UNDER spotlight this week will be the sale of 10pc shares of the state-owned Oil and Gas Development Company Limited. The Privatisation Commission is breathing easy after the Supreme Court allowed the sale to go through.

The government has pleaded that in case the transaction does not take place, the country would suffer ‘great financial loss’. “The IMF delayed the release of the fourth tranche of $550m that was due in September because of Pakistan’s failure to meet the performance criteria, which included the privatisation of at least three state-owned entities,” a person close to the deal explained.

Privatisation Commission (PC) Chairman Mohammad Zubair made it clear late last week that the government would press along with the transaction. The PC is in a hurry, as the book-building will begin the very next day after the Moharram holidays. “The commission will conduct the book-building process on November 5, 6 and 7,” said a member of the PC, who asked not to be named.

The market is excited about the 10pc sale, slated to be the biggest offering by a Pakistan-based company since the government sold $913.6m worth of OGDC’s global depository receipts in 2006

The information most anxiously awaited by the market, namely about the ‘floor price,’ would be conveyed before trading starts at the stock exchanges on November 6. Although no one is ready to hazard a guess at the possible ‘floor price’, the PC chairman hinted that he expects to raise $800m.

“It is easy then to read the government’s mind,” says investment analyst Mohammad Rizwan. He pointed out that the 10pc stock would equal 323m outstanding shares that have been put on the auction block. Converted at the going rate of Rs103 to a dollar, the PC is eyeing Rs82.4bn. That would produce the ‘floor price’ of Rs256 per share. The OGDC stock closed at Rs228 on Thursday.

So is the government expecting to close the deal at a sizeable premium to the current market value of the stock? A person privy to the transaction and who had gone along to help with the road-shows abroad nodded in agreement. He asserted that foreign investors and high net-worth local players were craving for a big share of the pie. “One foreign investor has shown interest to take up one-half of the shares on offer,” he claimed.

The market is excited about the 10pc sale, which would be the biggest offering by a Pakistan-based company since the government sold $913.6m worth of OGDC’s global depository receipts in London in December 2006.

Interestingly, the company’s initial public offering in October 2003 had yielded a massive Rs6.9bn, at what now looks like a throwaway price of Rs32 per share. That had stood out as the biggest stock offering in the history of the country’s capital market.

The OGDC is the biggest oil and gas exploration and production company in the country. At end- 2013, it held a sizable Rs480bn in total assets. It claims to be the highest profit earner among all domestic companies, and the highest revenue-generator for the government in the form of dividends, since the State is its majority stakeholder.

“OGDC contributes 55pc to Pakistan’s total oil production and 28pc to its entire natural gas output,” Muhammad Riaz Khan, the company’s former MD and CEO, had told Dawn. It has total reserves of Rs358bn, nearly eight times its paid-up capital of Rs43bn.

As would happen with such big deals, not everyone is happy with the sell-off. Many legislators are crying hoarse over the government’s attempt to sell the ‘family silver,’ while the company’s employees have taken to the streets.

OGDCL Officers Association President Jahangaiz Khan says the company paid Rs129bn in taxes to the government in the last financial year, and earned Rs90bn in profit, which, he says, smacks of ‘an international conspiracy’ to steal away a profitable asset.

Privatisation minister Zubair dismissed such suggestions, pointing out that only 10pc of the 75pc government holding is being offered for sale.

A representative of the protestors, however, had his own reasoning. “After the earlier sale of 10pc, the government is offloading another 10pc of the OGDC stock in the market,” he said, and added that according to regulations, whoever acquires 25pc stock of a company can seek its management control.

An investment analyst, however, believed the idea to be far-fetched, as OGDC’s free-float is just under 10pc. Despite all that, it would be an interesting show to watch this week.

The company announced its financial results for the quarter ending September on last Wednesday, posting a profit-after-tax of Rs28.3bn, down 15.7pc from Rs33.6bn in the same quarter last year.

A senior analyst, however, tried to calmed investors by saying that the decline in profitability was due to a higher-than-expected effective tax rate of 32pc, and a 91.9pc jump in exploration expenses to Rs3.8bn. “These are just one-off items,” he asserted.

Published in Dawn, Economic & Business, November 3rd, 2014