The Cabinet Committee on Privatization (CCOP) has started re-considering divestment of Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company Limited (OGDCL), official documents from a meeting showed.
The move comes in wake of rising investor interest in the exploration and production sector. The decision to divest the two companies has been in the works for over a year, with the Federal Cabinet ratifying it in 2020. However, it has not been implemented so far due to economic factors and low valuation until now.
However, the Petroleum Division has opposed the divestment of PPL and OGDCL shares, saying that divestment at the current share price level is not feasible.
The CCOP had approved the proposed divestment of ten public sector enterprises in August 2019. It was also decided at the time that up to 7 percent shareholding from OGDCL and 10 percent from PPL will be divested.
The stocks of the said companies were also trading at unattractive levels, so the government put the offering on hold as it could not obtain similar gains to when the companies were first divested in 2014.
As compared to Rs. 219 per share trading price of PPL in June 2014, currently the stock is at a monthly average of Rs. 82.62, according to Investing.com.
Similarly, OGDCL has come down from Rs. 216 trading price per share back in 2014 to a monthly average of Rs. 88.85 per share now.
On the other hand, the Ministry of Energy (Petroleum Division) maintains that both PPL and OGDCL are profitable companies, and the current depressed share prices do not reflect the actual worth of these companies.
The current share prices of the two companies are reportedly low owing to the circular debt issue. A significant amount of current assets are stuck within the circular debt, which has not only been aggravating over the years but is also restricting the ability of the companies to pay dividends.
As of January 31, 2021, the total receivables of OGDCL stood at Rs. 653.8 billion while the figure for PPL was Rs. 408 billion. The Price to Earnings ratio (P/E) of both the companies is also quite low compared to previous years and the current market multiples.
On the plus side, both the companies hold a significant number of exploration blocks which offer upside in case of discoveries.
Petroleum Division also argued that the sale of shares should be only to a reputable international E&P company with their representation through a Director on the respective Boards.
It said that such strategic sale to an E&P company would bring in expertise in E&P business and further strengthen the technical base and may also help in bringing in new technologies, synergies, and insights to discover new reserves as well as maximize hydrocarbon recoveries.
If the divestment of the shares goes as planned and done on a good valuation, then the sale could also result in the flow of foreign direct investment in the country.
Foreign investors’ confidence in the country will enhance after the purchase of interest by a large E&P company, said the petroleum division, adding that it may also attract foreign investments and technological collaborations in other sectors.