The HEC is engaged in the manufacturing of power transformers with annual capacity at 3,000MVA and is spread over 61 acres. PHOTO: FILE
ISLAMABAD:
The Cabinet Committee on Privatisation on Thursday accepted Cargill Holdings Limited Company’s bid for acquisition of Heavy Electrical Complex at a price of Rs250 million, marking the beginning of privatisation of loss-making state-owned entities.
Headed by Finance and Privatisation Minister Ishaq Dar, the CCOP decided that the buyer will take over all liabilities of the company but will not be entitled to any benefits on any account or in shape of receivables.
It is the first strategic sale for the country in the last nine years, giving much-needed impetus to its ambitious privatisation programme, which has so far been restricted to divestment of shares in profitable entities.
The CCOP approved the deal three days before the PC is set to embark on a road show for selling 41.5% of the government’s remaining stakes in Habib Bank Limited. The road show will begin from March 29 and the government hopes to receive $1.2 billion from the transaction.
Meanwhile, the HEC sale is a negotiated sale, as the Board of Privatisation Commission had originally set the reference price, the minimum benchmark, at Rs500 million. Cargill Holdings had originally offered only Rs28 million in cash. Privatisation Secretary Ahmad Nawaz Sukhera played a critical role at the negotiations stage.
Cargill Holdings was the sole bidder as the other two shortlisted parties did not deposit the earnest money.
Cargill Holdings Limited’s Rs250 million cash, translated into Rs17.73 per share. The government would transfer 97% or 14.1 million shares in HEC in the name of the company. The letter of acceptance to Cargill Holdings Limited would be issued soon, said Privatisation Commission Chairman Mohammad Zubair, after the meeting.
The HEC is engaged in the manufacturing of power transformers with annual capacity at 3,000MVA and is spread over 61 acres. In terms of value, it is the smallest transaction but carries huge importance for the government that was desperately looking for a strategic sale.
Cargill’s offer also assumes liabilities of Rs435 million, Rs250 million in cash ‘up front’ and, in addition, another Rs30 million to cover employee gratuity and provident fund obligations, according to a handout issued by the Finance Ministry. Finally, Cargill will forego tax benefits associated with five years of losses amounting to Rs190 million, it added.
“The net benefit to the government of Pakistan is Rs905 million,” said Zubair.
Besides, the buyer would also retain the employees for at least one year.
On the basis of asset-based approach, Deloitte Pakistan –the financial advisor – had valued the company in the range of Rs1.2 billion to Rs1.5 billion. On the basis of discounted cash flow approach, the financial advisor valued the company at Rs564.2 million.
Kenya-based Cargill Holdings is a division of Cargill Progressive Group and was incorporated in Kenya on 10th December, 2014. It won the deal on the financial strength of the Group.
Published in The Express Tribune, March 27th, 2015.
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