Updated Jan 15, 2004


On 11th January the KSE-100 rose steadily to 6,650 and just before half-an-hour of the closing it crossed the 6,700 mark and finally closed at 6,710.03 points, gaining 225.89 points in a single session. The accomplishment of nearly 226 points was beyond the wildest imagination of the traders. The LSE-25 index also registered a phenomenal single-day increase of 146.81 point to touch highest ever level of 3260.20.
There was a movement of 231.23 points on 13th January, but only the decline. The KSE witnessed very high level of volatility. Prices of almost all the volume leaders and blue chips recorded substantial



erosion in value, leading to application of circuit breakers. The decline was attributed to massive selling by the weak holders as well as institutional investors, rising concerns about the situation in Balochistan and, above all, refusal of Badla providers to finance COT. The market plunged to 6419.18 but finally closed at 6426.17 level with a loss of 231.23 points. The last highest decline in a single day was a loss of 206.50 points registered on 16th September 2003.


The privatization of Pakistan Telecom Company is gaining further hope with the coming of strong international telecom operators. Singapore Telecom (Singtel), alongwith four international firms have expressed interest in participation in the privatization of PTCL. The companies that have already submitted their EoIs for PTCL include Kuwait Mobile Telecommunications Company, MTN-International of South Africa, Emirates Telecommunication Corp. of UAE and Saudi Oger. While Singtel is expected to submit its EoI in the coming days, VSNL of India and Dutch Telecom are also reportedly considering participating in the privatization process. With 28-Jan-05 being the last date for submission of EoIs, the privatization hype is likely to gain further momentum. The government plans to sell up to 26% of its stake in PTCL along with transfer of management control to the successful bidder. The government currently owns 88% of the shareholding of PTCL, while the remaining 12% shareholding is with stock market participants.


Strong volume growth, higher oil prices, growing market share and now the privatization. What else does one need to be bullish on PSO? The Privatization Commission (PC) has re-invited Expressions of Interest for the privatization of PSO, for which 4th Mar-2005 has been set as the last submission date. It is believed that the PC would be able to generate a strong interest in PSO this time on account of huge investor interest in the oil and gas sector. The strong interest seen in some of the other privatization transactions like PTCL and National Refinery has also raised PC's hope of attracting major international/regional players in the privatization process. PSO on the other hand has been able to recover from a humongous drop in sales volume as a result of declining demand for furnace oil. Strong recovery in furnace oil on the back of increased demand from power units, and continuous double digit growth in Motor gasoline consumption has completely changed the future outlook of PSO as compared to what it was a year back. While analysts do not expect a lot of efficiency gains in PSO resulting from a change in ownership, the privatization hype is likely to keep the share price firm on the back of strong investor interest. Regionally as well, it has been observed that privatization usually results in a strong share price performance.




Recent acts of sabotage have lead to a temporary suspension of gas supplies from Sui fields, following closure of its purification plant. With PPL likely to resume production in the next couple of days, analysts expect marginal impact on bottom-line for 2005. According to some estimates, shutdown of PPL's purification plant results in a daily production loss of approximately 628mmcfd of gas. With the disruption in supply expected to last for 5 days, analysts expect Rs 101 million decline in PPL's 2005 earnings to Rs 8,049 million. The stock trades at 32% premium to its DCF based target price Rs 105.60/share. Key reasons behind negative stance on the company are 1) the company's depleting reserves and 2) risks affiliated with PPL's future exploration policy. Expected gas price increases for PPL's Sui and Kandhkot fields appear priced in. At current production levels, the remaining life of PPL's reserves is about 14.1 years. Average Daily Gas production of the company has declined by about 3.3% over 1999-2004 and going forward, a reversal in the trend is not expected. The company claims to have a reserve replacement ratio of 1:1, which is expected to decline in the coming years. According to estimates, present value of PPL's cash flows emanating from proven reserves is Rs 77.8/share. Its future production and development program should support a premium of Rs 27.8/share. At Rs 139.45, 'effective' exploration premium built into the price is Rs 61.65/share and appears overstretched. PPL has been producing gas from fields that were inherited from Burmah Oil Company. The company has not been an active explorer over last 2-3 decades. With falling gas reserves, the management is now forced to change its strategy towards exploration business. This is likely to increase the exploration cost of the company by 12.2% over 2004-08 that should keep bottom-line growth in check.