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ISLAMABAD: The Board of Privatisation Commission has expressed its concern on delay in resolution of pending issues due to which completion date of Heavy Electrical Complex (HEC) transaction is not heading towards a conclusion, well informed sources told Business Recorder.

HEC was incorporated in 199l and started its commercial operations in 1998. The entity is owned by Stare Engineering Company (SEC) working under the administrative control of Ministry of Industries and Production (MoI&P). HEC manufactures power transformers of 132kv & 66kv along with services for testing, repairs and onsite commissioning of transformers. The entity is located in Hattar Industrial Estate, Haripur.

The CCoP approved the transaction structure of HEC on Nov 16, 2020, wherein sale of all (96.6 per cent) government shares of HEC was approved. The decision of CCoP was ratified by the Federal Cabinet on December 1, 2020. Later, CCoP in its meeting held on Feb 21, 2022 approved the reference price of Rs 98.23 per share for 14,100,012 shares of HEC.

The bidding was held on the same date (Feb 21, 2022) in the same afternoon to maintain secrecy of the reference price. Out of four pre-qualified bidders, three participated. The highest bid of Rs 99.999 per share was submitted by IMS Engineering Private Limited (IMS) which cumulates to Rs 1.410 billion.

The highest bid of IMS was approved by CCoP in is meeting held on Feb 24, 2022 which was later ratified by Cabinet on March 14, 2022. Privatisation Commission issued Letter of Acceptance (LoA) to IMS on March 20, 2022 and the Share Purchase Agreement (SPA) was signed by State Engineering Corporation (seller) and PC with the buyer (IMS) on April1, 2022 along with 10% proceeds received (Rs. 141 million) by PC.

SOEs: PM irked by inordinate delay in sell-off process

As per the SPA, the ‘Required Completion Date’ was 90 business days or such later date as may be agreed in writing by the parties or as deferred in accordance with clause 3.4.1(a), if applicable. This date was August 18, 2022. In accordance with SPA, the buyer (IMS) served the notice on Aug 6, 2022 to the seller (SEC) to confirm the completion date. The buyer (IMS) in its notice had communicated that its banker would require 30 days to complete formalities.

Accordingly, PC in view of the pending matters on part of MoI&P and deficiency of the buyer in arranging financing, in its letter of August 18, 2022 extended the required completion date by 10 business days till September 1, 2022. At the same time, MOI&P was also requested to complete the pending matters in a letter on August 22, 2022.

The buyer (IMS) vide their letter of August 24, 2022 has confirmed his readiness to make the balance purchase price of Rs 1.269 billion and sought confirmation on completion of the seller’s obligations. A meeting was held on August 31, 2022 under the chairmanship of the Secretary Privatisation Commission with MOI&P, SEC & HEC officials. During the meeting it was observed that the following matters are still outstanding to be addressed: (i) payment of gratuity to ex-employees of HEC still to be paid; (ii) clearance of dues/ salaries of existing employees of HEC till completion date; (iii) payment of accumulated mark-up by HEC to Bank of Khyber (BoK) till completion date (i.e., till the GoP’s ownership cut-off date);(iv) obtain NOC from BoK for transfer of HEC Shares to the buyer (IMS); (v) receipt of pending dues of HEC from Discos to settle above pending liabilities from HEC’s own resources, to the extent possible; (vi) transfer of title of land located in Taxila from HEC presently in use of HMC (summary to be submitted to ECC by SPD/ MOI&P); (vii) nomination of the HEC Board Members and appointment of MD, HEC so that required Board resolutions are considered and passed by HEC Board for transfer of HEC shares; (viii) issuance of irrevocable Power of Attorney for HEC’s Taxila land; and (ix) Issuance of duplicate shares of HEC (original lost in 2019) with copies of share certificates provided to Buyer for payment of stamp duty for transfer of those shares.

The buyer (IMS), in their letter of September 01, 2022 has reiterated to solve matters that are pending on part of the Seller (SEC) as highlighted earlier in their letter of August 24, 2022 wherein they had confirmed their readiness for financial close to acquire HEC. They have also reiterated that parties to the SPA cannot proceed to completion until a confirmation has been received from the seller that all necessary conditions have been satisfied. They have expressed that “a failure to complete the transaction as envisaged therein due to the inactions of the seller/ PC or the failure on the part of seller/ PC to complete its conditions would be highly prejudicial to the interests of the purchaser”. Accordingly, they have requested to extend the required completion date from Sept 01, 2022 till such time that seller has completed all identified conditions. However, MOI&P in the meeting held on August31, 2022 and later on September 1, 2022 has identified its limitation to give any definitive date with regards to the resolution of pending matters. Furthermore, SEC being the seller, in its letter of 30, Aug 2022 addressed to MOI&P, has also communicated that various matters are pending due to the HEC Board not reconstituted and MD HEC not appointed. MOIP in its letter of Sept 01, 2022 had proposed, “the matter regarding extension may be mutually discussed between all stakeholders”.

Accordingly, a meeting has been convened on September 9, 2022 so that the seller (SEC) and the Buyer (IMS) could agree on a timeframe.

PC argued that this is the fifth attempt to privatise HEC adding that delay in the completion date will put additional burden on the national exchequer due to a loss-making entity not privatised. As per Clause 6.1.1(c) of the SPA, the buyer can terminate the SPA “if completion is delayed beyond the Required Completion Date due to the seller’s default in not completing its obligations.”

PC Board in its meeting held on Sept 5, 2022 expressed concern that these matters have been persistently highlighted over the past several months but are yet to be resolved.

The Board noted that the transaction should culminate successfully and without further delay particularly when the bidder has confirmed its readiness to pay the balance 90% of bid value. Accordingly, the Board recommended that the pending matters should be placed before CCoP for its consideration and necessary directions.

Copyright Business Recorder, 2022

Comments

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Haseeb ur Rehman Sep 14, 2022 06:15am
It's very unfortunate that delay causes losses to national exchequer. Business Recorder is requested to kindly follow the matter and publish its updates for reader.
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Engr. Moeez Azam Sep 14, 2022 08:25am
HEC has been destroyed by the people setting in a govt. shame on you butchers. this was a very best department of this country and the only best setup in Pakistan that can make the impossible thing possible at a very low cost, but shame on you all beaurocrates and politations.
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