KARACHI: The government secondary public offering (SPO) of 70.06 million shares in Pakistan Petroleum Limited (PPL) on Friday received Rs30 billion in subscription from local institutions and high net worth individuals (HNWI).

“The strike price of the stock thus settles at Rs219, which would help government raise Rs15.3bn, equivalent to $155.3m from the current PPL offering”, Arif Habib, former chairman Karachi Stock Exchange, told Dawn on Friday.

The book building process for PPL secondary public offering which started on Thursday closed on Friday (both days inclusive) at 5pm.

Arif stated that the amount subscribed by the domestic investors was twice the offer of Rs15bn worth shares and represented the highest ever subscription by the local investors to an SPO.

He recalled that the closest figure of receipts was Rs17bn in subscription to the HBL offering some eight years ago.

Earlier on Wednesday, the Cabinet Committee on Privatisation (CCoP) had approved the ‘minimum or floor price’ at Rs205 per share of PPL offering, which was at a discount of 4pc to the market price of Rs214 that day.

Arif Habib confirmed that 1,070 investors participated in the book building on Thursday and Friday, submitting bids for 143m shares against the offer of 70.06m shares, the latter equivalent to 3.5pc of the paid-up capital of PPL.

He dismissed some acquisitions of lack of transparency in the ongoing privatisation process and explained that the PPL offer was made under the ‘Dutch auction method’ of book building, which was skewed towards the domestic investors as against the mid-June offer of 19.8pc shares of government holding in United Bank Limited, which targeted the foreign investors.

The former senior broker said that the overwhelming response of local investors to the PPL offering suggested that the market had insatiable appetite for high growth, high return companies.

He thought it should encourage both the government and the domestic sponsors who wish to raise money for the upcoming capital intensive projects such as in the power sector.

Meanwhile, analyst Vahaj Ahmed at Topline Securities commented that over the last few years, PPL had gradually shifted its revenue-mix with higher contribution from oil. Resultantly, PPL’s earnings were expected to grow at 10pc CAGR (FY14-17) mainly due to 14pc growth in oil production.

The analyst calculated that the PPL stock was currently trading at FY14 estimated and FY15 forecasted price-to-earnings (P/E) multiples at 8.8 times and 7.7 times, respectively, which, he asserted, were one of the lowest amongst regional peers.

Published in Dawn, June 28th, 2014