PPL's initial offering to yield over 5.6 billion

July 12 - 18, 2004

The launch of Pakistan Petroleum Limited (PPL) shares Initial Public Offering (IPO) of 15 percent shares, which includes 5 percent additional shares through green shoe option is going to be the turning point in the country's Privatization Program, especially the stock market.

According to the assessment made by Dr. Abdul Hafeez Shaikh, the Federal Minister for Privatization and Investment, the IPO of the PPL shares are likely to yield Rs5.65 billion to the government, of course a land mark in the privatization history through the stock exchange. The minister made these remarks at the first road show on the eve of the launch of IPO through the stock market.

A brief history of the PPL reveals that the government owns 93.4 percent shares with net revenues of Rs12.2 billion and a net income of Rs4.2 billion and total reserves equivalent to 725 million barrels of oil. The company has 14 blocs all over the country, which include eight operative and six non-operative while PPL was also entering in international exploration in six different countries. According to informed sources, PPL had got contract for exploration and drilling of oil wells in war devastated Iraq prior to beginning of the turmoil, however, it is yet to be seen whether that contract was still valid or not. The fact, however, remains that the PPL exploiting the expertise it has in the oil and gas exploration sector was spreading its wings in skies at the international level and hopefully would achieve the goals in the days to come.

The market appetite for the PPL's shares was so strong that when the provision trading of the PPL resumed at the Karachi Stock market, the provisional rates were quoted at Rs109.65 while at the end of the day it was Rs108.80 which speak the volume of interest of the investors in that future leader of the capital market.

The government, on one hand aims to sell the national assets at appropriate price while it also taking care of the small investors and the commonman to generate a sense of participation in the process of privatization of the national assets, said Dr. Hafeez Shaikh. He was of the view that PPL having 33 percent market share was a market leader and its profit would increase during the current year as compared to the previous year figure of Rs12.2 billion.

In conformity to the government's policy of privatization of the public sector entities through stock exchange for the benefit of the people, preference in allocation of the shares would be given to the smallest applicants for 500 shares for a total investment of Rs27,500 which would directly benefit the small investors and would also help in broadening the shareholder base and lend additional strength to the capital market.

The listing of the PPL with Karachi Stock Exchange would add significantly to market capitalization and the PPL is bound to become one of highly traded stocks in the market.

The Security and Exchange Commission of Pakistan (SECP) and Karachi Stock Exchange have allowed Privatization Commission to initiate subscription for sale of shares of PPL through Lead Manager Elixir Securities Pakistan Ltd from July 19 to July 22, 2004 at offer price of Rs55 per share for the Initial Public Offer. The price for PPL IPO will be inclusive of the transfer fee and thus no additional transfer fee would be charged to the subscribers.

The government has approved the divestment of 15 percent shares of PPL through an offer sale of 10 percent which 68.58 million shares of the company to be issued to the general public with a green shoe option of additional 5 percent shares in case of over subscription.

Credit certainly goes to the financial managers of the country to activate the capital market through its privatization process, which certainly brought life into the dead and sick units as well. Those sick units for example are identified as Hyatt Regency Hotel Building, Kohinoor Oil Mills, Rohri Cement, Faletti's Hotel and Thatta Cement, which have doubled its production after the privatization.

In order to implement the government's commitment to pass on the benefit of the privatization to the common man, the Privatization Commission has so far benefited 197,887 small applicants through the public offerings of government holdings in National Bank, Oil and Gas Development Company (OGDC) and Sui Southern which consolidated the financial strength of the government with an estimated yield of over Rs10.39 billion.

The NBP shares were sold to 33,200 applicants through an IPO and two secondary public offerings for Rs1.7 billion. The offerings were oversubscribed and the present average rate of Rs60 per share, the divested shares have shown an increase of 200 percent in value and are presently worth about Rs5.26 billion. Similarly, an amount of Rs6.88 billion was realized through IPO of OGDC shares sold to 97,570 applicants. The IPO of OGDC was oversubscribed by 8 times. At present the average price of Rs61 per share, the divested shares have shown an increase of 91 percent in value and are worth about Rs13.12 billion. With this strong background of the privatized public sector entities share, one can safely go to invest in the forthcoming offering of PPL shares, the market sources recommended.