By: Vahaj Ahmed
Topline Securities Pvt Ltd.
In spite of political noise, Government of Pakistan (GoP) is continuing with its privatization policy. Pakistan government will be offering 322mn shares (valued at ~US$800mn on current price) of Pakistan’s largest US$10.6bn firm, Oil & Gas Development Company (OGDC), capitalizing on foreign buying-led stock market bull-run. The success of this deal will not only have a positive impact on local bourse but will also endorse that it is business as usual after the Islamabad protests. Moreover, it will provide the much-needed boost to upcoming US-Dollar Sukuk and other privatization deals. We strongly recommend investors to subscribe to OGDC. The stock has already underperformed the market (OGDC down 7%, KSE-100 up 11%) in last 6 months in expectation of additional supply coming to the market. OGDC trades at FY15E/FY16F PE of 8.0x/7.1x and offers a dividend yield of 4%. We maintain ‘Buy’ stance on the scrip and believe new supply provides opportunity to take exposure to a country like Pakistan that is facing severe energy shortage.
Largest offering: MSCI may upgrade also
This could be the largest offering in Pakistan in Pak-Rupee terms. So far in 2014, 4 offerings have been made at Karachi Exchange worth Rs55bn (US$545mn) and all have been largely oversubscribed. Large offerings (like UBL and PPL) in the last few months have substantially increased tradable free-float. After this offering, we expect free-float will increase to US$18bn (27% of market cap) from US$14bn (24% of market cap) at the beginning of 2014. Besides better volume, these offerings will support Pakistan’s case at MSCI to be promoted to Emerging Market (EM) status in future.
International & domestic book building
Govt. of Pakistan (GOP) is offering 10% of its shareholding (7.5% of capital) in OGDC through integrated book building process starting Oct 9, 2014 (9am to 7pm Pakistan Standard Time) and will run until Oct 15, 2014 (excluding weekend). GoP, with approval from Cabinet Committee on Privatization (CCoP), will announce floor price at day-end on Oct 13, 2014. International investors are eligible to bid for Global Depositary Share (GDS) or ordinary shares or both, while domestic institutions and high net-worth individuals (HNWIs) are only eligible to bid for ordinary shares.
Last time, in Dec 2006, GoP offered 408mn shares (9.5% of capital) for Rs47.0bn (US$771mn) at Rs115/sh, followed by 21mn shares (0.5% of capital) for Rs2.4bn (US$39mn) at Rs110/sh in April 2007. That time, it was valued at forward PE of 10.8x.