ISLAMABAD: The federal cabinet which is scheduled to meet on Tuesday (today) with Prime Minister in the chair, is likely to endorse offloading of 7 per cent shares of OGDCL and 10 per cent stake of Pakistan Petroleum Limited (PPL).
The Cabinet Committee on Privatization (CCoP), in its meeting held on August 21, 2020, approved the proposals of Privatization Commission regarding offloading of 7 and 10 per cent stakes in OGGCL and PPL, respectively.
The CCoP further directed the Ministry of Privatization to proceed expeditiously with all privatization transactions. The process may be slow due to market conditions. .
The CCoP, in its meeting held on August 26, 2019 approved the inclusion of ten PSEs (with divestment of up to 10 per cent shares held by GoP) in active privatization list and directed PC to publish expression of interest for hiring of an FA (financial adviser), on case to case basis. Accordingly, PC after conducting due procurement process approved to appoint the FA for divestment of PPL shares on January 28, 2020. While the FA Services Agreement was being negotiated, capital market dynamics changed significantly owing to Covid-19 pandemic. In this regard, a consultative meeting with Secretary, Petroleum Division was held on March 5, 2020 under the chairmanship of Minister for Privatization, wherein, Petroleum Division was requested to submit its views to PC on the matter as per a discussion held in the meeting. Accordingly, Petroleum Division submitted the following suggestions:
"Petroleum Division is of the view that presently the share price trend in the capital market is not conducive for divestment of GOP's shares from OGDCL and PPL. Further, the documented mode of divestment is time consuming and not likely for the transaction closure completion during the current financial year 2019-20. As such, Petroleum Division would recommend that divestment of GOP's share from OGDCL and PPL may be deferred for next .financial year 2020- 21 depending upon the share price trend in the capital market. Accordingly, Privatization Commission may consider divestment of GOP's share up to 10% and 18.39% from OGDCL and PPL to strategic investors during the financial year 2020-21 to attract Foreign Direct Investment and introduction of latest expertise in the E&P sector for the benefit of the country."
PC carried out a divestment of 5% shares of PPL in June 2014 at a share price of Rs.219 ($ 2.22/share). A closer look at the recent trend reflect volatility with a low of Rs.69 ($0.43/share) at end of March 2020 and is being traded around Rs 99 ($0 0.59/share) on August 10, 2020. One of the prime reasons for a big dip in the share price of E&P sector is the historically lowest prices of crude oil in the international market. The matter, including the Petroleum Division's suggestion was discussed in the Privatization Board meeting held on July 22 and 29, 2020 and the PC Board, after thorough deliberations approved and recommended for divestment of up to 10 per cent of GoP's shares in PPL followed by divestment up to 7 per cent of GoP's shares in OGDCL through public offering.
Petroleum Division submitted that current per share value of OGDCL is far below the earlier offered divestment price of Rs.216 in 2014. They also expressed that "being the Administrative Division of OGDCL they feel it incumbent to request that the PC review the ongoing process and not resort to selling the GoP's 7% share in OGDCL at this stage". Petroleum Division proposed that: (i) given the current price of OGDCL 's share which is being traded at very low value, the ongoing divestment of GoP's 7% share in OGDCL may not be processed at this stage; and (ii) PC may consider that the transaction is structured in instead of 7% GoP's shareholding in OGDCL, GoP 's 10% shares, may be offered to a Strategic Investor Company, preferably to a well-versed oil & gas sector exploration and development company which would bring best industry practices and knowledge, state of the art exploration and production technique in the larger interest of OGDCL and E&P sector in Pakistan."
On August 21, 2020, Ministry of Privatization apprised that OGDCL's share posted highest Rs.276 in December 2013 and post December 2014 has not exceeded Rs.200 mark. A closer look at the recent trend reflects a value of very high volatility with a low of Rs.77 at the end of quarter in March 2020 which was recently traded at around Rs. 115. PC Board in its meeting held on July 29, 2020 considered the proposal submitted by the Petroleum Division to attract investment from international E&P companies in OGDCL by increasing the divestment of government owned shares upto 10 per cent instead of earlier decision of upto to 7 per cent. The Board was of the view that it will not be a viable option for the strategic E&P companies to acquire proposed percentage of shares in OGDCL, as still they would not be in a position to take strategic decisions.
PC Board also observed that the shares of OGDCL are being traded at low price, as compared to the price prevailing at offerings in the past couple of years. The Board also gave due consideration to OGDCL's high dividend yield ratio, crude oil prices in international markets and a recent farming out decision by an international E&P company operating in Pakistan. The Board after due deliberations did not endorse the Petroleum Division's proposal to increase the divestment of shares from the earlier approved decision of CCoP upto 7 per cent and decided that divestment of OGDCL shares should not exceed this limit.
The PC Board also directed the Transaction Committee to consider documented or undocumented mode for public offering at the time of hiring the FA. Furthermore, it was recommended by the PC Board that divestment of OGDCL and PPL transactions may be planned with reasonable in-between time to make them successful.
The CCoP, in its meeting held on August 21, 2020 has directed Ministry of Privatization to go ahead with the process of divestment of up to 07 % of GOP's shares in OGDCL, after the divestment of PPL's shares as directed/recommended by the PC Board.
Copyright Business Recorder, 2020
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