Ever since the Supreme Court declared the privatisation of Pakistan Steel Mills (PSM) null and void in 2006, it has been a challenge for Pakistan to undertake its plan of slowly and gradually divesting itself of state-owned enterprises.
With the financial crisis that took the entire globe in its fold in 2008 and the inability to raise finances through debt and equity capital markets, Pakistan has had to rely on multilateral lenders and local banks to fund its budgetary deficits. While chants like “austerity”, “corruption” and “bad governance” take our discussions off on a tangent, it was simple inaction on the part of the state that has caused the widening of deficit in its finances. A key role was played by the hyperactive judiciary, whose actions were feared. Status quo was the order of the day and destruction of state finances was a norm. With a new government in place and after retirement of Iftikhar Muhammad Chaudhry, Pakistan through the Privatisation Commission (PC) reinitiated its divestment programme in early 2014. United Bank Limited’s (UBL) 394 million shares were sold at Rs158 per share, raising over Rs38 billion with more than 80% of the funds being raised in dollars through sale to foreign institutional investors. This was followed by Pakistan Petroleum Limited’s secondary public offering in June. PPL’s SPO was first announced in 2012 by the previous government. As things go in the country’s equity market, the state usually sells shares at a discount, hence PPL’s price remained subdued and its shares largely underperformed the market index, despite excellent earnings and payouts through cash and stock dividends. A 5% shareholding was offered through the book-building mechanism. Following the success of UBL transaction earlier in the year, local investors showed great interest and bought shares at a 6.8% premium to the floor price set by the PC. With a price of Rs219 per share, 70.055 million shares were sold, raising Rs15.34 billion for the government. With two good transactions in the bag, and a sovereign bond raised earlier in the year, the outlook for Pakistan’s capital market was looking very promising.
