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Privatisation via capital markets in Pakistan
Publication Date : 02-12-2013
The Pakistan government is moving into the privatisation mode — an easier course to trigger private investment — and is going forward with divesting shares through bourses.
The revival of the privatisation programme that was launched in the early 1990s by the PML-N, and then shelved in 2007 after the botched sale of Pakistan Steel on the Supreme Court’s orders, is taking place after seven years.
The government has announced an ambitious plan to complete privatisation transactions of up to 12 major entities within a year. It has decided to kick start the activity through the bourses not only at home, but also in leading world capitals.
The reasons behind the strategy are: meet tight deadlines agreed with the International Monetary Fund; earn quick revenue (to finance the rising fiscal deficit) and international proceeds (to build depleting foreign exchange reserves), and revive the country’s image on the global investment radar.
The few entities whose shares are to hit the sale counter at the earliest include blue-chips like the Oil and Gas Development Company Limited, Pakistan Petroleum Limited, Habib Bank Limited, United Bank Limited, State Life Insurance Corporation (SLIC), National Bank of Pakistan, Pakistan International Airlines, Pakistan State Oil, National Investment Trust, the Sui Gas companies and a couple of power companies.
In most of the cases, 10-15 per cent shares of these entities would be offered to investors through initial or secondary public offerings at the country’s stock exchanges, and in a few cases, at stock exchanges in London, New York and Luxemburg in the shape of global depository notes and exchangeable bonds.
Interestingly, the offering of shares of OGDCL, NBP, PPL, HBL and Kapco were among a few international transactions the coalition government of PPP and PML-N was about to conduct in April 2008 when these were called off at the 11th hour, when Minister for Finance and Privatisation Ishaq Dar was holding the same portfolio.
These are now ready to take off again, given their preparedness for being transacted; sound financial positions; corporate culture; and in some cases, existing international exposure.
Their selection has another background as well. Under privatisation procedure, a normal transaction for strategic sell-off involves an at least 18-month time because of issuance of advertisement for expressions of interest for appointment of financial advisers, selection process, the timeline for preparation of the transaction, and different deadlines under privatisation rules for bidders, due diligence and the ultimate sale process.
Therefore, transactions involving public offerings through domestic or international stock exchanges can be completed within a year.
Another lot of shares of OGDCL, which is already listed at London Stock Exchange, would be floated abroad, while PPL’s shares would offered to investors both at home and abroad. The government still has 85 and 78 per cent shares respectively in these two entities.
And having 42 per cent, 20 per cent and 10 per cent shares respectively in HBL, UBL and ABL, the government would divest at least 10 per cent shares each of these banks through secondly public offerings. And 10-20 per cent of SLIC’s shares would be offered to the general public through an initial public offering.
Meanwhile, PIA’s liabilities — running into more than Rs250 billion (US$2.3 billion) now — would be parked in the existing PIA, while its core operations, particularly aircraft and related businesses, would be separated into PIA-2, whose 26 per cent shares, along with management control, would be offered to a strategic partner.
Hence, this transaction is likely to move into the next year, although all preparations would be completed before December next year.
While Mari Petroleum Limited, a joint venture of the federal government and Fauji Foundation, is also among entities included in the first batch of fast-track privatisation, it was not yet clear if the government would divest its 20 per cent shares through the stock exchange to the public or through a block sale to the joint venture partner.
Given the overall security situation in the country, as well as energy shortages, low growth and difficult economic and fiscal position, the PML-N government has chosen privatisation as the centre stage of its economic policy.
Its election manifesto commits to the identification of state-owned enterprises for privatisation and assigning the duty for their sell-off to the privatisation commission within a time framework.
According to minister of state for privatisation Khurram Dastgir Khan, this time-bound programme was included in the party’s manifesto when it realised, being in the opposition, that public finances were in dire straits. However, it got the real idea about these challenges, which were bigger than its assessment from the outside, when it finally came into power.
He added that the total annual losses and drain of public finances had touched Rs500 billion (US$4.6 billion) — almost the size of the original IMF programme offered to Pakistan. “This is now the central point of the PML-N’s economic policy and reform process,” he said.
In his opinion, the government would continue working on the 32 units cleared by the cabinet’s committee on privatisation, but a large number of these entities would require a lot of effort and energy for restructuring before they could be taken to the sale counter.
Khurram Dastagir Khan’s top priority is to ensure transparency. He would make public all agreements and details of privatisation once the transaction is concluded and signed, and would keep only the negotiation process as confidential.