KARACHI
China’s Shanghai Electric Power Company has most probably withdrawn an offer to buy 66.4 per cent stakes of K-Electric Limited after the power utility failed to secure a national security clearance certificate to complete the transaction, our sources learned.
“We have received a copy of the withdrawal of public announcement of intention for acquisition – directly or indirectly – of up to 66.4 per cent of the voting shares of K-Electric Limited by Shanghai Electric Power Company,” director finance at K-Electric Mohammad Rizwan, said in a notice sent to the bourse.
Consequently, the PSX cheered the news as K-Electric’s share went green by 2.7 per cent in the intra-day trading and settled with a gain of 0.28 per cent because of profit-taking.
During 2016 China’s Multinational power company, Shanghai Electric (SE) made a composed deliberation to buy Karachi’s power supplier K-Electric (KE)’s 18.335 million shares. Later that year the SE made a public announcement in this regards as well. However, the deal has not been able to mature as yet. KES Power, the holding company of KE has been unable to secure regulatory approvals from the government in order to sell its controlling stake of 66.4 per cent in the company.
Abraaj Group, a Dubai-based private equity, in partnership with Al-Jomaih Group of Saudi Arabia and National Industries Group of Kuwait, holds a total shareholding of 66.4 per cent in K-Electric. The three-firm consortium operates in the name of KES Power, which is the parent company of K-Electric.
Sources said the fresh intention to acquire K-Electric’s voting shares might be much less than the existing offer of $ 1.77 billion, as the Chinese acquirer would price in the outstanding dues in their offer.
Assuming that K-Electric’s share would reach Rs 9.20 by June 30, the Shanghai Electric’s fresh offer will be around $ 1.2 billion.
It was learned that the deal has gone bad altogether, however, official written notice from the PSX states that a new press release must be awaited before jumping on to any conclusion.
Essentially, it is customary for SE to withdraw and issue a fresh public announcement of intention (POI) – originally filed in August last year – as they failed to make a public announcement of offer (POF) in the time stipulated by SECP. The legality of the matter might be easy to understand but the reasoning behind the unusual delay in the transaction raises questions and eyebrows about the government’s role in the deal.
In March the government gave a huge disincentive to SE when NEPRA announced a multi-year tariff for the period of seven years that reduced KE’s base tariff by Rs3.50 from existing Rs15.57 to Rs12.07 per unit.
In addition to this, there is the matter of the debt KE has on its books (money owed to SSGC and NTDC) and the receivables from the government. Until the government clears its dues KE can’t clear their debt and this irks the Chinese.
