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Only a couple of months ago, the environment seemed all set for Oil and Gas Government Development Company Limited (OGDC); the much needed privitisation plans took off well with the successful secondary public offering of UBL and PPL, setting the stage for OGDC’s global depository receipts (GDRs) issue.
Call it a misfortune; only two months down the road all government’s plans have met a major setback due to the ongoing political instability in the country. And privatisation process is no exception. Currently, GoP has a shareholding of 74.97 percent in OGDC, and it is planning to offload further 7.5 percent of its holding through GDRs—art of the government’s privatisation plans. But, it seems that the privatisation commission will have to steer its way shrewdly through the turmoil to complete the transaction successfully.
The transaction includes raising around 815 million dollars through sales of shares in OGDC. The government is offering 322 million shares and GDR to international institutions, nigh net worth individuals (HNWI), domestic public and OGDC employees. Since volatile security situation prevailed at the time of UBL’s SPO (in particular context to Karachi airport 29-Sep-14bombing), some market players believe that the transaction has positive vibes.
However, market pundits BR Research spoke to raise an important question: is the timing right for the GDR issue? It would take more than sheer optimism to make the transaction successful. Moreover, the first and the most important qualm about the transaction seems ongoing political environment. Sit-ins in Islamabad have definitely impacted the investment climate in the country. A recent report by BCA Research-–an independent Canadian Research House-–has painted a very gloomy picture of Pakistani stocks for the foreign investors.
Also, there are two other factors that makes OGDCs GDR issue distinct from PPL and UBL transactions earlier this year: (a) the size of the issue is huge; it is four times that of PPL’s SPO, and raising such an amount in current environment seems too ambitious, (b) weak oil prices; oil prices are at multiyear low and thus reduces the incentive for investors.
Going back to 2006 when OGDC last issued GDRs, the government offloaded 9.5 percent stakes in the company. While the discount of 9.5 percent was a shocker for the participants at that time, a discount in such times when skepticism engulfs the economy will not be surprising. The question is how deep will the discount be?
‘It will not be an easy raising 800 million dollars’, says an expert on the condition of anonymity, who also points out to the fact that the government will not go for a very deep discount (of around 20 percent or more) as they have to face the critics back home.
He also highlighted that to make the transaction successful, the government needs to either decrease the size of the offering or completely call it off in the current situation.
What explains this hurry in conducting this issue could partly be linked to the rumours that the country may be unable to receive next tranche of 555 million dollars from IMF unless it completes capital market transaction of OGDC and issuance of Sukuk bond to generate the external financing requirements.

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