Govt looking to complete first strategic sale of tenure after HEC debacle. PHOTO: APP
ISLAMABAD:
The Cabinet Committee on Privatisation has approved the minimum reference price roughly 12% higher than the price recommended by the financial advisor to sell the government’s majority 1.76 million shares in the profit-making firm, National Power Construction Company (NPCC).
Headed by Minister for Finance and Privatisation, Ishaq Dar, the CCoP approved the reference price that the Privatisation Commission (PC) had suggested for the current government’s first strategic sale. The board - that met just before the CCoP meeting - was not satisfied with the price recommended by the financial advisor.
The board and the CCoP’s decision to jack up the price will ensure better returns for the government.The government has offered its 1.76 million or 88% of the total shares to prospective bidders. The remaining 12% or 240,000 shares are in the hands of the company’s employees under the Benazir Employees Stock Option Scheme.
The NPCC has been consistently profitable over the last 10 years, the balance sheet is debt free, giving significant room to prospective buyers to take on debt to finance expansion.
Problems with the process
The PC had hired a consortium led by MCB Bank and United Bank Limited as financial advisors for the transaction that worked out the NPCC price on the basis of a discounted cash flow model.
However, members of the PC Board did not find the FA’s work up to the mark and significantly increased the minimum price, increasing the threshold by over 11%, said sources in the Ministry of Finance and Privatisation. The CCoP further increased the reference price, which the government will disclose today (Tuesday) after receiving financial bids.
The government is trying to successfully conclude the NPCC transaction after the Heavy Electrical Complex debacle. If all goes as planned, it will be the first strategic sale of a government whose privatisation programme has so far been restricted to capital market transactions.
The competition to acquire 88% NPCC stakes along with the management control will be among three parties, said Mohammad Zubair. He said these parties have also deposited Rs100 million in earnest money along with submission of applications, specified supporting information and prescribed undertakings.
The bidding process for the purchase of the shares would be held on Tuesday morning. The three bidders will submit their financial bids. If their price turns out to be less than the minimum reference price, there will be an open auction, according to officials. However, in case the highest bid is above the reference price, there will be no open bidding, they added.
The competition will be among a consortium led by Habib Rafiq Limited and Frontier Works Organisation (FWO), a conglomerate of Zahir Khan Brothers and Reliable Engineering Limited and Mansour Al Mosaid of Saudi Arabia.
The Habib Rafiq-led consortium has a net worth of Rs33 billion, out of which Habib Rafiq Corporation’s net worth is only Rs3 billion and FWO’s worth is Rs30 billion. Under the privatisation law, a government-owned company cannot bid for privatisation. However, the Ministry of Law has given an opinion that the FWO can bid since it holds minority shares of 49% in the consortium, according to the PC.
Zahir Khan Brothers and Reliable Engineering Limited consortium’s net worth is Rs10 billion while the Saudi company’s net worth is Rs5 billion.
Published in The Express Tribune, August 11th, 2015.
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