Foreign strategic investor quits Hubco
KARACHI: The foreign majority shareholder in Hub Power Company Limited (Hubco) the country`s largest Independent Power Producer (IPP) stepped out, selling all of its strategic holding to the local conglomerates.
Hubco announced on Monday that its major shareholder National Power International Holdings B.V, had entered into `share sale-purchase agreement` to divest its entire 17.44 per cent controlling stake in Hubco at a price of Rs31 per share.
The market calculated that the deal would therefore be sealed at price of Rs6.3 billion or $70 billion, converted at the current dollar/rupee parity.
The National Power holds 201.8 million shares, which would be acquired by two major groups: The Dawood Group and the Allied Bank Limited. The former has made acquisition through three separate entities: Dawood Hercules Corporation 35.48 per cent shares; Dawood Hercules Fertiliser (wholly owned subsidiary of Dawood Hercules Corporation) 102.26 million stock and Cyan (formerly Central Insurance Company) 32.3 million shares.
The other major buyer Allied Bank Limited, which has acquired 31 million shares, is an Ibrahim Group company that already holds 44 million or 3.8 per cent of the Hubco stock.
In the autumn of 2011, the other major foreign sponsor in Hubco, Xenel had called quits, divesting its entire shareholding of 140 million shares (12.3 per cent) at price of Rs37 per share. That deal had resulted in outflow of $60 million.
At the time of project inception in 1994 the two sponsors cumulatively owned 34.9 per cent holding or 404 million shares International Power 20.4 per cent and Xenel 14.5 per cent.
The current deal is subject to regulatory approvals, including consent of the government. But people close to the company have exuded mixed reactions.
A person familiar with the developments, who asked not to be named, said that the exit of foreign investment from the country was a matter of concern. He believed that the decision of International Power was prompted by the long lingering unresolved issue of circular debts. He said that power sector reforms were required to retain foreigners` interest in the country`s energy sector.
Another person well-connected with the power company was keeping spirits high. He thought that the majority shareholder had not made a country-specific decision but as a `strategic move in line with its objectives in the region`.
He said that it was good omen for the largest power project to pass on to the hands of strong local groups.
Dawood Group is in numerous businesses including fertilisers, chemicals, power, foods, insurance and gas distribution, while Allied Bank (Ibrahim Group) has also the experience of running fibre and leasing businesses.
It also is thought to have acumen in the commercial banking in the country, as the group`s Allied Bank is among the big-five banks` slot.
Regarding the prognosis for smaller investors in Hubco, analysts said that the company had as high as 80 per cent `free float` of shares in the market.
Fundamentally, Hubco is thought to be an attractive stock that has paid regular cash payouts at 100 per cent since financial year 2009. The company has guaranteed, high quality earnings, owing to the sale of 64.6 per cent (parent project) of its dependable capacity at a pre-fixed tariff that ensures a real US dollar based return.
The Hubco stock has however fallen out of favour with investors this year represented by 3 per cent negative return year-to-date quite in contrast with the gain of 17 per cent in KSE-100 index.