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KARACHI: Xenal Industries of Saudi Arabia, the group that owns 140 million shares in Hub Power Company (Hubco), the largest Independent Power Plant (IPP) in the country, is believed to have decided to offload all of its holding in the power company.
Xenal, the co-founder of Hubco, is understood to be in an advanced stage of talks with a consortium of big banks to sell its stake at discount to the market price. “The size of the deal works out to $65 million ($60 million if executed ex-dividend),” said Nauman Khan, analyst at stock brokerage firm Topline Securities.
The rumour has been rife in the market for the last three days, though the company itself has not come up with an announcement in regard to the major development. In reply to queries on Thursday evening, Zafar Subhani, the CEO at Hubco, said that it was the company policy not to comment on rumours.
However many market participants wondered if there could be smoke without a fire? A source privy to the deal said that he had even taken a peep at the agreement, which confirmed the size of the transaction at $60 million and the shares to be sold by the outgoing foreign investor at discount to the market value.
Xenal Industries, founded in 1973, is a diversified group with exposure across the globe in energy, petrochemical, constructions/real estate and infrastructure development. Some investors grumbled that the decision by the group, if at all it materialises, would be a setback to already scare foreign portfolio investment.
In the last three trading sessions at the KSE, the volume in Hubco scrip has climbed to 14.6 million shares (worth $7.1 million) a day compared to last one-year average daily volume of 1.3 million shares (valued at $0.6mn).
“The phenomenal increase in turnover is primarily on two counts,” commented the Topline analyst. He listed first the investors’ belief that after the recent surprise interest rate cut of 150bps, the Hubco stock now offers dividend yield (estimated at 14 per cent for FY12), which makes it highly attractive over the one-year T-Bill yield of 11.9 per cent.
Secondly, analysts say that some investors appear to have aggressively sold the Hubco stock in anticipation that they would buy them back once the float of 140 million shares floods the market.
Currently, 810 million shares (70 per cent of the Hubco paid-up capital) marks the free-float in the market and after this deal, if it goes through, the float would mount to 950 million shares (82 per cent of the paid-up capital).
Some market participants suggested that the big investors, who now form part of the buying consortium of Xenal holding at discount, may have first disposed of their holdings at higher rates and made windfall gains in the bargain.
Analyst said that the massive supply of fresh stock in the market may put downward pressure in the Hubco stock price. Yet, it may only be in the short run as the company fundamentals were rock strong. With predetermined cash flows. Hubco stock offered attractive rupee IRR of 21.7 per cent (in dollar terms it would be 18.3 per cent), adequately compensating equity risk as 10-year government bond was trading around 12.0 per cent.
Furthermore, dollar denominated tariff provided a natural hedge to the company against Pak rupee devaluation, which had already deprecated by 1.6 per cent against US dollar since the start of FY12.
