PC steps up its efforts towards PSM revival

ISLAMABAD: The Privatisation Commission (PC) will invite Expression of Interest (EoI) from interested parties for revival of Pakistan Steel Mills (PSM), after Scheme of Arrangement (SoAs) is filed with the Securities and Exchange Commission of Pakistan (SECP), official sources told Business Recorder.

On August 10, 2021, the Privatization Division briefed the Cabinet Committee on Privatisation (CCoP) that pursuant to the decisions of the meetings of the PSMC BoD/PC Board and the recommendations of the Financial Advisor (FA) following transaction structure details were submitted for consideration of CCoP: (i)the quantum of range of equity stakes of new subsidiary namely Steel Corp (Pvt.) Ltd to be divested may be 51% to 74%; (ii) the Steel Corp (Pvt.) Ltd may be owned by Pakistan Steel Mills Corporation as Holding Company; (iii) the paid-up capital of Steel Corporation (Pvt.) Ltd may be equal to Net Equity as on December 31, 2020; (iv) effective date of SoA may be January 01, 2021; (v) the existing utility connections (electricity and gas) and power generation licence be transferred to the Steel Corp (Pvt.) Ltd, unencumbered.

It was also proposed that PSMC may install a new dedicated meter of fresh water for Steel Corp (Pvt.) Ltd; (vi) the use of the Jetty (including any expansion/extension thereof) and Conveyor Belt System (including any expansion/extension thereof) is to be made available to Steel Corp on arms-length basis.

The draft jetty-related Agreement including the commercial terms and conditions will be made available to the Pre-Qualified Bidders as part of the Bidding Documents for their review and comments. The document will be finalized prior to the bidding process; (vii) total land of 1229 acres will be leased by PSMC to the Steel Corp through the Land Lease Deed on arm-length basis. The-Draft Land Lease Deed including the commercial terms and conditions will be made available to the Pre-Qualified Bidders as part of Bidding Documents for their review and comments. The document will be finalized prior to the bidding process; and (viii) Core Operating Assets (COA) will be transferred to new subsidiary as approved by the PSMC Board in its meeting held on July 13, 2021.

However, as decided by PC Board, PSMC should be directed to ensure reconciliation of COA and corresponding Fair Market Valuation (FMY) for proposed transfer of COA to new subsidiary as per audited financial statements of PSMC for the period ending December 31, 2020.

The sources said that the Privatization Commission would invite the Expression of Interest from interested parties after filing of Scheme of Arrangement (SOA) with the SECP by PSMC. In this regard, it was requested that CCoP may also direct Ministry of Industries & Production/ PSMC to fulfil all the corporate actions/regulatory requirements, including NOCs from NBP, SSGCL, NEPRA, confirmation by SSGC for provision of indigenous gas or RLNG to the Steel Corp (Pvt.) Ltd., agreement on jetty, for smooth and successful completion of this transaction.

The forum held threadbare discussion on the issues relating to revival of PSMC. It was observed that the valuation of the PSMC core operating assets conducted by the third-party valuer, appointed by PSMC, was on higher side, which may not be attractive for prospective investors. The CCoP noted that the Fair Market Value (FMV) of the core operating assets has been approved by the PSMC Board of Directors (BoD) which has also been incorporated in the financial statements of the PSMC for the period ending December 31, 2020.

The Chairman CCoP/Finance Minister, Shaukat Tarin, conveyed serious concern on the non-compliance of directions by the Chairman PSMC BoD regarding taking up the matter in PSMC BoD for conducting additional valuations of PSMC core operating assets. The Chairman CCoP argued that the investors will evaluate value of the asset after their due diligence. The Privatisation Commission was accordingly directed to proceed further with the valuation incorporated in the December 31, 2020 audited accounts of PSMC.

According to the sources, the issue of the ownership of new company with PSMC was raised, as it had been incorporated with the PSMC as its subsidiary. It was suggested that Government of Pakistan should own the company and retain its majority shares. On the issue of SSGCL receivables against PSMC, the forum was informed that approximately Rs.74 billion (Rs.24 billion principal amount + Rs.50 billion as Late Payment Surcharge (LPS) was outstanding against the Mills. Secretary, Petroleum Division maintained that the SSGCL is a listed company and hence settlement of receivables is required. Therefore, Finance Division either backstop/guarantee the receivables of the SSGCL from PMSC or issue Letter of Comfort to the SSGCL to proceed further. The Chairman, CCOP opined that for settlement of the SSGCL outstanding amount, dispute resolution should be made by third party/referee. It was discussed that the issues of the PSMC with National Bank of Pakistan also requires early resolution.

The sources maintained that Adviser to the Prime Minister on Institutional Reforms & Austerity observed that liabilities of PSMC should continue to be vested with it and should not be part of new company, to make it encumbrance free.

The CCoP has directed Finance and Petroleum Divisions to hold meetings with relevant stakeholders for resolution and settlement of the SSGCL payables. It was directed that subject to issuance of Letter of Comfort (LoC) by Finance Division, SSGCL shall withdraw litigation/stay order against PSMC. It was also directed that NBP shall issue requisite NOC to facilitate transfer of COA to Steel Corp. (Pvt.) Ltd.

The CCoP has also directed Ministry of Industries & Production/PSMC to ensure fulfilment of all the corporate actions/regulatory requirements for the approval of SOA for efficient and successful completion of this important transaction.

The CCoP directed the Privatization Commission to invite the Expression of Interest (EOI) from Interested Parties for Revival of PSMC, after filing of Scheme of Arrangement (SOA) with SECP by PSMC.

Copyright Business Recorder, 2021