China’s Shanghai Electric Power Company has withdrawn an offer to buy 66.4% stakes of K-Electric Limited after the power utility’s key shareholder failed to secure a national security clearance certificate to complete the transaction, an official said on Tuesday.
“We have received a copy of the withdrawal of public announcement of intention for acquisition – directly or indirectly – of up to 66.4% of the voting shares of K-Electric Limited by Shanghai Electric Power Company,” Mohammad Rizwan, director finance at K-Electric said in a notice sent to the bourse.
Stocks market cheered the news as K-Electric’s share surged 2.7% in the intra-day trading, and settled with a gain of 0.28% because of profit-taking.
On August 30, 2016, Shanghai Electric made a public announcement of intention to acquire 18.335 million shares in K-Electric Limited, representing 66.4% of the total issued share capital.
Abraaj Group, a Dubai-based private equity, in partnership with alJomaih Group of Saudi Arabia and National Industries Group of Kuwait, holds a total shareholding of 66.4% in K-Electric. The three-firm consortium operates in the name of KES Power, which is the parent company of K-Electric.
Manager to the offer Ahmed Rajani at Arif Habib Limited said the time period for making the public announcement of offer, after an extension by the Securities and Exchange Commission of Pakistan, would lapse as of June 30 on the basis that “certain regulatory and other approvals for the transaction remain outstanding.”
Sources said K-Electric’s failure to secure continuance of the pre-existing multi-year tariff was not welcomed by the Chinese and then a disagreement over almost $1.0 billion dues outstanding against the power utility soured the fate of the $1.77 billion deal between Abraaj and Shanghai.
K-Electric is faced with claims roughly worth Rs98 billion, filed by Sui Southern Gas Company and National Tariff and Despatch Company on account of late payment surcharges.
Since the acquisition was contingent upon all the settlements, a K-Electric delegation in February this year briefed the minister on the status of payables and receivables of K-Electric with regard to various government entities and suggested ways to resolve the pending issues.
However, the Privatization Commission could not be convinced to issue the national security clearance certificate before all the outstanding dues are cleared.
Rajani said Shanghai Electric continued to be fully committed to consummate the transaction and, “they will make a fresh public announcement of intention to acquire stake in K-Electric immediately with effect from the expiry date of the earlier intention i.e. June 30, 2017.”
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.
They said K-Electric had assured Shanghai Electric that some Rs50 billion of the outstanding Rs98 billion would be waived. “That, however, didn’t happen.”
The sources said the Chinese offer had already factored in Rs54 billion of outstanding dues and the fresh intention to acquisition would certainly be down by another Rs50 billion.
Assuming that K-Electric’s share would reach Rs9.20 by June 30, the Shanghai Electric’s fresh offer will be around $1.2 billion.