KARACHI, Dec 1: Except the government, everyone at the market thought that shares in Oil and Gas Development Company Limited (OGDC) to international investors had been sold cheap. The market nonetheless was divided among those who were only mildly annoyed and those who were very cross.
The Cabinet Committee on Privatisation (CCoP), chaired by Prime Minister Shaukat Aziz, burnt mid-night oil on Thursday in coming to the conclusion over the size and 'strike price' of OGDC Global Depository Shares (GDS) to be offered to international investors. The Government had set out to divest its holding in OGDC up to 15 per cent or 645 million shares by way of issuance of GDSs to local and international investors. Late on Thursday night, the CCoP announced that the offer size would be 10 per cent or 424 million shares at the 'strike price' of Rs115 per share.
Privatisation and Investment Minister Zahid Hamid told Dawn that he was quite satisfied with the transaction. He said the government would be able to raise $813 million, which he considered an accomplishment. He disagreed that Rs115 was a price on the lower side. He said that the share value was market driven and based on cash flows prepared by financial consultants. And he asserted that Pakistan was competing with GDRs on offer by companies of the Asian giants such as China, India and Thailand.
“Those companies offered GDRs at an average of 12 per cent discount, while our offer was at 9.5 per cent discount to the market price,” he argued. He said it was a moment to rejoice as Pakistan had been able to attract leading international investors and received two-fold subscription to its offer.
But what does the market think? For several weeks now, at the low-end, the two-dollar a share theory was doing the rounds which had sent the share reeling down from Rs156 in six weeks from Oct 19 to Rs127.20 at the close of trading on Thursday. The strike price of lower than lowest expectations came as a rude shock and the market price of the OGDC share on Friday hit its 'lower lock', losing Rs6.35 to close at Rs120.85. The heavily weighted OGDC dragged the entire market down, resulting in a hefty 230 points plunge in the KSE index of 100 shares.
“The government is desperate to collect money from left, right and centre and therefore hardly gave a thought to the loss that it has caused to investors by selling shares at this throw away price,” said a furious fund manager with considerable large funds under management. Like other critics, he asked not to be named. He objected to calculation of 10 per cent discount on the plummeted price of Rs127 and not on the average price of say last three months. This fund manager mentioned that the financial advisors had calculated the strike price on the earning multiple of 10 for FY07, while it should have been on multiple of 14.
He thought most mutual funds would have to bear huge losses, for they had been carrying OGDC stock at the price of around Rs135. He murmured that it was even a bigger financial scam than Pakistan Steel Mills or the March 2005 stock crash.
Another market player sharing the same grim view said that if the government was unable to get a 'fair' price for the stock, it could have scrapped the deal. He was asked if it was possible to do that at such late stage. “When the SBP can scrap the auction of PIBs and T-bills in case of non-receipt of satisfactory amount, why couldn’t the government?” he asked. He even forwarded a conspiracy theory and said that it needed to be investigated on who was short on the stock and which players took the exit just before the price dropped. One way, he said of judging the losses to investors, was to note that on Thursday evening the CFS amount in OGDC was Rs5 billion.
“Two lower locks (another he presumed would be on Monday) would wipe out Rs50 million of the investors money, particularly the smaller ones,” said the fund manager.
But Nadeem Naqvi, CEO at AKD Securities, said that he believed that investors, mainly the punters had no business to enter the CFS market or do leverage trading. “Even in ordinary circumstances, there are nine out of 10 chances that such speculator would come to grief,” he said.
Mr Naqvi was overall satisfied with the transaction. He pointed out that two large Chinese companies were making IPOs on the same day. Compared to China, Pakistan is only a marginal market and also has a higher “risk perception,” he said and added that it was a good omen that the country had come on the radar screen of foreign investors.
“The fact that two Pakistani companies (the other being MCB) had made it to the investment portfolio of foreign institutional investors and fund managers after a gap of 10 years is a happy augury,” he said. Mr Naqvi did admit that the strike price was substantially lower than most valuations at around Rs150 to Rs160 a share, but believed that it was all very well to let foreign investor make money, for why else would he subscribe to other upcoming GDRs of HBL, NBP, Kapco and others. As for local investors, he emphasised that medium to long term investors in the local market would not be the losers. “OGDC is a high growth, high dividend paying stock,” he said and added that serious investors who would hold on to the stock for say 12 months would have nothing to complain about.”
Another optimistic stock broker counted a few other good things. The free float of OGDC, which would hugely grow in size and few players, would not be able to set the direction of the market by dabbling in one stock. He justified his argument by pointing to the shares in Hubco and PTC where the speculative power had been reduced with their larger float coming into the market.
Mr Naqvi admitted that OGDC had pulled down the entire market and other stocks had been punished, but suggested that at 10,000 levels, many stocks on the banking, fertilizer and O&G companies would drop to attractive valuations and would be ripe for picking.
