Inside Financial Markets

KAPCO Privatisation: DIB-led Consortium hired as Financial Adviser

kapcoKAPCO privatisation: DIB-led consortium hired as financial adviser

The Privatisation Commission  (PC) board on Monday approved the hiring of a Dubai Islamic Bank-led consortium as financial advisor for strategic sale of the government’s remaining 40.3% stakes in the country’s largest independent power producer, Kot Addu Power Company Limited (Kapco).

Headed by PC Chairman Mohammad Zubair, the board constituted a committee with a mandate to enter into further negotiations with the Dubai Islamic Bank to address the concerns of the members about partner chartered accountant firm of the consortium -the Deloitte Pakistan.

The Deloitte was the financial adviser for the privatisation of Heavy Electrical Complex and the PC did not accept its Rs1.2 billion to Rs1.5 billion evaluation of the HEC. The HEC privatisation bid failed.

The consortium is comprised of Dubai Islamic Bank, Deloitte, Lummus Consultants International, Mohsin Tayebaly and Company. The consortium won the contract on back of its lowest financial bid; as on technical grounds, it stood second.

The Dubai Islamic Bank is also the financial adviser for the privatisation of at least 26% stakes of Pakistan International Airlines (PIA). It has already missed the deadline to complete the due diligence of PIA, mainly because of non-cooperative attitude of PIA management, according to officials.

Out of a score of 100, the Dubai Islamic Bank secured 92.1 marks. However, it quoted the lowest financial bid of Rs342.12 million, taking its tally to 93.64 marks  – only two marks more than the cumulative score obtained by the second lowest bidder.

The consortium led by Credit Suisse, Elixir Securities, Fichtner, Enrst & Young, Latham & Watkins, HaidermotaBNR obtained 100 marks during the technical evaluation but it quoted the highest price of roughly Rs590 million, which lowered its overall marking to 91.6.

Subject to the final approval by the negotiation committee, the Dubai Islamic Bank will be responsible for working out a divestment strategy for sale of government’s shares and will also carry out due diligence.

Kapco is the country’s largest IPP, having 1,600 megawatts generation capacity. The entity is already in private hands and its shares are traded at three stock exchanges of the country.

On Monday, the company’s share price rose to Rs86.73, according to the Karachi Stock Exchange website. The company’s total issued, subscribed and paid up capital shares are 880.253 million and the government has over 360 million of them. On Monday’s trading price, the 40.25% shares are worth at least Rs31.3 billion.

According to the company’s third quarter (January-March) balance sheet, Kapco earned Rs2.3 billion profit after tax. Its nine-month profit stood at Rs7.2 billion and earning per share was Rs8.09.

The company had a turnover of Rs74.7 billion during the July-March period. However, like other power sector generation companies, its receivables stood at Rs62.2 billion including Rs53.7 billion that Water and Power Development Authority owes to the company.

The company’s entire trade debt is secured and backed by the federal government guarantees.

Privatisation is an important pillar of the $6.6 billion International Monetary Fund (IMF) programme. The IMF had included the privatisation agenda to get rid of loss-making entities.

However, the PML-N government’s privatisation programme is so far limited to selling the shares of the profitable entities in the capital markets. In the process, it has so far earned Rs170 billion.

It has already pushed backed the deadlines set for the privatisation of all power distribution and generation companies up to one year. The December 2015 deadline to privatise the PIA is set to be missed again.


Ahsan Baig

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)