Steel mill’s privatisation: Bank-led consortia show interest in advisory services

Govt revises downward expectations of proceeds from $4.5b to $1.53b.

ISLAMABAD:

The government has said it has received two bids from domestic banks for financial advisory services for the sale of the largest industrial complex of the country, Pakistan Steel Mills (PSM).

The revelation comes with a sharp downward revision in government’s expectations of privatisation proceeds to just $1.53 billion in the current fiscal year in the face of a slow-paced sell-off drive.



By the end of the third deadline on Wednesday, two investment bank-led consortia had filed bids in response to the Expressions of Interest (EOI) sought by the Privatisation Commission (PC) for hiring a financial adviser for facilitating the sale of loss-making PSM.

Talking to The Express Tribune, PC Chairman Mohammad Zubair confirmed that the commission had received bids from prospective financial advisers, but he did not disclose the number of offers. “Bids will be opened on Tuesday and the financial adviser will be on board next week.”

PSM has an annual production capacity of 1.1 million tons. It has a 15,274-strong workforce, which is one of the reasons behind the persistent opposition to the company’s privatisation.

While lowering its expectations of earnings from the sale of state units, the PC now expects to receive only $1.53 billion in the current fiscal year, down from the original estimate of $4.5 billion.

The revised estimate is even lower than the extremely conservative budgeted figure of roughly $2 billion for privatisation proceeds for the year.

The ambitious privatisation programme is moving ahead only to the extent of selling shares in profitable state enterprises. Parliamentarians belonging to the Pakistan Peoples Party (PPP) have questioned the rationale behind selling shares in profitable banks and oil companies.

So far, the PML-N government has raised Rs68 billion by selling stakes in two banks and a petroleum exploration company, all highly profitable entities. Its next target is the offer of its remaining 42% stake in the country’s largest commercial bank – Habib Bank Limited.

PC expects to receive an estimated $1.36 billion from the sale of HBL shares, which it plans to complete in April. This amount is part of the total of $1.53 billion the government now hopes to earn in the current fiscal year.

Accounting standards

The HBL share offer could be pushed ahead only when the bank adopts International Financial Reporting Standards (IFRS), which is a prerequisite for listing on the London Stock Exchange for floating global depository receipts (GDRs).

“The HBL transaction is on track but the bank management needs about four to six months to meet procedural formalities for listing on the London exchange,” said Zubair.

PC was hopeful that the requirements would be comfortably met but even if there was some delay the commission had an option to sell the stake in the domestic market without listing, as it did in the case of United Bank Limited, he said.

In this case, he added, shares would be floated while keeping in mind the appetite of domestic market.

Other enterprises

The government is also encountering difficulties in the sale of National Power Construction Corporation (NPCC) and Heavy Electrical Complex (HEC). These are part of the four transactions that are targeted to be completed in the current year.

NPCC is expected to attract a price of Rs2 billion whereas HEC is valued at Rs1 billion.

“Due diligence of NPCC, Faisalabad Electricity Supply Company and Pakistan International Airlines are in progress,” said Asad Rasool, Senior Consultant of PC.

He pointed out that the OGDC share offer, which was scrapped earlier due to a plunge in oil prices, could be revived if the international crude market bounced back.

Rasool declared that the transactions in power and aviation sectors could mature in the next financial year. EOIs for the sale of Roosevelt and Scribe Hotels will be invited in the current quarter.

However, Senator Sughra Imam of the PPP criticised the government’s plan to sell PIA operations including its two hotels located in New York and Paris and also questioned the rationale behind parking the losses by creating another entity with the name PIA-II.

Published in The Express Tribune, January 17^th,  2015.

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