The idea of privatisation in the middle of an economic crisis is not a wise one. Just leave a side whether one support or oppose privatisation, just look at the timing of this process. The timing is not good. Because, there is economic crisis, low business confidence and slump in the stock market. Let’s take the example of Pakistan Steel Mills Karachi.
The PTI government decided to privatise the crisis –hit and loss making Pakistan Steel Mills. But it gets cold response when it tried to hire the financial advisors to kick start the privatisation process. This is not all surprising. This cold response reflects the weak business confidence that exist in the country at the moment. The privatisation required conducive business environment and confidence to negotiate a better financial deal and transaction.
Only three consortiums had come forward in response to the Privatisation Commission’s Expression of Interest (EoI) to hire a financial adviser for finding a partner in the closed PSM. Two of them provided complete documentation while one sought more time to complete the documents. The consortiums of the Topline Securities, Citi Bank, and Pak-China Investment Bank submitted documents.
The consortium of Pak-China Investment Bank (lead firm), China Development Bank Securities, M/s Fergusons & Co (PWC), Cornelius, Lane & Mufti (CLM), Abacus Consulting, M/s Sino Steel and M/s Iqbal Nanjee & Co had also been hired in 2015 as financial advisers for the privatisation of PSM. But PML-N couldn’t complete the process and left it half way down.
In October last year, the PTI government had delisted the PSM from the active list of privatisation and decided to revive it. But subsequently, the government decided to restore the PSM on the active list of privatisation last month and initiated the process to hire financial advisers.
In a crisis situation, it becomes far more difficult to get a good price for state assets. Pakistani economy is passing through difficult times at the moment and it is not a good time to privatise the state assets. The stock market is not performing well. Foreign and local investors not seem very keen to make huge investment under the present circumstances. There is economic slump and political uncertainty in the country which hamper the investment.
The lukewarm response underlines the challenges that the government will face in completing one-and-a-half dozen privatisation transactions. These include divestment of 7% shares of Oil and Gas Development Company Limited (OGDCL) and 10% stakes in Pakistan Petroleum Limited (PPL).
The Privatisation Commission on Thursday issued fresh six EoIs to hire financial advisers for divestment of the OGDCL and the PPL shares and the privatisation of Guddu Power Plant, Heavy Electrical Complex, House Building Finance Corporation Limited (HBFCL) and First Women Bank Limited (FWBL).
The sources said that the government’s plan was to divest shares of the two blue-chip companies in the next few months to raise funds for budget financing if the outright strategic sales of some loss-making enterprises were not possible.
However, the PTI was following the footsteps of the PML-N that too sold shares in the profitable enterprise, like the PPL and some commercial banks. But today the economic conditions were not ripe to undertake these transactions due to a slump in the stock market.
At today’s share price of the OGDCL and PPL, the PTI government would get Rs40 billion less than the offering price of these entities by the PML-N in 2014. So timing of privatisation is important. The government should improve the economic conditions and revive the stock market before proceed to off load the shares through stock market. If the privatisation is the only solution of loss making state enterprises even then wait for the improvement in the situation.
In 2014, the PML-N government had earned Rs15.4 billion by offloading only 5% shares of the PPL at Rs219 per share. Now the PPL’s share price stands at Rs 107.67 after decreasing. On current rate, the PTI government would earn Rs15.2 billion by divesting 10% shares –a potential loss of Rs15.4 billion.
Similarly, the PML-N government had offered the OGDCL share at Rs216 per share, but it canceled the transaction after it was not fully subscribed by the investors. The OGDCL share price also went down Rs108.7 per share. At today’s rate, the PTI government would earn Rs24.4 billion less by selling 7% stakes in the OGDCL.
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20 September, 2019