QUETTA, Pakistan - The official listing of
Oil and Gas Development Co Ltd (OGDCL), Pakistan's
flagship company in the energy sector, took place
at the London Stock Exchange on Wednesday. The
listing and trading of OGDCL's global depository
shares (GDS) represents a significant milestone in
Islamabad's privatization program. This is the
largest equity offering of a Pakistani company
abroad in more than a decade.
Islamabad
announced last week that it had completed the
institutional offering of the
OGDCL's global depository receipts (GDR) that
would yield gross proceeds worth US$813 million.
The offer has been priced at Rs115 (about $1.89)
per share and $18.90 per GDS, with each GDS
representing 10 shares. Many market players in
Pakistan called it even a bigger financial play
than Pakistan Steel Mills or the March 2005 stock
crash.
OGDCL is Pakistan's top listed firm
with a market capitalization of about $9 billion.
The Cabinet Committee on Privatization meeting
chaired by Prime Minister Shaukat Aziz last week
approved OGDCL's 49.460 million shares (10%) for
GDS. The issuance of GDS by OGDCL is the second
such offering by a Pakistani firm in recent
months. In October, MCB Bank Ltd, Pakistan's
second-largest listed bank, raised $150 million by
issuing GDR in London. OGDCL is raising $813
million and a domestic offering to raise the
country's international profile with investors.
OGDCL has been a profitable public limited
company holding 32% of Pakistan's gas and 37% of
its oil, which is the largest share of the
country's recoverable hydrocarbon reserves. By
July 30, OGDCL had drilled 224 exploratory wells
and 251 development wells.
The company is
currently 95% owned by the government. Its annual
sales for 2005 were 39,130 barrels of oil per day,
919 million cubic feet per day of gas, 334 tonnes
per day of LPG and 71 tonnes per day of sulfur.
OGDCL's share in the total oil and gas production
has been 47% and 23% respectively during the
fiscal year 2004-05. The net sales of OGDCL have
increased to $1.613 billion in 2005-06 from $1.229
billion in 2004-05, while its profit after tax has
increased to $766 million in 2005-06 from $549
million in 2004-05.
Expressions of
interest for sale of 51% shares in OGDCL were
invited in July 2002, and various oil and gas
companies expressed interest. However, the
transaction remained pending until completion of
the privatization of Pakistan Petroleum Ltd In
November 2003. On behalf of the government, the
Privatization Commission divested 5% of the
Pakistan's share holding in OGDCL by way of an
offer for sale through an initial public offering
at the domestic stock exchanges.
This
August, Pakistan proceeded with the divestment of
10-15% shares in OGDCL by means of an
international offering through GDR and a domestic
public offering. The transaction is to be
completed by December 31. Through issuance of GDR,
the company has now positioned itself for
international scrutiny and listing on the London
Stock Exchange.
This is the first time
institutional investors in Pakistan have
participated in an international book-building for
a publicly traded, Pakistan-listed company. The
demand was generated from a broad range of
institutional investors from the United States,
the United Kingdom, Asia and the Middle East, as
well as from the Pakistani institutional market.
Many of the world's leading institutional
investors participated in the transactions. While
95% of the institutional offer has been allocated
to international investors, only 5% was offered to
Pakistan-based institutional investors.
Officially it has been claimed that the
success of this offering sends a strong signal of
global institutional investor confidence in
Pakistan and bodes well for its growing
participation in international capital markets.
Officials claim that the transaction has more than
doubled foreign portfolio investment in the
country and the free float of the OGDCL would rise
to 15% as a result of the offering. It would
enhance the company's institutional profile and
broaden its investor base by adding high-quality
diversified shareholders.
Many market
players in Pakistan, however, think the shares in
OGDCL to international investors have been sold at
a discount. The strike price was substantially
lower than most valuations at about Rs150-Rs160 a
share. The lower strike price came as a crude
shock and the market price of the OGDCL share last
Friday hit its "lower lock", losing Rs6.35 to
close at Rs120.85. The heavily weighted OGDCL
dragged the entire market down, resulting in a
hefty 230-point plunge in the Karachi Stock
Exchange index of 100 shares. In fact, the OGDCL
pulled down the entire market, punishing other
stocks.
Some fund managers flayed the
government for causing losses to investors by
selling shares at a throwaway price, objecting to
the calculation of a 10% discount on the plummeted
price of Rs127 and not on the average price of the
past three months. The financial advisers had
calculated the strike price on the earning
multiple of 10 for fiscal 2007, while it should
have been on multiple of 14. Most mutual funds
would have to bear huge losses, for they had been
carrying OGDCL stock at the price of about Rs135.
Some market players insisted that if the
government was unable to get a "fair" price for
the stock, it could have scrapped the deal. It is
worth noting that on the evening of November 30
the CFS (consolidated financial statements) amount
in OGDCL was Rs5 billion. They demanded that an
investigation be carried out on who was short on
the stock and which players took the exit just
before the price dropped.
The government,
however, disagrees that Rs115 was a price on the
lower side, contending that the share value is
market-driven and based on cash flows prepared by
financial consultants. It asserts that Pakistan is
competing with GDR on offer by companies of Asian
giants such as China, India and Thailand. It is
also worth mentioning that two large Chinese
companies were making initial public offerings on
the same day. Compared with China, Pakistan is
only a marginal market and also has a higher risk
perception. It is a good omen that the country has
come on the radar screen of foreign investors.
The government had started a book-building
process for GDR from November 15 that concluded on
November 30. In fact, through issuance of GDS,
Islamabad is trying to attract foreign
institutional investors to Pakistan. It is thought
the right time, as its economy has been performing
well. Pakistan's economy grew by 6.6% in the
financial year that ended on June 30. The
government is expecting 7% growth this year.
As per government's privatization policy,
21 units of the remaining 41 units in the public
sector are scheduled to be privatized during the
current financial year. In some experts' opinion
the rewards from privatization do not seem to be
big enough to compensate for all the associated
socio-political risks for pursuing the
privatization policy. Islamabad has also planned
the global listing of National Bank of Pakistan,
United Bank Ltd, Habib Bank Ltd and Kot Addu Power
Co. The funds generated by the government's
privatization program have primarily been used for
reducing its debt burden.
The sale of
state assets is being overseen by the
Privatization Commission of Pakistan, which has
completed the management road-shows and
book-building process for the domestic and
international institutional offering of OGDCL. The
gross proceeds of the institutional offer are
expected to amount to $712 million. If the
over-allotment option and the retail offering are
included, the gross proceeds of the offer are
expected to amount to $813 million.
The
Privatization Commission has already announced
plans to use the green-shoe option (a provision
allowing the buying-up of additional shares) in
case GDS is oversubscribed. The financial adviser
will start working on the strategic sale of the
OGDCL in a few months. The government has not
specified yet how the proceeds from its sale will
be used.
Syed Fazl-e-Haider,
sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author
of six books, including The Economic
Development of Balochistan, published in May
2004.
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