Privatisation Commission (PC) has acknowledged that Cargil Holding Limited (CHL), which failed to fulfil letter of acceptance and signing of Share Purchase Agreement (SPA), got itself registered in Kenya one day after the PC board gave approval to reinitiate privatisation process of Heavy Electric Complex (HEC). A meeting of Senate sub-committee on finance met on Wednesday to take up the HEC matter and asked for minutes of the transaction committee and PC board meeting in the next meeting on December 16, 2015.
A copy of the brief submitted to the Senate Standing Committee on Finance and available with Business Recorder discloses that "privatisation board in its meeting held on 9th December 2014 gave approval to re-initiate the privatisation process of strategic sale of 97 percent government share in the HEC. M/S CHL was registered in Kenya on 10th December 2014".
According to PC claim, the value of HEC, as independently assessed by the market evaluators, was estimated at Rs 1,248 million (Rs 85.57/Share) as forced sale value, and Rs 1,475 million (Rs 101.08/share) as fair market value. Revised report reflects figures of Rs 1,187 million (Rs 81.34/Share) as forced sale value, and Rs 1,413 million (Rs 96.86/share) as fair market value.
The valuation under discounted cash flow (DCF) basis was carried out using 20.70 % equity discount rate and a 4% terminal growth rate. This resulted in a low of Rs 38.65/share value and entity value of Rs 564.17 million. Revised report reflects figures of Rs 455.34 million (Rs 31.20/Share).
Under this method, the adjusted break-up value of the Company has been estimated at Rs 588.19 million at a share price of Rs 40.29. The revised report reflects figures of Rs 513.78 million (Rs 35.20/Share). In light of the aforesaid valuation models, M/s Deloitte, proposed that the representative range that should be considered for purpose of setting up reserve price should be between Rs 31.2 per share (enterprise value: Rs 455 million) to Rs 67.06 per share (enterprise value: Rs 978 million).
The CCoP, in its meeting held on March 26, 2015, having reviewed the transaction twice earlier in its meetings dated March 09 and March 24, 2015, approved the sale of the HEC for a full and final sale consideration amounting to approximately Rs 1095 million.
Subsequently the Letter of Acceptance (LOA) was issued to the buyer on 6th April 2015 with a condition to finalise the Share Purchase Agreement (SPA) within the next 45 days. As per detailed break-up submitted to the committee: (i) cash to be paid Rs 250 million cash; (ii) running finance liability of Bank of Khyber (BoK) Rs 435million; (iii) gratuity Rs 30 million; (iv) potential tax benefit from losses Rs 190 million; and (v) sales tax refund Rs 191 million.
Pursuant to the above, M/s CHL filed an appeal in the larger bench of the Islamabad High Court. The larger bench of the IHC has granted Status Quo Order w.e.f June 30, 2015. Accordingly, the PC constituted a committee, comprising of a PC Board Member and PC lawyers, to oversee and pursue the legal proceedings.
In the meantime, pursuant to the Senate Standing Committee hearing dated September 08, 2015, M/s CHL on September 14, 2015 gave a public notice in a local newspaper stating that the dispute between the government of Pakistan and M/s CHL arose due to the excess liabilities being handed over to the company and not because of the cheque being dishonoured. Furthermore, M/s CHL also stated that it reserved the right to sue for the defamation/damages and also legal action under the Contempt of Court Act. In response, the Privatisation Commission clarified the factual position in a public notice dated September 15, 2015 stating that there was no dispute over the excess liabilities but in reality it was sheer violation on part of M/s CHL that it presented a "wrongly drawn cheque" which was returned unpaid.