The government is all set to re-enter the Global Depository Receipts (GDRs) market after 10 years which may help in attracting foreign portfolio investment in the country and increase the free-float of shares boosting its valuation in Morgan Stanley Composite Index.
On Friday, the Privatisation Board decided to issue GDRs, or exchangeable bonds of Pakistan's largest oil and gas exploration company, OGDC.
Last time Pakistan offered shares to foreigners in 1994. In September 1994, the Government of Pakistan sold GDRs for 9.8 percent holding of PTCL for around $900 million. Later it also issued Hubco and Chakwal Cement GDRs.
Sources said that it is likely that the Cabinet Committee on Privatisation will approve PC Board recommendations regarding OGDC in next few days.
It is also expected that the government will opt for GDR issue in the light of huge response from local investors in its 5 percent IPO, which was hugely oversubscribed. The share was issued at Rs 32 and is now trading at around Rs 68.
The share price of the company during the week surged by 6.1 percent and nearly 112 percent from initial public offering of Rs 32 a share.
Analysts are of the opinion that details of transactions, including size and price, will be worked out with the Financial Advisers, Merrill Lynch.
Analysts expect a price in the range of $1.25 to $1.50 per share as the price in the local market is expected to improve further in line with bullish sentiment in the local bourses.
Experts and capital market sources said that OGDC's GDR issue will pave the way for attracting foreign fund managers into the local stock market, because despite more than 300 percent increase in KSE Index in last two years there is hardly any interest from foreign fund managers.
The capitalisation of Karachi Stock Exchange has already reached $26 billion, and brokers believe that if the bull-run continues it can soon reach $30 billion, after the listing of PPL, Kot Addu Power Plant and additional shares of Pakistan International Airlines.
Recently, Pakistan issued Eurobonds and the issue was well received by foreign investors and is currently trading at a premium to its offer price of $100.
Experts believe that offering of shares to foreigners will increase the float of OGDC in the market which will create interest from foreign fund mangers who invest in large capitalisation companies with relatively higher float.
This may also increase weight of Pakistan market in Morgan Stanley Emerging Market Index.
OGDC is Pakistan's largest firm in the oil and gas sector. The company holds the largest share of oil and gas reserves with 48 percent of total oil and 37 percent of gas reserves.
During fiscal year 2002-03 the company earned revenue of Rs 45 billion and after-tax earnings of Rs 20.7 billion.
The company has set a very aggressive target for 2003-04, which comprises drilling 22 wells including 14 exploratory and 8 development wells.
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