The privatisation process of Pakistan Steel Mills (PSM) still has some questions to be answered, the most important of which is that on what basis did the Cabinet Committee on Privatisation (CCoP) set the reference price at $348 million (Rs 16.18 per share) against the Privatisation Commission's proposed price of $375 million (Rs 17.43 per share) for 75 percent equity shares.
Luckily, the Al-Tuwarqi group-led consortium won the bid at $362 million (Rs 16.8 per share), despite CCoP's wish that Letter of Acceptance (LoA) could be issued to a party if its per share price was even equal to the reference price (ie $348 million).
Sources in the government told Business Recorder that the Privatisation Commission had calculated the total value of PSM at $500 million (for 100 percent equity stake), according to which the reference price for 75 percent equity stake (1,290,487,275 shares) worked out to $375 million ie Rs 17.43 per share.
They said that Privatisation Division had briefed the CCoP on March 31 that the PC Board had considered the valuation as recommended by the Financial Advisor (FA) and proposed that the current market value of total assets of PSM may also be taken into account.
The PC Board observed that the valuation recommended by the FA reflected the core operations of Pakistan Steel (excluding surplus land and assets) and therefore was based on the entity as a going concern.
The non-core land and assets being unbundled from PSM include Steel Town and Gulshan-e-Hadeed land which have been evaluated at $500 million by the evaluators whereas the replacement value of the plant was estimated at around $500 million.
"These estimates do not include the current market value of downstream industries and the land reserved for National Industrial Park (NIP) which raised the value of PSM in excess of $1 billion," sources emphasised.
They further said that the Privatisation Commission had adopted three valuation methodologies, with 10 percent discount, which were as follows;
i) Discounted-Free Cash Flow Analysis (DCF) valuation ranging between $407 and 464 million with weighted average cost of capital assumed for discounting at the rate of 12 percent.
ii) Public Multiple Analysis (comparable companies) valuation ranging between $307 and 406 million.
iii) President's Transaction Analysis valuation ranging between $389 and 501 million.
However, the CCoP acknowledged that DCF (i) was the most acceptable methodology for valuation of the on-going units.
Sources said that payment of Rs 15.8 billion to the employees as Voluntary Separation Scheme (VSS) would be borne by the government.
They said that CCoP approved the valuation of $464 million based on DCF valuation for privatisation of PSM for its 100 percent equity stake, according to which the value of 75 percent shares worked out to $348 million.
According to sources, CCoP directed the Privatisation Commission to follow the approved policy for privatisation, strictly in letter and spirit, and added that any deviation from the approved policy, if deemed necessary, should be brought to CcoP notice, well in advance, for consideration and approval of waiver, if any.
The Privatisation Commission had also been asked to impress upon the potential buyer to make the entire payment of the transaction within the period stipulated in the bid documents.