The offer is insufficient to meet the market appetite and keeping the prevailing liquidity situation in mind

June 23 - 29, 2003



The GoP has decided to divest shares of three already listed state-owned enterprises (SoEs). These are Sui Southern Gas Company (SSGC), National Bank of Pakistan (NBP) and Pakistan International Airline (PIA). The GoP plans to raise Rs 4 billion through sale of shares of these entities. While some analysts term this an ambitious target, the others term it too small a loaf looking at the market appetite and over flowing liquidity.

According to the announcement, the government intends to divest 5% additional shares of SSGC and NBP with 5% green shoe option. Moreover, 2.5% shares of Oil and Gas Development Co. Ltd. (OGDCL) will also be offered to the general public with a green shoe option of another 2.5%. However, no plan was announced about privatization of Pakistan State Oil Company (PSO). Similarly nothing was said about listing of Habib Bank (HBL), United Bank (UBL) and Bank Alfalah and other entities still not listed at local stock exchanges.

The GoP deserves applauds because some of the leading brokers, also having considerable influence on policies of Karachi Stock Exchange (KSE), were opposing the move. They fear that any effort to increase the market float would initiate down turn at the KSE. Are their apprehensions based on facts?

Some analysts believe that their apprehensions are baseless. Rather, their opposition is based on selfish motive and wishes to retain their manipulative power. If market float of quality scrips were increased, their power would be diluted. Some analysts say that the change in complexion of daily trading shows significant increase in the prices of third and fourth tier scrips. The share of these scrips in COT investment has also increased.

Many analysts have been saying that the gap in demand and supply of quality scrips has widened in the recent past. Many investors started making investment decisions on the basis of dividend yield. However, dividend yields have eroded to a large extent due to increase in quoted prices of these scrips. Therefore, there is an urgent need to increase the market float of quality scrips.



The GoP's decision to divest its holding in SoEs can be termed prudent and timely. It is evident that the GoP was not able to follow its own laid down schedule of privatization mainly due to external factors. The GoP's recent decision would help in accelerating the process of privatization, mobilize funds and still retain management control of these entities till it succeeds in finding suitable strategic buyers for these entities.

The best point of this strategy is that local investors get a chance to acquire shares of the companies, which are on privatization list. Analysts have been saying for quite some time that local investors have a preemptive right on the SoEs. The GoP should stop looking towards foreign investors. The recent acquisition of over 10% shares of SNGPL by Dawood Group proves that local groups have the financial strength to acquire shares of SoEs. The strength and commitment of local investors was also established during the bidding for United Bank.

It is believed that present economic managers are serious about accelerating the pace of privatization and also passing on the benefit of privatization to local investors one need not doubt their intention. However, only acts can consolidate the interest of local investors. The GoP must implement its decisions without bowing down before internal and external pressures.

As a first step shares of these SoEs must be divested as per the stipulated deadline. However, this time the GoP must follow certain broad guidelines. The offer should only be made to individual investors. The maximum permissible limit for an applicant should be 2,500 shares. There should also be a restriction on transfer of these shares for at least two years.

The GoP has announced plan for the first quarter of next financial year only. It should come up with plan for the full year. The GoP has already announced listing and divestment of shares of Oil and Gas Development Company. The GoP should also complete the formalities for listing all the remaining SoEs at the local stock exchanges. These include HBL, UBL, Bank Allah, Allied Bank of Pakistan, Pakistan Steel, State Life Insurance Corporation and Pakistan Petroleum.

It is also suggested that all the corporatize entities of Power Wing of WAPDA should also be listed at the local stock exchanges. If one can recollect the GoP had announced privatization of these entities in mid nineties. One fails to understand the reasons for delay in listing of these entities at stock exchanges. Only one feeling prevails that privatization of these entities is being resisted by their employees.

It is also necessary to remind that the GoP has to sell its holding in Kot Addu Power Company. Only part of the GoP holding in this company has been divested. One has all the reasons to believe that the company is running efficiently. Why should the local investors be deprived from reaping the benefits?