The size of the deal, which was determined after the institutional portion closed last Thursday (November 30), is slightly smaller than the market had expected given that the government had flagged it would sell up to 15%. According to market watchers, the decision not to go for the maximum may have been related to the fact that the share price continued to edge lower during the two-week roadshow after a spike at the end of October.
However, people familiar with the sale noted that the government also wanted to make sure the deal was successful since it will likely be returning to the international capital markets over the course of next year and thus didnÆt want to go overboard either on size or pricing. The offer was the largest ever equity offering of a Pakistani company abroad, and the government will still own 85% of OGDC after this transaction.
ôThe success of this offering sends a strong signal of global institutional investor confidence in Pakistan and bodes well for PakistanÆs growing participation in international capital markets. The government is committed to maintaining the pace of its privatisation program,ö the country's minister for privatisation and investment, Zahid Hamid, said in a statement.
The government is also expected to reduce its stake in National Bank of Pakistan, United Bank, Habib Bank and power company Kot Addu through similar offers over the next couple of years. On Friday the Privatisation Commission also announced that it will invite more bidders for a 51% stake in Pakistan State Oil by January 15 with the view of completing that transaction by March 2007.
At the final deal size, which includes a 15% greenshoe, the OGDC offer was about two times covered, which means joint bookrunners Citigroup and Goldman Sachs could have sold more shares. The order book had a broad geographical spread and the final allocation included just over 80 names of ôthe highest qualityö, sources say.
The orders contained some price sensitivity but even so, the final price was fixed at a 9.6% discount to ThursdayÆs closing price for the Karachi-listed common shares of PKR127.20. That discount compared favourably with the average 11.6% discount for first-time GDR sales greater than $250 million by Asian companies over the past couple of years, one banker notes.
At launch, a combined 95% of the deal was offered to institutional investors in Pakistan in the form of ordinary shares and to international investors through the sale of Global Depositary Shares, and strong demand from the latter group resulted in about 90% of the total deal ending up in international hands.
The 9.6% gave a price of $18.90 per GDS (each unit accounts for 10 common shares) or PKR115 per common share û a price that puts PakistanÆs largest exploration and production company on par with PetroChina and ThailandÆs PTT-ET in terms of cash flow multiples and at a premium to both CNOOC and IndiaÆs ONGC, according to a source familiar with the company.
The remaining 5% of the deal will be offered to Pakistan retail investors at a price of PKR110 per share, representing a 4.3% discount to the institutional offering, or an effective 3% discount after adjusting for a first quarter dividend payout of PKR1.75 per share that will not be distributed to participants in the retail offering.
Including the retail offer and the overallotment option, the government will sell 430.72 million shares, which will boost the free-float of OGDC to 15% from 5%. The company is already the largest listed company on the Karachi Stock Exchange, accounting for about a quarter of market capitalisation.
One observer referred to the deal as a ômarket opening transactionö because of the large portion of the sale û about $730 million worth of shares - that went into international hands. Prior to this deal, the entire Pakistan market had a foreign ownership of only about $500 million, he says.
ôInvestors like the company because of its strong return on capital and a growth profile in the mid-teens over the next few years, but they also view this as a good liquidity event to buy into an attractive macro economic story,ö the observer says.
Before the launch of the deal, the bookrunners did a Pakistan country roadshow to a variety of places, including the Middle East. The Pakistan story was also further highlighted during the roadshow when MoodyÆs Investors Service upgraded the countryÆs foreign and local currency government bond ratings to B1, putting it on par with the Philippines and Indonesia.
The ratings agency said the upgrade from B2 primarily reflects ôthe ongoing decline in the countryÆs public and external debt ratios (which is) largely the result of a significant structural increase in GDP growth in recent years coupled with a relatively restrained, albeit currently loosening, fiscal policy".
The price of the offering also became more attractive for investors after OGDCÆs share price reversed a speculation-driven four-day spike before an Eid holiday that took it to a high of PKR156 at the end of October from a trading level around PKR130 before the rally. When the government announced details of the share offering on November 12, the share price had retreated to PKR136.50.
The share price continued to fall in the wake of the pricing, losing another 5% to PKR120.85 on Friday, underperforming the 2.2% drop in the benchmark Karachi 100 Index.
Sources say orders came from both Asian-based investors with previous investment experience in Pakistan who are now returning to the South Asian market after a few years of absence, and from accounts putting money into a Pakistan-based company for the first time. About 43% of the institutional offer was allocated to Asian-based accounts, while 32% went to the US, 18% to Europe and 7% to the Middle East.
The latter category (the Middle East) included few names but large-sized orders and according to one source accounted for close to 15% of the demand. European investors comprised primarily large emerging market funds, while the US money came from both EMR funds and funds dedicated to the oil & gas sector.
The retail offering will be arranged by BMA Capital, which was also joint lead manager with Citigroup and Goldman for the entire deal, and will open by mid-December. It is expected to be completed within a few weeks.
The GDSs will start trading on the London Stock Exchange on a conditional basis on December 1 with unconditional trading set to begin on December 6.
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