Checking the vested interest can only accelerate the process


Nov 03 - 09, 2003



According to some critics, by any standard the performance of Privatization Commission, under the elected government, cannot be termed satisfactory. Certain quarters hold Dr. Abdul Haeez Sheikh, Minister for Investment and Privatization personally responsible for the prevailing situation. However, this may not be judicious because the minister alone cannot be held responsible for the delay. He has to work under the system, which is grossly influenced by internal and external factors. The biggest adversity being that he has been assigned the mandate at a time when the foreign investors are engrossed in their own problems and absolutely not ready to look at other markets, despite offering very attractive returns.

The GoP had announced plan to mobilize about Rs 4 billion during the first quarter of current financial year through divestment of shares of three state-owned enterprises (SOEs). These were National Bank of Pakistan (NBP), Sui Southern Gas Company (SSGC) and Pakistan International Airline (PIA). However, shares of none of these entities could not be offered to general public during the quarter due to bureaucratic hassles. Similarly, listing formalities for Oil and Gas Developed Company (ODGC) also could not be completed in time.

At last NBP shares were offered to general public. However, the price fixed at Rs 46 per share was termed too high. The subscription price was fixed keeping in view the quoted price in and net asset value (NAV). However, the share price plunged around the subscription date due to settlement problem leading to suspension of operations of two brokers. Though, the public offer has been oversubscribed, the fact is that only a few retail investors submitted the subscription application. The over subscription was only due to last minute entry of institutional investors, mostly from the public sector.



Lately a demonstration was also held against the Minister alleging that his statements regarding privatization of Pakistan State Oil Company (PSO) had caused losses to investors. According to an analyst, "Every one knows that PSO cannot be privatized for at least couple of years due to certain reasons. If any one buys PSO shares due to the hype created by the brokers, he/she must bear the brunt. Every one must keep in mind that greed and fear drive equities market. However, Badla financing, also provided by the brokers, further intensify the speculative sentiments. The losers have always been the weak holders and the gainers have been the Badla providers. Therefore, no one should say that he/she has lost the money due to the statements of the minister."

According to another analyst, "It seems that there is a shift in GoP policy from sale of majority shares along with management control to divestment of shares of SOEs. It is yet to be seen whether the policy can yield the dividend or it is yet another attempt of opponents of privatization programme to derail the whole process. One may not be sure about other transaction but it can certainly be said about PSO that the groups having the vested interest are not in favour of its privatization. They keep on raising one issue after another. It is understood that the issue presently being discussed is the percentage of holding among the Pakistani and the foreign investors."

The GoP's announcement to divest 2.5% of its share holding, with an equal 'green-shoe' option, in OGDC offers retail investors, investment bankers and fund managers an opportunity to strengthen their investment portfolio. This is an important transaction for which investors have been waiting for a long time. The transaction can serve two key objectives. Firstly, the OGDC's privatization can help in earning strong proceeds, with a large chunk in foreign exchange, for Pakistan due to company's strategic oil and gas reserves. Secondly, the new management is likely to add real value to OGDC's existing corporate expertise. The price being offered is also attractive.

However, the delay in listing of Habib Bank and announcement of dates of public offer for further shares, SSGC and PIA is beyond comprehension. It is believed that SSGC will not be offered to strategic investors till unbundling is completed but the delay due to unbundling should not defer offer of further shares to general public. As regards PIA, the overwhelming view of equities analysts is that unless the management opens up and starts sharing information, retail investors can never be pursued to even consider buying its shares.

It is also believed that the local stock exchanges have once again suggested to the GoP to delay offer of further shares of SOEs to general public due to the prevailing bearish sentiments. The GoP must not given any attention to such suggestions. The recent decline in the KSE-100 index is the result of broker-driven crisis. It is suggested that unless the GoP, through the SECP, confine the brokers to their original mandate brokerage only their market manipulation cannot be curbed. The SECP should also review the list 30 securities eligible for Badla financing.