As the government grapples with its first political standoff in the last one year, the privatisation czar, Mohammad Zubair, has decided to go ahead with the planned offer of Pakistan Petroleum Limited’s (PPL) shares despite growing concerns of a less enthusiastic response by investors.
The government will press on with the PPL share float in the capital market and sell 5% shares through the Secondary Public Offering as any decision to postpone the plan will be more damaging than under-subscription of shares, according to officials of the Privatisation Commission (PC).
They added the PC was facing a unique situation as just two weeks ago it was handling a transaction that saw an overwhelming response from foreign and domestic investors on the back of year-long efforts to stabilise political and economic conditions.
“We are going ahead with PPL’s share offer,” said PC Chairman Zubair while talking to The Express Tribune.
He said the PC board would meet on Wednesday to approve the base price for offloading 5% of government shares in PPL, a company that contributes over 20% of natural gas supplies in the country.
The events following police crackdown on Pakistan Awami Tehreek’s (PAT) workers have raised questions in the minds of investors, particularly foreign investors. The success of the privatisation plan largely hinges on economic and political stability as any disturbing images may derail the entire process that formally began just two weeks ago with the completion of the first transaction of United Bank Limited.
The government sold its remaining 19.8% shares in UBL through a book-building process. The deal was struck at $387 million and 81% of shares were bought by foreign investors. Foreign buyers including Morgan Stanley, Wellington and Templeton had shown interest in the bank.
Critics say the government’s mishandling of events before and after the arrival of PAT chief Dr Tahirul Qadri in the country may hurt its ambitious privatisation plan that also includes about a dozen capital market offers. Ten people lost their lives when police allegedly opened fire at PAT workers ahead of Qadri’s return to Pakistan.
Under the $6.7-billion loan programme, the government has committed to the International Monetary Fund that it will reduce its stake in state units and complete at least two dozen privatisation transactions in two to three years.
Of the state’s 78% shareholding in PPL including 7.4% shares held by employees, the government has already given the go-ahead to offload 5% shares, which are expected to bring a revenue of Rs20 billion. In 2004, 15% of PPL shares were sold at Rs5.6 billion.
On Tuesday, PPL’s share was traded at Rs211.58, 0.82% lower than previous day. Like UBL, PPL’s shares will also be sold at a discount, which will be determined by the PC board and subsequently approved by the Cabinet Committee on Privatisation the same day.
However, the discount is expected to be less than that offered for UBL shares, as PPL’s share price has remained broadly stable over the last few months.
The government expected the offer to evoke private sector’s interest, which may also subdue the fallout of the political and law and order situation, said PC officials.
“No one will buy the shares if they are offered at a premium instead of a discount,” said Zubair, pointing out that throughout the region, discounts were given on capital market transactions.
PPL shares will also be sold through the book-building process but due to the small size of the offer, the government believes, domestic investors will purchase bulk of the shares.
The country hopes to raise about $2 billion or Rs198 billion in privatisation revenues in the next fiscal year, as it plans to sell shares in other profitable enterprises like Oil and Gas Development Company, Habib Bank and Allied Bank.
Published in The Express Tribune, June 25th, 2014.
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COMMENTS (12)
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@ H chaudhry & Bilal: I want to ask you a very simple question ? If you have two arms one is disabled & other is working, will you compromise your working one ??? Same is the case here. OGDCL has made an annual profit of 2 billion last fiscal year where as PIA ,which is truly PIA, has a monthly loss of 200 million. So, concluding it all how will you be able to cover up 200 million of monthly loss of PIA , while they are other white elephants like Steel Mill too, if you sell out those state entities which are profit making ??? Simple your tax generation will be threefold when you start selling profit generating organizations & also have your facts corrected as there are many countries like in middle east where the oil & gas sector is owned are by governments. And as for not agreeing, yes we don't agree because whenever privatization has been implemented, huge financial scams have been committed. One example is that of National Fertilizer Company whose largest plant has been sold through nepotism for only 140 million, where as it's land price is two time of it as it is located in outskirts of Multan city. Privatization is a priority but it should be fair. Secondly privatization shouldn't involve local companies, because Pakistani business class is worst exploitator & corrupt of all. The process should be transparent all should only involve foreign multinational of outstanding reputation. Also profit generation organization's share should be floated & also maximum shares should lie with government in order to have ownership rights.
@ Bilal. Please read my comment in the below mentioned news and you will know what is happening in the name of privatization in Pakistan. http://tribune.com.pk/story/721005/approval-deal-sealed-to-sell-govts-remaining-ubl-stake/
Second thing is if my comment is wrong go check the Financial reports of PPL. We have seen what happened due to the issuance of GDRs of OGDC. Now around 15-20% of its shares is owned by the foreigners. That is why OGDC cannot pay dividends even though it has excess liquidity because if they will pay dividend then around the same percentage of profit will move out as dividend in the form of US dollars out of Pakistan. The more they sell the more amount of dividend will go out of Pakistan in dollars. Look at the return on these companies. They are giving you a return of more than 20% in case of PPL and OGDCL. Just look at their share prices. You are going to give up that profit for those loans for which you are going to pay at around 2-3%(For foreign Loans) and 10-12% at domestic loans. What kind of business sense is this.
I
....but PIA and Pak Steel......will be bailed out again and again and the country will continue to suffer........while profitable units will be sold at a chosen few.....good governance indeed ?
@H chaudhry: No problem with selling in state enterprises, but why profit making enterprises like PPL, OGDC< UBL etc. Why sell them to private investors like frinds and families, why not offer them to people of Pakistan at discounted price by public offerings as done in the past This is just to make money by selling them to selected few of PML(N) likings. You are also making comments without getting your facts right, PPL and OGDC and UBl etc. are very good blue chip companies.
@Bilal .. No one is against the sell of state owned entity but what is the point if the govt is not having management control in PPL or OGDC. They just want to create money to reduce their budget deficit instead of taking taxes from wealthy peoples
@Waseem:
If you don't agree with government's plan, then can you please explain your vision for these state owned companies? And also please state your experience, educational background etc for the benefit of masses.
And all this money will go in a project half the size of Pindi-Islamabad Metro Bus. What a waste of National Resources
@H chaudhary. Shameful for you. Go check facts about PPL which is the second most profitable company after OGDC. People here tend to speak when they do not know anything. Ignorance at its best (With Confidence). This is why Pakistan has gone down and still going down because people who do not have any knowledge about the economy thinks that they know it all just like our finance minister.
Who gave the sharifs the right to sell state assets on the cheap? They have been doing this for decades now and get assets on the cheap and through their partners in business also become part owners. Wake up Pakistan, your country is on sale
The first two comments are example of true ignorance. Dude even without so called 35 punctures, PMLN have enough majority. They have a government and right to do what they are doing. At other dude, what is shaddy about this deal or any other, care to explain? Profitable entities, really. Shameful ignorance. Go check facts.
Good work government, get rid of all these entities, no need for government to be in any business what so ever.
While country in chaos, this govt is busy in making dodgy deals and selling profitable entities which Sharifs didnt build!
This is an illegitimate government, a product of 35 punctures. It should be barred from going for any such privatization activity. Where are PPP, PTI, MQM and TuQ?