 11.29%, from minority shareholders at Rs155.11 per share in compliance with the substantial share acquisition and takeover rules of 2017 in Pakistan. The additional purchase at the offered price amounts to a further investment of Rs3.75 billion ($13.5 million).

The offered price to potential retail sellers is higher by Rs10.17 per share compared to Shell Pakistan’s Friday closing share price of Rs144.94. The stock increased by Rs1.69, or 1.18%, to the closing level. However, it remains far lower compared to the one-year high of Rs180 per share and the five-year high of Rs281.28 per share at the Pakistan Stock Exchange (PSX).

Wafi Energy LLC signed the share purchase agreement (SPA) for the acquisition of the majority stakes with owners of Shell Pakistan in October 2023. The acquisition process is projected to be completed over the next three to six months.

The Saudi Arabian acquirer “intends to grow its business investments in the energy sector in the region,” the notification reads. Shell Pakistan is expected to receive immediate economic resuscitation geared towards technological upgrades, plant efficiency, working capital requirements, human resources, and more. This is expected to improve product quality and competitiveness.

Shell Pakistan will continue as a listed company after the proposed acquisition and will continue its business as usual, according to the notification. Shell Pakistan Limited, listed on the Pakistan Stock Exchange (PSX), maintains a substantial business footprint in Pakistan, encompassing more than 600 mobility sites, 10 fuel terminals, a lubricant oil blending plant, and a 26% shareholding in Pak-Arab Pipeline Company Limited. Additionally, it holds a 25% stake in the Parco pipeline.

In a major setback to Pakistan’s already struggling economy, Shell Pakistan, the 75-year-old Dutch oil marketing company, announced its intention to exit the country in June 2023. The decision came after the company reported a net loss of Rs4.76 billion in the quarter ended March 31, 2023. The company cited the unprecedented devaluation of the rupee, rising inflation, and macroeconomic uncertainty as significant factors contributing to its struggles in the country.

In its latest financial report for the quarter ended March 31, 2024, Shell Pakistan reported a net profit of Rs314 million, turning around from huge losses of Rs4.76 billion in the same quarter of the previous year. However, the company still believes that the existing working environment remains challenging for oil marketing companies in the country, raising concerns that the unchecked smuggling of petroleum oil products and economic slowdown would keep working conditions tough.

The demand for petroleum oil products hit an 18-year low of 15.3 million tonnes in the fiscal year ended June 30, 2024, dropping 8% compared to 16.6 million tonnes in FY23.