The Cabinet Committee on Privatisation (CCoP), which is scheduled to meet on Tuesday (today), will approve Exchangeable Bonds (EB) worth $ 500 million with an upsize option of $ 200 million for the Oil and Gas Development Company (OGDCL) and capital market listings of Pakistan Petroleum Limited (PPL) and State Life Insurance Corporation (SLIC), source close to Secretary Finance told Business Recorder.
Deputy Chairman Planning Commission, Dr Nadeem-ul-Haq argues that EB route would retain a debt liability and postpone privatisation until the "exchange" or "convertibility" option is exercised, the sources added. The Deputy Chairman further argued that in case the option is not exercised, Finance Ministry must remain prepared to meet a foreign exchange liability.
Sources said the CCoP headed by the Minister for Finance, in it its meeting on February 3, 2011, constituted a subcommittee to evaluate the following: (i) Comprehensive roadmap to carry out capital market transactions;(ii) selection of State Owned Entities(SOEs) for equity linked bonds;(iii) the structure and the size of the transaction, including the timeline;(iv) institutional arrangements;(v) proposal for road show; and (vi) to analyse the term sheets for exchangeable bonds.
The subcommittee met on February 18, 2011 and recommended the following: (i) a capital market transactions roadmap as presented by the PC for SOEs based on consultation with various international and domestic financial institutions; and (ii) issuance of Exchangeable Bonds for OGDCL; (iii) an estimated $ 500 million offering with an upsize option of $ 200 million to be completed in the current financial year. However the final structure and size of the transaction will be determined in consultation with Financial Advisor, subject to market conditions.
At the outset, it was pointed out that the subject of issuance of any kind of government bond pertains to the Finance Division. However, in view of the fact that an option for purchase of shares of Oil and Gas Development Company(OGDC) is included which is tantamount to privatisation, the transaction will be jointly executed by the Privatisation Commission(PC) and Finance Division(FD).
In view of the work already undertaken by the PC and due to its robust procedure and expertise, FD agreed that the process should be continue in the PC. Secretary Privatisation, Muhammad Ijaz Chaudhry emphasised the need for privatisation to raise proceeds for the GoP through capital market transactions including exchangeable bond and capital market listings.
He presented a roadmap for capital market transactions according to which OGDCL listing will be as Exchange Bond (E/B) in May 2011. The government will sell 4.5 percent shares for $ 500 million. State Life Insurance Corporation Limited (SLIC) was recommended to be listed as IPO in May 2011 and its 20 per shares to be offered for sale, of which GoP will earn $ 5 million. Pakistan Petroleum Limited (PPL) was recommended to be listed as Secondary Public Offering (SPO) in June 2011.
The government is expected to generate $ 70 million from the sale of 2.5 percent shares. He also briefed the committee on the dynamics of exchangeable bonds stating that the market feed back was in favour of exchangeable bonds as foreign investors lack appetite for Global Depository Receipts(DGRs) as of now.
Secretary Privatisation apprised the committee that issuance of exchangeable bond, a hybrid debt/ equity instrument by the GoP against its shareholding in OGDCL, an entity owned and controlled by GoP, will require engagement of both the PC as regards to the equity aspect and the Finance Division.
Deputy Chairman Planning Commission, Dr Nadeem-ul-Haq argues that privatisation is not meant for raising proceeds for the GoP but for opening up of the economy which is vital for Pakistan''s future growth. "Some hedging arrangements must be a part of the decision and pricing," the sources quoted Deputy Chairman Planning Commission as suggesting.
Secretary Finance agreed with the need to raise funding through capital exchangeable bonds and listings. He specially focused on the fact that exchangeable bonds can raise money at a cheaper rate than a straight bond due to built in option of conversion into equity. The sources said, CCoP is expected to constitute a monitoring committee to supervise the overall process. The committee will comprise of Minister for Privatisation (chair), Deputy Chairman Planning Commission, Secretary Petroleum/ MD OGDCL, Secretary Finance, Secretary Privatisation Commission, Governor State Bank of Pakistan and Chairman SECP.