Morning Briefing for January 10, 2014 – Standard Capital

Karachi, January 10, 2014 (PPI-OT): Privatization – Possible prices could be raised

The Privatization Commission Board has approved off-loading of certain government owned shares in respective companies & banks, as per newspaper Express Tribune story.

According to Standard Capital, the government may raise some Rs200bn (Standard Capital feels it could raise more) from the certain offloading and Standard Capital would see what probable price at which these companies or banks could be given to respective buyers instead of what possibly Board is thinking.

OGDC – the jewel which should not be sold below fair value

Board approved to sell up to 10% shares of OGDC out its total stake of 85%. As per newspaper reports, the minimum expected earning is estimated at Rs80 bn, which Standard Capital feels could be raised since as per our fair value Rs107bn. Earlier OGDC stakes were offered at a very low price, at a wrong advice of the then financial adviser, which is needed to be avoided to avert shareholders value loss.

PPL – Full privatization needed

Out of government shareholding of 78%, Board decided to off load 5% shares. The anticipated earning is Rs20 bn, which could be easily Rs25bn. In 2004, the government sold 15% of PPL shares of at a mere Rs5.6 bn (quite below fair value). Standard Capital also feels that PPL is ripe for privatization since 2006 and currently the most underperforming E&P in Pakistan in terms of production growth and discoveries. Lot of gas shortage in Pakistan is due to slow performance by PPL.

HBL – Justifiable price

Board decided to sell up to 20% shares of HBL out of total state owned shares of 42%. The expected minimum return is Rs50 bn, which Standard Capital feels is fine. From 2003 to 2007, the government sold 58.5% shares at Rs34.6 bn in two transactions, where Standard Capital feels government fetch quite a little amount in the first transaction. Now government is justifiably claiming Rs 50bn.

ABL – Justifiable
Board decided to sell the remaining 10% government shares in ABL. The anticipated minimum income is Rs10 bn – which is fine. In 1991, the then government of Nawaz Sharif, current PM, sold 51% shares of ABL at Rs971.6 mn. See table…

UBL – Could raise more from a high performing bank
Board decided to sell 10% state shareholding in the UBL out of the remaining 20%. The minimum expected return as per newspaper sources is Rs15 bn which could be raised to Rs 30bn (as per true valuation). Since 1996, the previous governments sold 80.2% state shares in three transactions and earned Rs52.8 bn.

Company     No of shares   Probable proceed     Sell off  No of bn    Price at which  Our suggestion-
               in bn           in bn Rs                    shares       PC may sell      Fair price

OGDC           4.301              80               10%       0.43          186.0                250
PPL            1.972              20                5%       0.10          202.9                247
HBL            1.334              50               20%       0.27          187.5         Good price
ABL            1.041              10               10%       0.10           96.1         Good price
UBL            1.224              15               10%       0.12          122.5                135
Standard Capital Research & Express Tribune