The privatisation of Pakistan Telecommunication Company Limited (PTCL) would not be turned into a fiasco as sell-off like this faces complexities and it was the rush of investors for the telecom giant which made people jittery. The government and the buyer are eager and are speedily resolving the issues to meet the new deadline, analysts said.
"No, I don''t think the privatization would become a fiasco. I believe that when you come to executing such large transactions like PTCL you should be willing to face complexities in the way," said Hasnain Imam, research analyst at Arif Habib Securities.
"The sale of PTCL is a complex transaction and hence is confronting certain legal hitches. The problem is that every time investors hear news about PTCL, they just rush for it, ignoring the problems that are very common with such large transactions."
The government has granted an extension to Etisalat till October 28, 2005, to complete the transaction of Pakistan Telecommunication Company Limited (PTCL) and take over the entity. It has agreed to the following: The Privatisation Commission reduced the time from 36 months to 18 months to pledge 26 percent PTCL ''B'' class shares for raising necessary funds, a relaxation refused to other bidders during the due diligence phase. The CCoP was informed that giving Etisalat the ability to pledge its shares would have no financial impact on the government, as it would have got the full consideration upfront. Further, it would not impact the government''s strategic interests, as there were sufficient safeguards available to mitigate any potential adverse effects as a result of pledging of ''B'' class shares.
The CCoP had also approved amendments in the Shareholding Agreement (SHA) and Share Price Agreement (SPA), as recommended by the Financial Advisory consortium.
The Committee had also allowed the Privatisation Commission to offload 8.5 percent ''A'' class shares, but refused to give matching rights to Etisalat, which the company demanded to enhance its voting powers.
It is being said that the following were the demands of the Etisalat that were brought to the knowledge of the country''s decision makers three days after the bidding of the PTCL:
Etisalat had demanded a deferred payment structure, the ability to pledge the acquired shares, right to increase shareholding via a ''call option'' for additional ''A'' class shares, allowing dual listing of PTCL shares in UAE, Management agreement; exemption from withholding tax, waiver of duties and taxes, Custom duty waiver and ability to transfer acquired shares.
PTCL''s financials do not indicate any fiasco in the offing. PTCL is financially a very strong company and one should understand that when a company is planning expansion it has to retain its resources as reserves.
And, this the company can do by not paying dividend to its shareholders. So this is what PTCL has done in this case. Etisalat has already talked of a very ambitious expansion plan for PTCL. And, to fund that plan from within the Company''s own resources, all PTCL has to do is to retain its resources and not pay dividends.
As at March 31, 2005, the paid up capital of the company was Rs 51 billion, and general reserves at Rs 30.50 billion, and cash flows at Rs 18.48 billion.
Usman Farooqi, research analyst at Alfalah Securities, said that both the Privatisation Commission and Etisalat were mum over the exact nature of their dispute, which apparently related to some items in the contract.
But not announcing a dividend the government seemed to have met at least one of Etisalat''s demands, and showed that it was prepared to go to some distance to get this transaction through. But the October 28 deadline is just as far as it can go as the government can not afford to look too lax.
Staggered payment options would seem to be the most contentious issue, because even a three-year time frame would mean that the time value of monetary payments would become considerably lower than if it was paid today.
Apart from these, there might be some off-the-key news, such as union tussles, which may be hindering a management take-over. Some unions have now started raising there voices again, demanding even more compensations and it was clear that these voices would become stronger if uncertainty persisted. "The question is bound to arise, whether all these issues had been taken into account in the pre-take-over agreements."
The PTCL stock has the second-highest Market Capitalisation on Karachi Stock Exchange and has been one of the main market drivers, along with OGDC, over the past two years. If Etisalat fails to take over, then not only would PTCL fair valuations be brought down, but it would also be cast aside as a fixed-return stock, rather than a market mover.
In case of Etisalat pullout, it seems that any further attempts to privatise this company will have to wait for at least a few years, and the bids received will be even lower than the lowest bids received today, vis-à-vis a de-regularised environment. Hence, any news in the negative regarding Etisalat''s payment will severely dent the market''s upward drive, and the season of cherry-picking of second-tier stocks will await the fate of the KSE, until a new star appears on the sentiment horizon.
Tariq Hussain Khan, research analyst at Atlas Investment Bank, said that the consequences of a failed privatisation could be dire for the confidence of investors. Since the failed privatisation of KESC, where Kanooz al Watan backed out of buying the utility company even after paying its initial 10 percent deposit, the government is currently looking at Hassan Associates as potential buyers for KESC.
In the case of Etisalat, the government is making sure that the deal does not get compromised.
The other privatizations that the CCoP has in store in the coming months are PSO, PPL and Pakistan Steel. CCoP recently pre-qualified four parties for acquiring 51 percent equity stake with the management control in Pakistan Petroleum Limited (PPL) on ''as is where is'' basis, and seven parties were pre-qualified for participating in the further process of privatisation of 51 percent equity stake in Pakistan State Oil (PSO).
"We are of the opinion that any negative news in PTCL privatisation may create uncertainty for other privatisation projects as major public owned companies with government stakes are queuing up to privatise," Tariq said.
"We believe that the government would sort out all pending issues with Etisalat before October 28, 2005, to follow the new investment initiative by the President, which is set to achieve $27 billion within five years," he added.