Shanghai Electric Power Co Ltd said on Monday that it had received approval from the Competition Commission of Pakistan (CCP) to acquire K-Electric Limited.
The Abraaj Group announced in October that one of its companies, KES Power, had reached an agreement to divest its stake in K-Electric, the country’s largest and only vertically integrated power utility, to Shanghai Electric.
Abraaj owns 66.4 per cent of K-Electric’s total shares, along with management control. The deal, when closed, will be worth $1.77 billion.
Shanghai Electric is a state-owned enterprise controlled by China’s State Power Investment Corporation, a Fortune 500 company.
Listed on the Shanghai Stock Exchange, it is mainly responsible for Shanghai’s power supply, with a generation of 35.23TWh (terawatt hours) last year.
The deal ended a stormy, but ultimately fruitful, engagement that Abraaj began in 2009 when it acquired the controlling stake with management control in the midst of a severe crisis in the utility.
According to people familiar with the original acquisition, Abraaj had intended to implement its turnaround plan and exit the investment in five years, but the exit was delayed due to regulatory hurdles in unbundling the utility, as well as difficulties in locating buyers.
Along the way, the new management clashed often with the ministry of water and power, with labour unions, and with the state-owned gas supply company responsible for providing fuel for its power plants. It saw three CEOs come and go, and faced an embarrassing overbilling scandal along the way.
The Dubai-based private equity fund claims it has achieved “a landmark turnaround” and transformed “an under-utilised strategic asset into a leading Asian energy player”. It claims to have added 1,000MW to KE’s power generation, improved “overall efficiency levels” from 30.4pc in 2009 to 37.4pc this year, and reduced transmission and distribution losses by 12 percentage points.
The company recorded its first net profit in 2012 after languishing in loss for over a decade. Its last reported net profit, for the nine-month period ending in March this year, surged 40pc year-on-year to touch Rs22.8 billion.
According to some KE insiders, the deal will only go through once the multi-year tariff that the company applied for has been approved by Nepra, the regulator. Hearings on that application have already been held and a final decision is awaited.
SEP Chairman, Wang Yudan, had said the deal marked the beginning of SEP’s cooperation with Abraaj. “SEP is confident about working together with Abraaj in the future to transform K-Electric into one of the best companies in Pakistan.”