Strategic sale: K-Electric offloads Rs6.58b worth of shares

Paying off debts will eventually raise share price, say analysts.

KARACHI:

Out of nowhere, the sponsors of the K-Electric (KEL) have offloaded 774.6 million shares or 4% stake in the local market, prompting speculation that a major investor in the company is exiting.

Most of the shares – worth Rs6.58 billion – were sold to individuals of high net worth on Tuesday after the close of trading at the Karachi Stock Exchange, said market participants.

The company announced to the bourse that the divestment was made at Rs8.5 per share.



It is unclear who the buyers are, especially at a time when KEL is embroiled with the federal government over the issue of power supply to Karachi from the national grid.

With so many shares in the market, the free-float of the company has more than doubled overnight, raising fears that it will hurt the share price in coming days, said analysts.

But the development has not surprised Summit Capital Head of Research Shahid Ali. “Abraaj Capital wants to get out of KEL,” said Ali. “I think they are having a difficult time in finding a strategic investor. So now they are booking a gain this way.”

The Dubai-based private equity Abraaj holds 50% stake in KES Power – the holding company which owns majority shares in KEL. Rest of the shareholding in KES Power rests with Saudi Arabia’s Al-Jomaih Group and National Industries Group of Kuwait.

A KEL spokesman said he cannot comment on what the shareholders do.

Abraaj had made the investment at Rs3.5 a share in 2008, said Ali. “They have booked a decent gain. It took them a while to revive the utility and they have probably realised this is the time to cash in.”

Just days back, KEL announced that it will raise Rs22 billion by issuing an Islamic bond to pay off the debt of International Finance Corporation (IFC) and the Asian Development Bank (ADB).

In 2012, IFC and ADB converted part of their debt to KEL into 5% equity. The institutions had opposed the company’s decision to pay a 15% dividend to minority shareholders last year.

“Once the debt has been paid off, KEL can give dividend to shareholders, boosting the share price. This will enable them to offload more of their shares,” said Ali.

This strategy to generate interest in trading by offering dividends so shares can be sold at a higher price later to large investors has been tried by other companies as well – last being Tariq Glass.

Ali said that this will give momentum to trading in shares and hopes of sustained dividend.

“It’s also a pretty good time for secondary public offerings because of the huge appetite in the market,” he said, referring to the successful transactions of Engro Fertilizers and Hascol.

Abraaj announced last year that it was looking for a strategic investor in the KEL. No timeframe was shared.

	Old shareholding pattern	New shareholding pattern
KES	69.2%	65.2%
Government	24.4%	24.4%
IFC/ADB	5%	5%
Minority/Free Float	1.4%	5.4%

Published in The Express Tribune, February 5^th,  2015.

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