Pakistan offering OGDC, PPL & UBL – Topline Research
By: Vahaj Ahmed,
Topline Securities Pvt Ltd.
Following newly elected Sharif government plan to privatize 31 Public Sector Enterprises (PSEs), Privatization Commission (PC) has invited Expression of Interest (EOI) for appointment of financial advisor for offering of up to 10% of Government of Pakistan (GoP) shares in OGDC, Pakistan’s largest listed company with market cap of US$11.7mn. Moreover, PC has also invited EOIs for appointment of Lead Manager(s) & Book Runner(s) for offering of up to 5% of GoP’s shares in PPL and residual holding (~20%) in UBL.
At current prices, worth of GoP’s holding in the above-listed PSEs stands at Rs1,414bn (US$14bn).
GoP to raise up to US$1.8bn through this offer
With the aforementioned offer, GoP will be able to raise up to Rs177bn (US$1.8bn). Moreover, investors that have more than doubled their investments in last two-year stock market boom will take this news in a positive manner, we believe. Thriving property market and 150% average profit growth of textile companies in FY13 have fuelled a lot of liquidity with High Net Worth Individuals (HNWI) which will help in absorbing the sale of shares by government. We believe it may take another 3 months before these deals come closer to execution, at which point we may see some pressure in the market.
Structure of the deal
It is yet not clear as to how these shares will be sold but we think that advisors will rely on foreign investors to sell these shares. With rising interest of foreigners, finding buyers should not be a difficult task due to the fact that Pakistan stock market trades at PE of 8.2x and 7.3x for 2014E and 2015F, respectively.
More float will increase Pakistan weight in MSCI
Pakistan’s weight is set to increase in 2014 with UAE and Qatar’s promotion to MSCI Emerging Markets (EM). We believe, the increase in free float after government offering will not only enhance Pakistan’s weight in MSCI Frontier Markets, it will help in supporting Pakistan case to be promoted to EM once again. And if that happens, we think more flows will be attracted to Pakistan market.