ISLAMABAD: Financial Advisor (FA) has reportedly cleared misconceptions of Ministry of Industries and Production (MoI&P) on proposed transaction structure of Pakistan Steel Mills (PSM), well-informed sources told Business Recorder.
Sharing details, sources said pursuant to a Cabinet Committee on Privatization (CCoP) decision of June 17, 2019 to advertise for recruitment of Transaction Advisor for PSMC i.e. to bring in a party for revival of PSM without transfer of full ownership, PC after conducting the due process appointed Pak China Investment Company (PCICL) and BOC International (BOCI) as joint lead Financial Advisor (FA) along with Deloitte (Accounting Firm), Sinosteel (technical firm), Cornelius Lane & Mufti (CLM) (Legal), Abacus Consulting (HR) and Nanjee (valuator) as sub-contractors.
A Financial Advisory Services Agreement (FASA) was signed on Jan 10, 2020. The Chairman, PC, constituted 'Transaction Committee on PSMC to oversee the transaction process of PSMC and facilitate in clearing any impediments related to PSMC transaction besides submitting recommendations as deemed appropriate and required to the PC Board.
The sources said FA and its sub-contractors conducted due-diligence and submitted preliminary due diligence reports and presented key findings including recommendations to the Transaction Committee on PSMC in nine meetings held between Apr-Aug 2020. On the basis of due diligence findings and recommendations, FA proposed the following transaction structure options: transferring of identified core operating assets into wholly owned subsidiary of PSMC through scheme of arrangement (as provided in the Companies Act 2017) followed by sale of majority shares of the newly-formed subsidiary (without transferring of full ownership) to strategic private sector partner; or transferring of identified core operating assets to private sector strategic partner through concession / lease agreement for 30 years.
On July 27 & Aug 28, 2020 Minister for Industries & Production and Minister for Privatization/Chairman, PC co-chaired meetings to discuss impending issues and update on the transaction structure options, wherein a detailed presentation was made on key findings of due diligence besides highlighting the features of transaction structure options proposed by the FA. Benefits, challenges and risks in each mode were highlighted while presenting a comparative analysis. It was highlighted that in either of the transaction structures, core land area would be leased on similar pattern of earlier precedents, whereby, PSMC leased its land to private sector investors for setting up various industrial units. It was also emphasized that FA could not bring forward any domestic or global precedent in support of transferring of PSMC core assets/operations through concession / lease agreement.
Accordingly, a detailed presentation encompassing features of the transaction structure options including ancillary details was made to the PC Board in its 4th meeting held on Sep 02, 2020, whereby, after a detailed & threadbare discussion PC Board approved the following transaction structure to proceed with the privatisation of PSMC and recommended it for consideration of the CCoP: "transferring of identified core operating assets into wholly owned subsidiary of PSMC through scheme of arrangement (as provided in the Companies Act 2017) followed by sale of majority shares of the newly formed subsidiary (without transferring of full ownership) to strategic private sector partner or transferring of identified core operating assets to private sector strategic partner through concession / lease agreement for 30 years."
According to sources both, MoI&P and PSMC remained part of nine Transaction Committee meetings as well as PC Board meetings besides meetings co-chaired by Minister for Industries & Production and Minister for Privatization on this matter held on July 27 & Aug 28, 2020 and were fully on-board in formulation and finalization of transaction structure, MoIP also communicated its observations on the subject matter. Furthermore, one of the PC Board members voiced concerns with respect to foregoing of potential tax reversals on account of carry-forward business losses incurred by PSMC on year on year basis and proposed to carve out non-core assets out of PSMC while leaving core-assets within PSMC and divesting its majority shares. "Considering the sensitivity of the matter and before proceeding further, it was necessary to respond to the belated observations raised by the PSMC in the letter, most of which were either preemptive in nature or were not relevant to the transaction structure approved/recommended by PC Board," the sources added.
Accordingly, a detailed response to each of the observations of the MoIP, PSMC and PC Board member was made for their perusal and acknowledgement besides submitting to the PC Board, wherein, FA presented a detailed responses to each of the observations. After thorough deliberations and discussions, PC Board acknowledged and accepted the explanation and justification rendered by the FA on the observations of MoIP, PSMC and PC Board member and endorsed its earlier decision for the transaction structure approved in the meeting held on September 23, 2020.
Ministry of Privatization requested the CCoP to consider the following recommendations of the PC Board, initially approved in its 4th meeting held on September 2, 2020 and later re-affirmed on September 3, 2020 in its 5th meeting, in order to proceed with the privatization of PSMC: "Transferring of identified core operating assets into wholly owned subsidiary of PSMC through scheme of arrangement (as provided in the Companies Act 2017) followed by sale of majority shares of the newly formed subsidiary (without transferring of full ownership) to strategic private sector partner."
On November 20, 2020 the CCoP constituted a committee under the chairmanship of Minister for Industries and Production comprising Minister for Privatisation, Adviser to the Prime Minister on Institutional Reforms & Austerity, Chairman, BoI, Secretary, Finance Division, Secretary, Ministry of Privatisation and PSMC Financial Advisers (appointed by Privatization Commission), to examine the proposal in a holistic manner, and submit a report thereon to CCoP for consideration. Ministry for Privatisation would provide secretariat support to the committee.
Copyright Business Recorder, 2020
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