Government can raise Rs233b through privatising units in its portfolio

If the government wants to attract viable bids, the right time to privatise the companies, listed or unlisted, is now.

Our Correspondent July 18, 2013
If the government goes for privatisation of the oil and gas sector which includes OGDC, PPL and PSO, divesting only 10% stake in each of the companies, at the current value, will be able to raise Rs151 billion. PHOTO: FILE


The newly-elected government of Pakistan Muslim League – Nawaz has been planning to resume the long-halted and much-awaited, at least by the capital market, privatisation process that should quickly fetch a handful of funds.

There are a total of 37 entities, of which 14 are listed and 23 unlisted, that the government directly or indirectly holds in its portfolio. At the current market prices, a proposed 5-10% stake offload by the government across various entities should generate around Rs166-233 billion ($1.2-2.3 billion), according to report sent by Arif Habib Securities to its clients.

As far as listed companies go, the government’s stake accounted for 26% of the total market capitalisation of the Karachi Stock Exchange and 62% of the entities that contain government holdings. Sequences divestments of these entities can generate a handful of funds for the government, the report said.

Even if the government goes for privatisation of the oil and gas sector, initially, which includes Oil and Gas Development Company, Pakistan Petroleum and Pakistan State Oil, divesting only 10% stake in each of the companies, at the current value, it will be able to raise Rs151 billion ($1.5 billion).

This could be followed by secondary public offerings of the banking sector including National Bank of Pakistan, Allied Bank, Habib Bank and United Bank, which can result in Rs56 billion inflow from divestiture of only 10% stake offload in the big four banks.

If timings along with attractive packaging are of vital importance to the government while making divestment decision, then, it will be no better than now for the government to capitalise on flourishing market volumes and historic peaks where it is easier to divest a large stake at a higher price.

The government through sequenced divestitures through the capital market will also be able to mobilise savings of individuals, households and institutions, take greater ownership in other successful businesses, help improve and strengthen the local equities markets and attract foreign investment as foreigners are upbeat on the oil and gas, and banking sectors.

Privatisation flashback 

In the past, the government has successfully divested holdings in banking, oil and gas, telecom sectors among few others. These sectors are the leading market movers of today and the investors have benefitted, not only through capital gains, but also with hefty dividend payouts.

The government has been able to complete/approve about 167 transactions between 1991 and 2001 to raise Rs476 billion. The source of proceeds was mainly driven by telecoms (39% of total proceeds), banking and capital markets (37%), which included key major capital market transactions such as Pakistan Telecommunication Company, Oil and Gas Development Company, Pakistan Petroleum, Pakistan Oilfields, Sui Southern Gas Company, DG Khan Cement, National Bank of Pakistan, Habib Bank, United Bank, MCB Bank, Bank Alfalah, Attock Refinery and Kot Addu Power Company amongst many.

Published in The Express Tribune, July 19th, 2013.

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Falcon | 9 years ago | Reply

There is a reason that Governments across the world continue to hold high stakes in local energy and financial sectors. More than 60% of the top 10 - 20 oil firms of the world are owned by Governments. That is because energy security is a long term strategic interest that Governments do not want to lose control over. While privatizing energy sector companies might seem like a good idea right now, since it is helping us bring in the money badly needed, it is going to hurt us in the long run and I would expect someone in Planning Commission or Investment division to raise this issue.

bechari-awam | 9 years ago | Reply

All the great economists posting comments over here could not explain how come owning these enterprises by the state, requiring a Rs400B-500B of annual tax payer injections just to keep them floating is better solution than privatizing them in open market so that those injections can be given to other sectors of the fragile economy e.g. generating power and developing infrastructures.

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