According to an estimate shareholders of the state-run companies made capital gains in excess of Rs 40 billion in a year's period

Nov 21 - 27, 2005

Privatization of the public sector entities, which has yielded over Rs 23 billion from the stock market so far, is one of the chapters of success stories of the present government.

The proceeds not only benefited the state coffers but the common man made hefty capital gains and according to an estimate shareholders of the state run companies made capital gains in excess of Rs 40 billion in a year's period.

The government's stepping-stone was the sell-off of Oil and Gas Development Co., and National Bank of Pakistan shares through the stock market. Earlier, the shareholders shied to park their funds in these state-run companies, but boost in shares prices and rally at the Karachi Stock Exchange on the back of the Privatization Commission's plan to sell more stakes, generated a bullish rally convincing thousands of investors to put their hard earned money in the highly speculative market. But they were net gainers as the prices of National Bank of Pakistan, Oil and Gas Development Co., Pakistan Petroleum Ltd., United Bank and Kot Addu Power traded three to four times higher as against the offer price of the government, bolstering the faith of general investors on the policies of the Privatization Commission. The slogan of the Commission is "Privatization in a fair and transparent manner, for the benefit of the people of Pakistan in the right way, to the right people, at the right price."

"With surplus liquidity in the banking system, declining rates on fixed income securities and lower demand for credit, institutions were also forced to look for alternative investment opportunities", said an analyst from KASB Equities. He added that declining fixed income yields and net interest margins forced commercial banks to turn towards the equity market for fund deployment. Commercial banks became major players in the stock market. At end 2004, their total investment in equities had risen by 254 percent (over five years) to Rs 37.256 billion, which is one of the biggest indicators that institutions pumped their excess liquidity in the stock market, especially in the state-owned entities, assuring attractive returns.

Since November 2002, excluding Pakistan Telecommunication sale, the privatization proceeds comfortably crossed the Rs 100 billion level after completing around 25 transactions. The Privatization Commission in order to ensure participation of the small investors and benefit from the privatization program also sold the Pakistan government's shareholding in National Bank of Pakistan, Pakistan Oilfields Ltd, Attock Refinery Ltd, DG Khan Cement, Oil and Gas Development Co., Sui Southern Gas, Pakistan International Airlines, Pakistan Petroleum Ltd., Kot Addu Power and United Bank through Capital Market. Some of the major transactions completed are: (a) Sale of 51% of GOP stake in HBL for Rs. 22.409 billion, (b) sale of GOP shareholding in POL, ARL and D.G Khan Cement through Stock Exchange for Rs. 5.862 billion. (c) Divestment of 30% shares of Bank Alfalah for Rs. 620 million, (d) sale of Management Rights of ICP-SEMF for Rs. 787 million, (e) Divestment of 13.2% shares of National Bank of Pakistan for Rs. 1.386 billion, (f) sale of Associated Cement, Rohri for Rs. 255 million, (g) sale of (5%) 215,046,420 ordinary shares of Oil & Gas Development Company Limited (OGDCL) through Capital Market for Rs. 6.848 billion, (h) sale of Thatta Cement for Rs. 794 million, (i) sale of 10% shares of Sui Southern Gas Limited for Rs. 1.731 billion through Capital Market, (j) sale of shares of Kohinoor Oil Mills Limited for Rs. 80.7 million, (k) sale of 5.8% shares of PIA for Rs. 1.329 billion through Capital Market, (l) sale of 15% shares of Pakistan Petroleum Limited (PPL) through Capital Market for Rs. 5.655 billion, (m) sale of the Falleti's Hotel, Lahore for Rs. 1.211 billion, (n)10% additional shares of Kohat Cement for Rs. 40.8 million, (o) sale of 20% shares of Kot Addu Power Company through Capital Market for Rs. 5.282 billion, (p) sale of International Advertising (pvt.) Ltd. for Rs. 5.177 billion, (q) the transaction of KESC for Rs. 20.240 billion has been approved for privatization, (r) sale of 4.2 % shares of United Bank raising Rs 1.040 billion, (s) sale of Mustehkam Cement for Rs 3.2 billion.

The government plans to meet the potential bidders for Pakistan State Oil Ltd., the nation's biggest fuel supplier, next month once they have completed due diligence checks, an official said. Seven unidentified companies, selected from among 15 applicants, may bid for a 51 percent stake in State Oil and must complete checks on the company, said the same official, declining to name the potential bidders.

The stake in State Oil, which has 3,800 retail outlets in the nation of 160 million, is valued at $603 million based on its market price. "We will try to hold the final bidding for State Oil by end-December,'' he said."The meeting with potential bidders in early December will give us an opportunity to set a bidding date."

Pakistan is making a second attempt to sell a majority stake in State Oil to help repay $36.7 billion of overseas debt. It scrapped a plan to sell the company in 2003 after Kuwait Petroleum Corp., one of the two bidders, didn't show sufficient interest. The second bidder was Pakistan's Fauji Foundation.

"There is no target that we must sell the State Oil stake before the end of this year," the official said. "It can go beyond December if bidders decide so because of Christmas and the New Year holidays."

State Oil's net income in the fiscal's first quarter ended Sept. 30 stood more than doubled to 2.54 billion rupees ($42.5 million), the company said Oct. 31.

Pakistan sold a 26 percent stake in Pakistan Telecommunication Co., the biggest phone company, in June to Emirates Telecommunications for $2.59 billion. Emirates Telecommunications paid the $260 million first installment in June while Privatization Commission was holding talks with the company for the payment of second installment.

The delay in completing the Pakistan Telecom stake sale "is a snag in the privatization plan," a leading stock trader said. "Unless the government completes the Pakistan Telecom stake sale, it is not in a position to touch others. The investors would raise questions on terms and conditions set for bidding."'

Pakistan's asset-sale plan is on schedule as the nation plans to sell stakes in more companies including Pakistan Petroleum Ltd., the nation's second-biggest fuel explorer, Pakistan Steel Mills Corp., and National Investment Trust Ltd., a state-owned mutual fund.

"Our privatization program is one of the most ambitious in the region and it has seen tremendous acceleration in the past two years and this momentum is likely to persist."

The potential bidders for Pakistan Steel will be asked to start due diligence next month, while final bids for as much as 74 percent of the steelmaker are expected early next year, he said.

The asset-sale agency plans to make an initial public offering in Pak Arab Refinery Co., an oil refiner, and State Life Insurance Co. in 2006, he said. The government is also planning to sell shares overseas in a state-owned company, through locally known as Global Depository Receipts or GDRs, he said.

"It is a way of tapping into international markets and diversifying sources of privatization, besides introducing Pakistani companies outside and details for selling share overseas are being worked out.

The privatization proceeds are one of the major sources of improvement in the foreign direct investment in the country. During FY05, according to annual report of State Bank of Pakistan for 2004-05, significant flows were due to privatization and deregulation in the telecommunication and financial sectors. FY06 is likely to see much higher receipts on account of PTCL privatization and would likely to turn the balance of payment position of the country into a billion dollar surplus, the report said.