Getting Daharki Power shares: ECC allows FF $2.9m equity investment

ISLAMABAD: Economic Coordination Committee (ECC) of the cabinet has allowed Fauji Foundation (FF) equity investment of $ 2.9 million for acquisition of 2,750,000 shares (18.64 per cent) of Daharki Power Holdings Limited BVI, sources in Finance Ministry told Business Recorder.

According to Finance Division, State Bank of Pakistan (SBP) forwarded the request of M/s Fauji Foundation through Askari Bank Limited, to seek approval of acquisition of 2,750,000@ shares (18.64% stake) of Daharki Power Holdings Limited, BVI, under ‘Put option’ exercised by Asian Development Bank (ADB), against remittance consideration of$ 4.9 million.

The ECC on SBP’s recommendation approved FF’s request to make equity investment abroad of $ 12 million in the offshore company Daharki Power Holding Ltd, BVI (DPHL) on April 22, 2008. Fauji Foundation, Asian Development Bank and Daharki Power Holdings Limited, BVI entered into a Put Agreement on April 24, 2018, amended later on in September 2008, which provided ADB the right to exercise Put Option in respect of 2,750,00 on shares subscribed by it.

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As per FF, ADB served the Put Notice for $ 19.250 million; however, FF negotiated the amount of $ 4.9 million for the benefit of the company. FF had submitted an auditor’s certificate for break-up value of shares in which break-up value of DPHL, as per management accounts of December 2021, was $2.53 per share.

To liberalize and deregulate the country’s economy, the federal cabinet in its meeting held on May 16, 2001 allowed equity-based investments abroad by resident Pakistani companies on the basis of set criteria which states that cases of private sector would be dealt by the SBP and decided by the ECC, but was later amended by the ECC on January 20, 2021 providing waiver/ exemption and regularization of the cases under Category-C of the approved policy, to be decided by the SBP or ECC with the stipulation that SBP would grant waiver/ exemption/ regulation to the residents for their investment up to $ 10.00 million, whereas cases in excess of $ 10.00 million will be submitted to the ECC.

The sources said, State Bank of Pakistan argued that as per sub-para (i) of Category-C of the policy, Chapter 20 of Foreign Exchange Manual (FEM)), Fauji Fertilizer being incorporated as a trust under Charitable Endowment Act 1980, did not meet the requirement of provision of FEM and would require approval of ECC to waive off the provision of the policy.

SBP was asked to clarify under which rule the said waiver was being sought from ECC. SBP clarified that the policy had been incorporated under Chapter 20 of FEM in terms of ECC decision of January 20, 2021; hence, any waiver from the policy would also require approval of ECC. Furthermore, the cumulative investment of Fauji Foundation in DPHL exceeding $ 10 million (i.e., USD 12 million earlier, and $ 4.9 million now), also require approval of ECC.

Finance Division noted that the instant case of FF did not need/ require approval from ECC, being an investment of $ 4.9 million, in the light of ECC decision of January 20, 2021 and the case should be decided by SBP at their end.

However, SBP considered it a cumulative investment in continuation of earlier investment of $ 12 million allowed by ECC in its decision of April 22, 2008, bringing total investment by FF to $ 16.9 million for acquiring 2.750 million remaining shares of Daharki Power Holdings Limited under Put Option exercised by Asian Development Bank.

Upon acquisition of 2.750 million shares of DHPL, Fauji Fertilizer would liquidate DPHL on final payment of loan due in June, 2023 and repatriate the liquidated proceeds to Pakistan.

Finance Division, sources said, requested the ECC to allow Fauji Foundation for equity investment of $ 4.9 million for acquisition of 2,750,000 shares (18.64% stake) of Daharki power Holdings Limited and also grant waiver/ exemption to Fauji Foundation from the policy enumerated in Foreign Exchange Manual (chapter 20), being incorporated as a trust under charitable Endowment Act 1980.

Moreover, any investment abroad by residents under the said policy in continuation of earlier investment with the approval of concerned forum would be considered as a cumulative investment and would require approval of ECC in case investment exceeds $ 10 million in total.

The sources said ECC has approved the proposal of Finance Division allowing Fauji Foundation (FF) equity investment of $ 2.9 million for acquisition of 2,750,000 shares (18.64 per cent) of Daharki power Holdings Limited BVI. However, the ECC decision is yet to be ratified by the Federal Cabinet.

Copyright Business Recorder, 2023