NIT split into six parts for sell-off: Each unit values Rs13bn
By Dilawar Hussain
KARACHI, March 28: Each of the six parts in which the National Investment Trust (NIT) is being split up for sale in late April carries gross value of Rs13 billion, a source familiar with the transaction told Dawn on Tuesday. The government intends to sell NIT — largest mutual fund in Pakistan with Rs85 billion under management —- along with management rights by slicing it into six parts: Three to be put up for auction and the other three to be distributed to three banks (National Bank of Pakistan (NBP); Faysal Bank (FABL) and Bank of Punjab (BOP) that hold the Letters of Comfort (LoCs).
A source at the Privatization Commission (PC) indicated that 19 parties -— which included four major stock brokerages and at least 10 banks and financial institutions -— had submitted the Letter of Qualifications (LoQs). Those were expected to be short-listed as early as this week. He said that a six-member committee comprising one representative of PC; two members from Ministry of Finance; one from SBP and one from NIT, had gone through the relevant procedure required to qualify the proposed bidders.
An executive at NIT confirmed that the ‘data room’ was ready for the parties to conduct due-diligence. That would be followed by ‘pre-bid meetings’, which would lead to the date of auction. A person in intimate knowledge of the transaction observed: “The bidding and the issue of one part each to the banks holding LoCs would be completed by the end of April or early May”.
And it is understandable why? Like most upcoming transactions, the date of the privatization of NIT would be difficult to shift ahead, since the redemption date of first of the three holders of LoCs, Faysal Bank is drawing dangerously near.
LoCs were issued to the banks by the government in June 2001, when NIT was in dire financial straits, with the promise that if they opted not to insist on redemption, the banks would be given guaranteed price of Rs13.70 per unit (or the market price, whichever is higher) after five years. The institutions had varying units covered under the LoCs: Faysal Bank’s 157 million units which would mature in June and NBP’s 432 million units and Bank of Punjab’s 149 million units, both up for maturity in August.
The incremental windfall benefit, the difference of current unit price (which now stands at highest ever Rs57 per unit) and the comfort price to LoCs holders (Rs13 per unit), now run into billions of rupees. Since the unit price is carried in the books of all three banks at the purchase price of Rs14, the banks have made a big boon of unrealized capital gains.
But what if the PC is unable to privatize NIT latest before June? It would have to redeem first the Faysal Bank’s LoC, which would require a mammoth sum of Rs8.9 billion (157 million units multiplied by Rs57 per unit) to be paid to the bank. Next would come NBP to be paid as much as Rs24.6 billion and BoP to be paid Rs8.5 billion in August. And clearly NIT (nor the government) carries or can afford to part with that kind of immense cash. The PC may therefore dither on other mega privatization transactions such as PSO and PPL. But in respect of privatization of NIT, the government is quite clearly caught between a rock and a hard place. And that explains the anxiety to complete the transaction in April or latest by May.
