Financial Advisory Consortium (FAC) comprising Citibank, J.P. Morgan, Credit Suisse and BMA Capital has recommended to the government to shelve its plan to launch Oil and Gas Development Company Limited (OGDCL) Exchangeable Bonds (EBs) worth $500 million with no upsize option , well-informed sources told Business Recorder.
The Cabinet Committee on Privatisation (CCoP) has approved that the transaction would be launched on the advice of FAC based on market conditions and FAC will give its firm view after the road shows. However, final decision will be taken by the federal cabinet, in its meeting scheduled for June 28, 2011, to be presided over by the Prime Minister, Yousuf Raza Gilani.
The cabinet meeting will also confirm the decisions taken by the Cabinet Committee on Privatisation (CCoP) in its meeting held on June 17, 2011. Earlier, the government strove hard to execute the much talked about OGDCL bonds by June 30, 2011 and road shows were conducted in Singapore and London. The response in Singapore was stated to be good but in London it was not encouraging. "FAC has proposed to the government to defer the EB plan for at least one month," sources added.
Official documents available with Business Recorder, reveal that the Ministry of Privatisation had recommended the following structure to the CCoP for approval: issue base size - $500 million; upsize option - up to $450 million (subject to a maximum of 10 percent shares of OGDCL for the total size of the EB offering); tenor/investor Put - 5 Year Put 3; indicative coupon/ yield - 6.50 percent - 8.50 percent; exchange premium - 15 percent - 25percent; exchange price - Rs 177 - 192 (based on a reference price of Rs 154); exchange price reset - no reset; issuer call option - first 3 years, non-callable - last 2 years, callable if share price is 30 percent above; dividend protection - exchange price adjustment for dividends paid in excess of 2 percent annualised dividend yield threshold.
However, due to the Greek crisis, the FAC feels that the indicative coupon yield will be around 15-16 per cent. The main purpose of road shows was to improve the term sheet and to generate investors'' appetite and allow GoP to sell OGDCL equity story and key economic strengths of Pakistan in an effective manner, but financial analysts argue that the entire EB plan has backfired and in near future there was no chance of its execution.
Indicative coupon guidelines provided by the banks were slightly higher than the coupon range provided by the banks at the time of the award of the mandate to the banks. On the book-building issue, the meeting was informed that the global markets were going through unprecedented volatility, due to European debt crisis and the weak economic numbers emerging from the USA. Consequently, EB market was also extremely volatile with market varying every day. Official documents also reveal that the government has fixed reference price of EBs at Rs 154 per share.
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