Privatisation Commission: Cargill Holdings offers Rs250m for HEC

Accepts Rs650m worth of liabilities as part of potential deal.

ISLAMABAD:

Cargill Holdings Limited has offered Rs250 million in cash for the acquisition of Heavy Electrical Complex (HEC), compelling the Privatisation Commission (PC) to recommend its board to either accept the offer or allow re-invitation of bids in the hope of getting a better price.

In a welcome move, the government does not appear to be a distressed seller, as Finance and Privatisation Minister Ishaq Dar has directed PC Chairman Mohammad Zubair not to accept any unreasonable price for the state-owned enterprise.

The minister gave the directive during a meeting on Saturday that reviewed the privatisation process, said a senior official of the finance ministry.

The PC board, which is meeting on Tuesday, is also given an option to remove the company from the privatisation list if the offer is not accepted.

HEC is among 69 enterprises that have been shortlisted for privatisation or share float by the PML-N government. It is the fourth attempt to privatise the loss-making company as the board – headed by Zubair – is working on the first strategic sale in the last nine years.

The final offer by Cargill Holdings Limited – the sole bidder – says the company will take over all the existing bank liabilities of HEC, keep all employees and pay Rs250 million in cash.

The PC has estimated the final offer at Rs1 billion by including the liabilities of Rs650 million. However, it was not immediately clear how it arrived at the Rs1-billion figure, still it was short of Rs100 million.

In return for Rs250 million in cash and taking over the liabilities, Cargill Holdings has asked the government to transfer all the assets, machinery in running condition free of all kinds of liabilities. Secondly, the government will have to provide draft of the sale-purchase agreement within 21 days after issuance of the letter of acceptance.

Background

The government wants to sell 97% or 14.1 million shares in HEC. The company is engaged in the manufacturing of power transformers with annual capacity at 3,000MVA and is spread over 61 acres.

On March 9, the PC board had fixed a minimum selling price, called the reference price, for HEC at Rs500 million. Deloitte Pakistan – the financial adviser appointed for the sale – had recommended the PC that the representative range for determining the reserve price should be between Rs1.248 billion and Rs1.475 billion.

At one stage of negotiations, Kenya-based Cargill Holdings had offered Rs450 million with upfront payment of Rs50 million and the remaining Rs400 million in semi-annual installments over one and a half years.

However, it demanded that 70% equity shares should be immediately transferred along with management control. It also offered to pick Rs650 million in liabilities. But when it submitted the bid, it offered only Rs250 million in cash.

On the basis of this offer, the PC negotiation committee had recommended that the government should accept Rs450 million with upfront payment of at least 50% and only 51% equity shares should be transferred.

In its final offer, Cargill Holdings rejected the negotiation committee’s recommendation.

The Ministry of Finance official said Finance Minister Dar told the PC that if it did not find a suitable bidder, the commission should sell the machinery and other assets separately and could still get a better price.

A senior official of the PC said any decision on HEC would be taken this week.

Zubair said the overall privatisation process was moving forward smoothly as the commission had hired financial advisers for nine transactions. For another 11 offers, it has published advertisements, seeking expressions of interest from financial advisers and investors.

Zubair said 10 more transactions would also be initiated in the current financial year.

Published in The Express Tribune, March 24^th, 2015.

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