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
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?