Strategic sale: HEC privatisation hitting a roadblock

Cargill Holdings formally price it at Rs450m, decision due next week.


Shahbaz Rana March 20, 2015
The HEC is engaged in manufacturing of powers transformers with a total annual capacity of 3,000MVA and is spread over 61 acres. CREATIVE COMMONS

ISLAMABAD:


Government’s negotiations with Cargill Holdings Limited seemed to be at a crossroad, as the company vying to acquire Heavy Electric Complex (HEC) has formally priced it at Rs450 million.


However, it did not rule out the possibility of increasing its offer beyond the minimum threshold of Rs500 million. Additionally, talks between the parties seemed making a breakthrough after several rounds of negotiations held during last 10 days, said an official at Cargill Holdings. The company had originally priced the HEC at just Rs40 million net of liabilities.

The HEC’s negotiation team has lately indicated increasing the bid after sticking to Rs450 million for days, an official of the company told The Express Tribune on condition of anonymity. However, it has not yet placed a formal bid of over Rs500 million – the minimum reference price determined by the Privatisation Commission (PC) Board.

A PC official said the government has received the indication and hoped that the final decision on whether to sell the HEC to Cargill Holdings may be taken next week.

Any decision would be first taken by the PC Board and then will be placed in front of the Cabinet Committee on Privatisation for endorsement.

There were multiple pricing formulas that were being discussed at the moment between the two parties, said the PC official.

The company was increasing its offer on the condition of paying the price in installments over a period of three to four years, said an official of the company. The PC official said if the payments are spread over a few years, the government would seek bank guarantees to secure its interests.

As negotiations reach a critical point, the company’s documents reveal that it was trying to acquire the HEC on the financial strength of its parent group – the Cargill Progressive Group.

Cargill Holdings was incorporated in Kenya on December 10, 2014, a day after the PC Board approved to re-advertise the process of HEC sell-off. The company was just seven weeks old when the government declared it as one of the three pre-qualified bidders.

Cargill Holdings attached the financial accounts for the period of 2012 and 2013 of the Cargill Progressive Group. However, according to some legal experts, a company can bid on the administrative and financial strength of its group.

The company officials insisted that there was nothing wrong in it, although Cargill Holdings was a separate legal entity.

The PC official said that as long as the company does not change the nature of business of the HEC and provides solid guarantees to protect interests of the employees and the government, it would not object to the age of Cargill Holdings Limited.

Government’s attempt to sell 97% shares in the HEC could become its first strategic sale. It has so far relied solely on selling stakes in profitable banks and an oil and gas production company.

The HEC is engaged in manufacturing of powers transformers with a total annual capacity of 3,000MVA and is spread over 61 acres.

On March 9, the PC Board had approved to fix the reference price to sell the HEC at Rs500 million,  Deloitte Pakistan – financial advisor for the sale – had recommended the PC Board that the representative range for determining reserve price should be between Rs1.248 billion to Rs1.475 billion.

However, the PC official said that by including the liabilities that Cargill Holdings may also pick the price range which will be close to evaluator’s band.

The PC official said the government was making attempts to get a better net price that should be at least close to Rs750 million, worked out by the United States consultants on the basis of discounted cash flow approach.

The Board of PC held a meeting on December 9, 2014 and authorised the commission to invite fresh bids for the HEC. And a day after, on December 10, 2014, Cargill Holdings Limited is born in Kenya, according to the documents that the company submitted in the PC. The Transaction Committee of the PC held a meeting on January 27 and cleared all the three companies as prequalified bidders, apparently ignoring the fact that Cargill Holdings was less than seven weeks old. The PC Board endorsed the Transaction Committee’s decision on February 4.

The two other parties, Elahi Group of Companies and Fauji Fertilizer Company, did not submit the earnest money, leaving the acquisition wide open for Cargill Holdings.

Published in The Express Tribune, March 20th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS (1)

Ali | 9 years ago | Reply Another case of unabated corruption. Selling a profitable entity just to entail short term solubility.
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ