Kapco share may be offered at Rs32-35: Public offering
By Dilawar Hussain
KARACHI, Dec 9: The Privatization Commission is likely to price its Initial Public Offering (IPO) of 176 million shares in Kot Addu Power Company (Kapco) in the range of Rs 32 to 35 per share.
Dr Abdul Hafeez Shaikh Federal Minister for Privatization and Investment chaired the meeting of the Privatisation Commission (PC) Board on Monday, which officials said had "determined" the price of the upcoming Power Plant's IPO. But for want of approval of the Cabinet Committee on Privatization (CCoP), the magical figure of IPO price was not disclosed.
PC intends to offer 20 per cent (176 million) shares in Kapco to the general public in small lots (possibly 500 shares each) through the country's three stock exchanges. Employees would be allocated 10pc of the offering.
No firm date of the issue has been announced but PC officials including the Minister has given a vague timeframe of "last week of the current month". That leaves less than 20 days to the offer and the uncertainty prevails on both the timing and the pricing.
The commission is probably still working out the strategy on how to go about launching the marketing campaign for the public offer! Kapco is a large IPP with power generation capacity of 1600mw.
The company was privatized in June 1996 and the government transferred management control to International Power plc (the parent that also holds controlling stake in Hubco) along with 26pc shares.
Subsequently in November of the same year, 10pc additional shares were also divested to the new owners. Total proceeds of Rs9.1 billion flowed in the official kitty from divestment of 317 million shares.
The Government now holds 64pc of Kapco's total 880 million outstanding equity. On the basis of the pricing of divestment to International Power, the average price per share works out at Rs28.70 per share. "In several ways, Kapco matches Hubco, which is currently trading at the market at around Rs32", said an analyst.
Hubco's dividends are tariff bound and the profitability is "interest rate sensitive", which meant that Kapco would not really be a growth stock such as OGDC and PPL. Could that mean that the initial capital gains in Kapco would scarcely be equal to the bonanza that successful applicants reaped in the IPOs of OGDC and PPL?
The market generally knows nothing beyond the name of the company, but even seasoned analysts have scarce knowledge about the IPP and therefore prospective market price of its IPO. "To make an accurate assessment one has to study the Power Purchase Agreement of Kapco," lamented one analyst, adding that the Agreement, nonetheless, was not a public document.
Moreover, Kapco's plant and registered office are located in distant land of Muzaffargarh, where no man from the market was willing to travel to dig out more. Analysts feel that they are better placed in the market, where the prices of shares are shooting out of the roof.
Kapco recently released financial figures for just the past two years: 2003 and 2004. In 2003, the company made after-tax profit of Rs5.5bn on sales valued at Rs23.2bn, which increased to taxed profit at Rs6.9 billion on sales valued at Rs 21.8 billion for financial year 2004. Earning per share for FY'03 and '04 worked out at Rs6.21 and Rs7.88. The company paid dividend per share at Rs16.36 and Rs6.50, respectively for the two years.
Analyst at First National Equities, Muhammad Owais, has made an effort to make some sense out of the bare numbers. His calculation based on evaluating valuation statistics of previous IPOs and comparable power sector companies, also produces the IPO price between Rs30 and Rs35.
The analyst has assumed p/e multiple of 4-4.5 for Kapco's IPO, relatively lower than the previous IPOs of OGDC and PPL, which he said was justified, "because earnings outlook for the latter two is growth based as compared to the Kapco's outlook which seems stable".
"Secondly", said Owais, "Kapco will achieve a maximum growth in earnings in FY'05 because the company is currently enjoying an income tax exemption, which will expire in calendar year 2006".
Even if the Kapco stock does not promise the kind of initial capital gains as were witnessed in IPOs of OGDC and PPL, investors seem to be anxiously waiting the arrival of the new scrip.
Considering that offers could be made in the lots of 500 shares each, the 176m shares on public offer (excluding the employees' portion) leaves 316,800 applications, which may be declared successful.
The last offer of PPL had seen a record 800,000 applicants line up for the stock. If all of those applicants turn up, the possibility of an investor hitting this smaller jackpot would be around one-in-three.
