KARACHI: Pakistan Refinery Ltd (PRL) and Air Link Communication Ltd said on Monday they want to buy majority shareholding and control of Shell Pakistan Ltd, which is the third-largest oil marketing company (OMC) with a share of roughly eight per cent in volumetric sales.

The two acquirers are initially eyeing the 77.42pc stake that the foreign sponsor of Shell Pakistan put on sale in June as part of “simplifying” its global portfolio.

In line with the prevailing regulations for takeovers, the second leg of the acquisition will consist of a public offer for up to 50pc of the remaining shareholding in Shell Pakistan that’s controlled by the general public, public-sector companies, banks and mutual funds.

As such, the two acquirers will be bound to extend a public offer for 11.29pc shareholding in the target company after successfully striking a deal with its current sponsor at an equal or higher share price.

At the going market rate of Rs115.05, the value of the foreign sponsor’s entire shareholding in the OMC is around Rs19 billion.

The regulatory filing by Next Capital, which is the manager to the offer, didn’t mention the respective shareholding that the two acquirers are eyeing in the OMC.

PRL is one of the five refineries operating in the country while Air Link Communication is a publicly listed distributor, manufacturer and retailer of smartphones.

Pakistan State Oil Company Ltd (PSO), which holds more than half of the market share among all OMCs, also owns 63.5pc shareholding in PRL.

If the deal goes through, the largest OMC will end up absorbing the business of the third-largest player, further cementing its dominant role in the oil marketing business. One commentator called the deal a “nonstarter” as the Competition Commission of Pakistan (CCP) might intervene and stop the transaction.

However, another analyst who spoke to Dawn noted that no such resistance was expected from any regulatory authority given that the move was initiated by state-owned PSO.

Word has it that the much-talked-about Saudi investment is likely to flow into PRL in the form of fresh equity. “PRL will use the Saudi money to buy Shell. It’s a possibility,” said one analyst who requested anonymity.

Speaking to Dawn, Chase Securities Research Director Yousuf M. Farooq said the government should sell the companies it owns instead of buying private companies through state-owned enterprises.

“I can’t say if the announcement by PRL is based on the expectation of Saudi investment. I’ll be surprised because there’s been no official word from the Saudis and yet PRL has made the formal announcement,” he said.

PRL posted a net income of Rs2.5bn for the first nine months of 2022-23, down 53.2pc from a year ago. The accumulated losses on the company’s balance sheet amounted to Rs15.7bn at the end of March.

However, the company is carrying cash of Rs8.3bn and short-term investments of Rs10bn to finance the deal.

As for Air Link Communication, Mr Farooq said its interest in buying a stake in a big OMC made little apparent sense. “It’s an amazing, high-growth business. I can’t say why it wants to jump into a low-growth business,” he said.

Published in Dawn, July 18th, 2023