ISLAMABAD: The government scrapped Oil and Gas Development Company’s (OGDCL) transaction after investors subscribed to only half of the total shares offered to international and domestic institutional investors, dealing the first blow to an ambitious privatisation agenda. Pakistan was planning to raise $ 4 billion by selling some key state-owned enterprises (SOEs), including national carrier PIA but the plan seems difficult after scrapping of sale of OGDCL.
The government had pitched 311 million shares of OGDCL at a minimum price of Rs216 per share, but received offers for 162 million shares, or 52%, of the total shares at the conclusion of a three-day bidding process, said Privatisation Commission Chairman Mohammad Zubair.
The decision was taken by the Cabinet Committee on Privatisation (CCOP) that met on Saturday after the closure of the book-building process that ran for three days. The government had initially hoped to receive $830 million by selling 7.5% of the company’s stakes. However, last week it lowered the expectations to $696 million when the CCOP approved the minimum share price at Rs216 per share. Authorities sustained a blow after the closure of the book-building process when it was revealed that investors offered only $342 million for 52% of the offered shares.
The decision to scrap the deal would save the national exchequer from a loss of at least Rs15 billion that the government would have caused due to the compulsion to sell the stakes under a condition of the International Monetary Fund. However, the move may serve as a blow to the expectations of the government from the privatisation plan. For the current fiscal year, it has anticipated receiving $4.5 billion from the privatisation proceeds, including $830 million from the OGDCL transaction. The next big upcoming privatisation transaction is that of Habib Bank Limited, which is expected to be undertaken early next year.
The government hopes to get $1.2 billion by off-loading its remaining 42% shares in bank. “Under the circumstances, it was not appropriate and feasible to go ahead with the divestment plan of the OGDCL,” said Finance Minister Ishaq Dar.
He said the shares would only be offered for sale when the situation in the international market improves to Pakistan’s best advantage. Dar said Pakistan’s economy had the resilience to go through this difficult phase, and that there was no need to go ahead with the deal in an unfavourable atmosphere.
“Had all 311 million shares been fully subscribed, the government would still have gone ahead with the deal to sell its stakes at Rs216 per share,” said Zubair. He said $342 million would not affect the economic condition of the country in a big way, thus, there was no need to offload the share at this price.
Zubair said the reduction in oil prices in the international market was the single most important factor that kept the investors at a distance, adding that British Petroleum share prices dropped by 25% in last two months. In the eyes of the investors, the price per price at Rs216 was too high. Financial advisors hired for the transaction had advised the government to set the price at Rs206 per share, however the government did not accept the advice due to losses it would have caused to the national exchequer, said Zubair.
The Pakistan People’s Party (PPP) and OGDCL employees had voiced its reservations against the transaction that would have seen the government sell 10% of its stake OGDCL. Privatisation Commission (PC) Chairman Mohammad Zubair said the government has offered an olive branch to the opposition. The government, which has faced several obstacles in its attempt to go ahead with the transaction, is already struggling to come up with a credible strategy to justify the poor timing that will reduce its earnings by at least Rs15 billion. Zubair admitted that the government was undertaking the transaction during difficult times.