KARACHI, Aug 31: The threat of a hostile takeover bid for Hub Power Company Limited (Hubco) — the largest private independent power plant (IPP) in Pakistan — seems all too real.
Market participants, who keep a close watch on corporate developments, point to a significant change in pattern of shareholding over the recent years. Major sponsors, the National Power International Holdings BV of UK at this moment holds 192 million shares, which work out to 16.6 per cent of the total 1,160 million paid-up shares in the company.
Co-sponsors, Xenel Industries of Saudi Arabia have 140 million shares, equivalent to 12.1 per cent, which makes total foreign holding at 28.7 per cent. Global Depository Receipts, listed at the Luxembourg Stock Exchange represent 55 million shares not to be included in the free-float.
Corporate watchers point out that at the time of offer for sale of shares to the public in 1994, International Power and Xenel had respective shareholdings of 236 million and 168 million shares-- aggregate 35 per cent in the power plant.
“International Power and Xenel have reduced their stake in the company over the years,” says an official in a company that holds a sizeable portion of the equity.
He mentions that three years ago in 2003, when the directors were last elected to the board, International Power and Xenel commanded a total of 240 million shares (21 per cent) and 140 million (12.1 per cent), respectively. But since that date, the holdings of major foreign sponsors have stood considerably diluted.
By virtue of their holdings in the last elections, the sponsors captured eight of the 12 seats on the board of directors. The board comprises 15 directors, but two of them are nominated by the government of Balochistan and the National Bank of Pakistan and one seat is occupied by the company’s CEO.
Those in the knowledge of developments suggest that it would nearly be impossible for a single local shareholder/party to wrest the control of 1,200 MW giant power plant, from the foreign investors.
But considering that the company equity is broad-based with a huge number of over 17,855 shareholders, could an attempt be made by some kind of a consortium of leading corporate and financial institutions for majority seats on the board?
The company last listed other shareholders as Fauji group with 8.5 per cent of the holdings; NIT 3.8 per cent; MCB 2.3 per cent; Habib Bank AG Zurich 1.8 per cent; Mitsui and Co 1.8 per cent; Ishikawajimi-Harima 1.8 per cent; EOBI 1.7 per cent and “others” 44.8 per cent.
It would doubtless be those 17,000 individual shareholders with over 35 per cent shares in their hands, who would have the power to shift the balance. Would that start a proxy war?
It looks like the sponsors might have to face a difficult time to keep their strength of eight seats on the board intact.
But International Power, which held 25.7 per cent equity interest on December 17, 2000, when its three years bitter battle with Wapda over the tariff came to an end, is likely to prove a stubborn contender to keep a firm grip on the IPP.
The UK-based sponsors gave no hint of a thought to quit. In their review of global accounts for the six months ended June 30, 2006, Chairman Sir Neville Simms merely noted in regard to company’s operations in Asia. “As stated previously, with effect from 1 July 2006, Kot Addu Power Company (Kapco) has become a full taxpayer following the expiry of its tax holiday.” There was no mention of Hubco.
But, who among the local investors, is thought to be most interested in the hostile takeover bid? Market grapevine suggests that it is the well known corporate raiders, who wish to secure majority seats on the board. No one is saying that battle drums would begin to beat as the date of shareholders’ meeting on Sept 20 approaches.
It would also be churlish to assume that the foreign sponsors would give in easily, but if the local group that is believed to be in the forefront of the surreptitious move succeeds, it would be able to further consolidate its positions as the wealthiest group of companies in Pakistan.
