The Cabinet Committee on Privatization has approved
the divestment of part of government holding in Sui Southern Gas Company
Limited (SSGC) by divesting 5% of its holding with a green-shoe option
of an equal amount. The public offer will be made shortly at Rs 26/share
but no date has been fixed for the public offer. The proposed divestment
is expected to have a positive impact on equities market with the
increase in market float of the scrip. SSGC will be a good addition to
investors' portfolio as it increases their exposure to the growing
downstream gas sector of Pakistan.
The Government of Pakistan directly holds around 70%
shares of SSGC. Whereas its total holding, including holdings through
institutions is estimated as high as 93 per cent. According to Murad
Ansari of KASB Securities the inadequate stock liquidity has been one of
the key issues hampering active trading in SSGC's shares. The 5-10%
planned divestment by the government is likely to give a boost to the
liquidity in SSGC's share, which is likely to bring it among the top
traded stocks at the KSE. The increased stock liquidity will also help
in containing erratic movements in the share price.
PATTERN (AS OF 30 JUNE 2003)
Government of Pakistan
National Bank of Pakistan Trustee Department
Banks and DFIs
Investment Corporation of Pakistan
There was a lot of loud talk regarding the offer
price for public offer. The overwhelming consensus was that it would be
fixed around Rs 25 per share. However, movement of its share price in
the recent past played a key role and Privatization Commission fixed the
offer price at Rs 26/share. It was not unique because earlier the
Commission adopted this policy at the time of recent offer of shares of
National Bank of Pakistan (NBP). The Commission had fixed the offer
price of NBP share at a slight discount to the one-month average price
quoted at the stock exchanges.
SSGC constitutes an indispensable component of any
long-term portfolio. The company, which gets a fixed return on operating
assets has recently embarked upon an ambitious capital expenditure
programme that is expected to further improve its profit. The company is
also expected to benefit from improved relationship with India due to
realization of gas pipeline project.
According to a report from AKD Securities the GIERP
II plan amounting to Rs 35 billion is spread over 2004-08. The plan
envisages revamping and expanding transmission and distribution network
to improve capacity for handling additional load of gas. The lack of
infrastructure facility has restricted consumption of gas in the past.
Given the fact that of gas discoveries are made in southern part of
Pakistan, expansion in gas infrastructure had become mandatory.
The earnings driver for SSGC has been the constant
increase in operating assets. Despite higher borrowing to undertake
expansion programme financial charges are expected to remain within
modest limit. The new debt is being acquired at around 3% per annum,
which is also bring down average cost of funds. This provides further
impetus to improving company's profitability. Profit after tax is
expected to more than double in next five years.
SSGC's presence in overall portfolios of
institutional as well as retail investors has been very insignificant.
This has been primarily due to the fact that the majority of the
company's shareholding has been with the government itself as well as
government owned institutions. Further divestment of SSGC shares will
have a positive impact on investors' portfolio. It will increase
investors' exposure to Pakistan's gas sector. SSGC is among the few
companies enjoying enormous growth potential. The Company has recently
announced a Rs 34 billion infrastructure expansion to be completed in
next five years. With the profitability of the company linked to its
asset base, the expansion plan will translate in to good earnings growth
for the company in the coming years.
The company is Pakistan's leading integrated utility
powering the national economy by providing gas to two provinces, Sindh
and Balochistan. SSGC supplies gas to nearly 1.7 million customers. Its
pipeline network consists of 2,786 km of transmission lines and 23,416
km of distribution network. The Sui gasfield remained a primary source
of gas for decades. However, its share in total gas supply at present
stands only 14% and remaining 86% gas is being obtained from various
fields in Sindh, i.e. Bhit, Zamzama, Sawan, Badin, Miano, Kadanwari.
SSGC has transmission and distribution network across the provinces of
Sindh and Balochistan. The Karachi metropolitan area accounts for about
1.2 million customers. Hyderabad and the interior of Sindh have
approximately 340,000 customers and about 130,000 customers are from