ISLAMABAD: The Privatisation Commission’s plan to sell $500 million worth of OGDCL convertible bonds has hit snags at the outset following protests by three international financial institutions over alleged breach of their two-year old contracts for the transaction.
As if that was not enough, the ministry of finance has also raised objections over the move by Privatisation Minister Senator Waqar Ahmad to issue convertible bonds of Pakistan’s largest oil and gas producer – Oil and Gas Development Company Limited – in defiance of limits defined under the 1973 Rules of Business. It said issuance of bonds fell under the domain of finance ministry because it has to take the responsibility for the country’s all debts and liabilities.
The minister announced last week that the PC planned to generate $500 million through issuance of OGDCL convertible bonds, for which request for proposals were being sent to 10 reputable financial institutions, including Citibank, JP Morgan, Nomura Investment Inc, UK, Barclays Bank, Morgan Stanley, Goldman Sachs, Credit Suisse, Merrill lynch and others to select an adviser in a week.
He had said that bond sale will be held within a month, for which he may appoint Nomura Bank as the financial adviser if no other company made a bid in two weeks.
Informed sources said the three foreign financial institutions – Barclays Bank, J P Morgan and ABN Amro (renamed as Royal Bank of Scotland) – have reminded the government of Pakistan that they had been selected through a competitive process as financial advisers and lead managers in 2008 to float OGDCL’s exchangeable bonds. But the transaction was put on hold by Pakistan authorities at the last moment. Under those contracts, they said, they had the first right of refusal before the government could seek fresh bids to complete the transaction.
A government official, who was involved in the process of government decision to raise $3-4 billion in 2008 from the international capital market, said the four transactions were ready to be taken to the market on April 23, 2008 but the then finance minister Ishaq Dar, on the instructions of Asif Ali Zardari, decided on April 20 to put on hold these transactions.
As a consequence, the lead managers of OGDCL were informed in writing about the government decision with the commitment that their mandate on OGDCL share sale would remain intact, he said.
These banks, he said, were selected on the basis of their strong influence in the markets where the bonds were to be issued and their lowest fees for completing the transaction. Nomura Bank, the official said, did not enjoy that influence in European and American markets and even if did, the process had to be made transparent.
The government had planned to raise $3 - 4 billion through four international transactions but a last minute change in the decision forced it to go for IMF loan. These transactions, included $1 billion OGDCL convertible bonds, $750 million through 15 per cent block sale of Habib Bank Limited shares and remaining amount through National Bank of Pakistan’s global depository receipts and listing of Kot Addu Power Company’s shares in the overseas stock exchanges.
The sources said the finance ministry had conveyed the protests of Barclays Bank, J P Morgan and RBS to the prime minister, saying the government had been put in an embarrassing position.
The ministry also informed the prime minister that the Privatisation Commission was trying to bypass relevant legal requirements defined under the Rules of Business, 1973. The finance ministry viewed that neither it had been consulted for the transaction as required under the rules of business, nor its approval had been sought from the Cabinet Committee on Privatisation (CCoP).
The finance ministry has pointed out that rule 12 of the Rules of Business envisaged that “no division shall, without previous consultation with the finance division, authorise the issue of any orders, which will affect directly or indirectly the finances of federation”.
The finance division’s approval was also required for any order ‘which in particular involve (i) relinquishment, remission or assignment of revenue, actual or potential, or grant of a guarantee against it, (ii) expenditure for which no provision exists in the budget or for which no sanction exists, (iii) floatation of loans, and (iv) receipt or expenditure of foreign exchange unless already allocated’.
The ministry, these sources said, has contended that the proposed OGDCL transaction called into question all the above mentioned requirements and none of these had been adhered to by the privatisation commission. It said even the rules of business governing the functions of privatisation commission required that ‘negotiations with international organisations relating to the functions of privatisation and investment division’ needed to be done in consultation with the Economic Affairs Division but that condition had also not been met.
Privatisation Minister Senator Waqar Ahmed Khan could not be reached despite repeated attempts.
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