KARACHI, May 31: The market generally thought that the government had made a good bargain on Tuesday, through its sale of 51 per cent strategic stock in National Refinery Limited at the price of Rs483 per share. That translated into $8 per share. “It has been an excellent deal which bodes for other upcoming privatization transactions,” commented Mohammad Sohail, stock broking and research director at Jahangir Siddiqui Capital Markets. The Attock Group had tendered the highest bid of Rs16.145 billion or Rs483 per share for 51 per cent management shares in NRL. The sale represented 34 million of NRL’s total outstanding shares, which stood at 66 million.

The market greeted the privatization of NRL warmly with the price of the company stock closing the day’s trading at Rs358.30, representing the top gainer of the day, with an increase of Rs17.05. The biggest beneficiary of the NRL privatization would probably be the National Investment Trust, which holds 20 million shares in NRL, followed by other mutual funds, including PICIC Growth Fund that holds 5.5 million of the stock.

In a pre-bid report, Tanvir Abid, head of research at Live Securities, pointed out: “NRL’s successful privatization would also result in capital gains and cash proceeds to mutual funds such as NIT and PGF. This will make provision for reinvestment of funds in the stock market and provide a sizeable return to shareholders/unit-holders.”

Analysts at KASB Securities said in May 31 morning notes: “Two mutual funds, NIT and PGF, together own 39 per cent shareholding in NRL, which forms a part of the total 51 per cent government’s shareholding in NRL. Both these mutual funds would be receiving cash against their holdings in NRL, which in our opinion would find its way back in to the stock market.”

The sale price could be a boon to the holders of those ‘frozen blocks’ (NIT, PGF), for they have reaped a huge windfall gain of Rs125 per share (the difference between the sale price Rs483 and current market price of Rs358). On 20 million shares, the gain to the NIT could accrue in the sum of Rs2.5 billion. That would enable the NIT to pay higher dividend to both its common unit-holders as well as the three banks that hold letter of comfort (LoC) — Faysal Bank, Bank of Punjab and National Bank of Pakistan. Of the 770 units for which NIT had issued LoC back in 2001, NBP holds 432 units, followed by BOP 149 units and Faysal Bank 157 units. The LoCs were issued by the government in 2001 so as to restrain those institutions from going for redemption at a time when the NIT was in dire financial straits.

Against the market price of Rs7 per unit at the time, the government had guaranteed Rs13.70 at the date of redemption which would fall in August 2006. The incremental benefit to the banks due to the difference of comfort price of Rs13.70 and the current NIT unit price of Rs41 has already resulted in billion of rupees of windfall gains to the three banks.

The JSCM morning briefing of May 31 said: “The privatization of NRL will benefit NBP as it holds one million shares of NRL. If NRL is privatized at Rs400 per share (our expected privatization price), then NBP will received Rs410 million in cash that will translate in incremental earning per share (eps) of Rs0.60 for the bank (based on our expectation of Rs50 per share cost to NBP).”

Thus, it seems that the fabulous price that NRL received on its privatization would benefit the banks on both counts: their direct stakes in NRL equity as well as through units in the NIT.

But in all this saga of excellent NRL sale deal on Tuesday, the surprising element remains comparatively low bids by second and third parties in the run: Crescent Group offered Rs260 per share and Fauji Foundation just about Rs197 for each stock of NRL. Analysts thought that those prices were quite unjustified by both the refinery’s current performance as well as its prospects. In the July-March 2005 last reported period, NRL had portrayed mammoth 93 per cent growth in earnings amounting to Rs2.24 billion, as against Rs1.16 billion in the corresponding period last year.