08 February 2004	Sunday	16 Zilhaj 1424

KARACHI, Feb 7: The government is expecting to be able to comfortably raise the targeted Rs1.74 billion, through the secondary public offering of shares in Sui Southern Gas Company Limited (SSGC).

Officials of the Privatization Commission are looking at aggregate subscription to run up to Rs14 billion or eight times the offer. Independent analysts wave that as too high, but almost everyone at the market believes that the SSGC offer of five per cent shares and another five per cent in greenshoe option (in case of oversubscription), would be oversubscribed. The offer would add 67.12 million shares to the company's outstanding stock.

The government currently holds 70.43 per cent of the gas utility's equity with another 29.57 per cent with general public and the institutions.

The share of the par value of Rs10 in SSGC is to be offered at Rs26. The premium of Rs16 is generally considered to be lower- than-expected in terms of the stock's recent performance. In three months since November 3, 2003, the SSGC share has outperformed most of the scrips, reflecting a huge gain of Rs12.90 or 65 per cent, rising from Rs19.80 to Rs32.70, currently.

The additional 67.12 million shares from the current offer, according to Mohammad Sohail, head of research at InvestCap, would not necessarily impact the share price, because the market was highly liquid.

And Tanvir Abid, head of research at Jahangir Siddiqui Capital Market, points out that the one-moth and six-month average price of SSGC stood at around Rs28 and Rs27, respectively, with the scrip witnessing the price level as high as Rs36. "Moreover, the offer price appears low considering the recent aggressive offer prices and successful subscriptions of National Bank of Pakistan and Oil and Gas Development Company Limited," says the analyst.

The SSGC offer comes quite close on the heals of the Privatization Commission's offer of five per cent equity in OGDCL that brought Rs6.96 billion for the government, which was billed as the biggest stock offering in the history of the Karachi Stock Exchange.

Like in the OGDCL divestment, the Privatization Commission has announced that preference would be given to the smaller applications for the minimum lot of 1,000 shares. Second and third preference, would be given to the applicants for 2,000 and 3,000 shares, while the applications for bigger denomination would be decided on pro rata basis. But the application of the small investor who applied for a thousand shares in OGDCL, was almost certain to have met with success, since it required an incredible figure of more than 215,000 applications for a ballot to be held.

The actual number of applications for 1,000 shares fell at just around 98,000, so that all of them were issued shares, which has already brought windfall of Rs21,000 or 65 per cent in three months, on investment of Rs 32,000, as the ruling price of the OGDCL scrip is around Rs53 against the offered price of Rs32.

But compared to OGDCL, the upcoming offer of Sui Southern Gas Company Limited is much too small. The gas utility would require just around 67,000 applications for full subscription. Supposing that the same number of small investors as in OGDCL, i.e 98,000 apply for the SSGC stock, one in three applicants that subscribe for 1,000 shares, has the chance to succeed. The offer would remain open for three days from Monday to Wednesday.

Analyst agree that the immediate capital gains for applicants in SSGC are not likely to be as mammoth as was in OGDCL. But for long term investors SSGC is considered to be a "growth story".

SSGC intends to embark on a Rs34 billion capital expenditure plan spread over a five-year period. That would include the second phase of the Gas Infrastructure Rehabilitation and Expansion Project (GIREP-II) having an outlay plan of Rs17-18 billion. SSGC has stated that for financial year 2003-04, approved capital expenditure was Rs5.4 billion. With earning before interest and tax (EBIT) linked to operating assets (17 per cent) and incremental financing costs anticipated to range around 4-7 per cent, analysts visualized profitability of SSGC to remain comfortably high, going forward.

For the first quarter of the financial year 2004 (July-September 2003), earnings at SSGC had, nonetheless, remained flat. Net income and earning per share, respectively, amounted to Rs306 million and Re0.46, which was about the same as in the corresponding period of last year. Operating profit declined by 14 per cent to Rs464 million for Q12004, compared with Rs538 million earned in the same quarter last year.