Privatisation of Heavy Electrical Complex: PC may fix Rs81.06 as reserve price per share

ISLAMABAD: Privatisation Commission (PC) is likely to approve Reserve Price of Rs 81.08 per share of Heavy Electrical Complex (HEC) for 96.6 per cent (114,100,012) share of Federal Government, sources close to Minister for Industries and Production (MoI&P) told Business Recorder.

HEC was incorporated in 1991 and started its commercial operations in 1998. The prime business of the company is to prepare high voltage electric transformers, used by the power distribution entities.

The company is owned by State Engineering Company (SEC) working under the administrative control of Ministry of Industries and Production. HEC manufactures power transformers of 132 KV and 66 kV with unit ranging from 6.3-40 MVA - high voltage along with services for testing, repairs and onsite commissioning of transformers.

Earlier, attempt to privatize the HEC was made in 2014; however, due to poor response, the process was annulled in December 2014. The last attempt to privatize the HEC was carried out in March 2015. Three parties were pre-qualified out of which only one party deposited the earnest money. Later, CCoP approved the bid of M/s Cargill Holding Limited but the privatisation could not materialize as the successful bidder never issued the requisite cheque. The bidder’s earnest money of Rs25 million was forfeited.

PC holds pre-bid meeting of HEC

CCoP, in its meeting held on August 08, 2019 placed HEC again on the active privatisation list. The Financial Advisor consortium led by M/s Bridge factor and NBP was appointed by PC in January 2020.

CCoP, in its meeting held on November 16, 2020 approved the transaction structure of HEC wherein the sale of all (96.6 per cent) government shares in the HEC was approved. The CCoP’s decision was ratified by the Cabinet in its meeting held on December 1, 2020. Later, CCoP in its meeting held on March 18, 2021 directed MoI&P to resolve pending issues including the matters related to HEC employees’ dues, liabilities towards Khyber Pakhtunkhwa Economic Zones Development and Management Company (KPEZDMC), validity of type testing licence and transfer of land located in Taxila presently in the name of HEC.

To address these pending issues, meetings of the stakeholders are being held on regular basis. Pursuant to the Privatisation Commission (Valuation of Property) Rules, 2007, following methodologies are allowed for valuation for privatization: (i) Discounted Cash Flow (DCF) and its variants; (ii) balance sheets methodologies and their variants; (iii) transaction multiple methodologies and their variants; and (iv) asset valuation methodologies and their variants.

The FA consortium in their valuation report considered suitability of valuation methodologies and eventually proposed the adoption of DCF for determining the Reserve Price for bidding of the HEC. This method has been proposed as most appropriate in context of the entity being sold (privatised) as a going concern. The reserve value computed by FA Consortium for the bidding to be held is Rs81.08 per share for 96.6 per cent government owned shares (14,100,012) which cumulates to a reserve value of Rs 1.143 billion. The Reserve Price has been arrived after making necessary adjustment and using certain basis and assumptions mentioned in their report.

Copyright Business Recorder, 2021