Tundra Balks as Court Stalls Pakistan’s Biggest Sale in 8 Years

A lawsuit and a slump in oil prices are deterring investors including Sweden’s Tundra Fonder AB and Coeli Asset Management from Pakistan’s biggest asset sale in eight years.

Book-building to sell a 10 percent state holding in Oil & Gas Development Co. worth about 75.7 billion rupees ($736 million) has been delayed as investors wait to see what happens today when the nation’s top court hears a case today with a provincial government contesting the transaction.

The court intervention has coincided with a drop in Brent oil to a four-year low, cooling investor demand for Pakistan’s most-valued company and likely hurting the country’s plans to meet targets attached to a $6.6 billion International Monetary Fund loan. OGDC is the second-biggest loser on the KSE100 Index in the past month, data compiled by Bloomberg show.

“Foreign investors are unlikely to participate in the book building until the final verdict from the Supreme Court,” Mattias Martinsson, chief investment officer at Stockholm-based Tundra Fonder, which holds $95 million of Pakistani equities, said in an e-mailed reply to questions. A verdict that allows the transfer of shares to buyers is “a precondition” for the sale process to resume, he said.

The northwest Khyber-Pakhtunkhwa province asked for the transaction to be halted, saying it wants representation in the sale because OGDC operates in the area. The Supreme Court Oct. 10 allowed the government to proceed with the sale on condition it won’t transfer shares to buyers until a ruling. The company contributes 30 percent of the nation’s natural-gas output and about half of its oil production.

Camping Protesters

The case is pushing back Pakistan’s plan of raising more than $4 billion from asset sales before June 2015 as other deals were to follow the OGDC sale. The process has also been delayed by protesters who have camped in Islamabad the past two months to oust Prime Minister Nawaz Sharif’s government.

The government aims to garner about $1.2 billion from a stake in Habib Bank Ltd. and about $150 million selling shares in Allied Bank Ltd., Mohammad Zubair, chairman of the state-sale agency, said in a phone interview on Sept. 23. Advisers for the offerings will be named soon, the Finance Ministry said in an e-mailed statement on Oct. 17.

Two Hotels

The government sold shares in Pakistan Petroleum Ltd., the second-biggest fuel explorer, in June and raised $387 million from a stake sale in United Bank Ltd. the same month. It may consider selling two hotels owned by Pakistan International Airlines Corp. that may fetch $1 billion, Zubair said in the September interview.

“New dates will be announced post court decision,” Moazzam Ali, transaction manager at the Privatization Commission said in a text message on Oct. 18. “Investors are looking forward to participate.”

Shares of OGDC have fallen 9.5 percent since the sale was announced on Sept. 23, versus a 0.9 percent drop in the KSE100, amid speculation the government may sell the stock to investors at below-market prices. The shares won’t be sold at a “huge” discount, Zubair said on Oct. 3.

Price Discount

“Typically, you would look at a discount of 10 percent to 15 percent on a deal like this,” Carlos von Hardenberg, an Istanbul-based money manager at Franklin Templeton Investments, which owns an 8 percent stake in OGDC, said in a phone interview on Oct. 2. He said his decision to buy more will “depend on the terms” of the sale.

A discount may not be enough to attract buyers amid a collapse in oil prices. Brent fell as low as $82.6 last week, the cheapest since 2010. Canada’s Teine Energy Ltd. has pushed back the timing of its initial public offering, people familiar with the matter said Oct. 18.

“We will not be buying OGDC particularly because a large part of its value is based on the oil price, which I’m not able to forecast,” Stockholm-based James Bannan, who runs the $145 million Frontier Markets Fund at Coeli Asset Management, said by e-mail.

Sven Richter, head of frontier markets at Johannesburg-based Renaissance Asset Management, which owns shares in Oil and Gas and Pakistani banks, said he hasn’t decided yet whether to buy OGDC.

“We are happy to buy Pakistan,” Richter said in a phone interview on Oct. 14. “Generally, we don’t think there is a security issue there.”

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