According to
a report by one of Pakistan’s largest and most trusted brokerage house, AKD
Securities, sale of 70 million shares of Pakistan Petroleum (PPL) is likely to
be completed before June 30 2014. The familiarity with the process can potentially
lead to the strike price coming much higher than the floor price. .
At present, the Government of Pakistan (GoP) holds 1.4 billion
shares of PPL which translates into a 71% stake in the Company. The GoP intends
to raise PkR15bn (US$150mn) by offloading 5% (70 million shares) of its holding
in PPL.
In recently concluded transaction of sale of shares of United
Bank Limited (UBL), the floor price was set close to the stock's 6-month
average price (PkR155/share). Based on the same benchmark PPL’s 6-month average
price comes to PkR215.4/share. However analysts do not rule out a further
discount on this in setting PPL's floor price, a case may be made for the
strike price settling much higher than was the case for UBL.
This is because PPL's is a smaller transaction and will be
carried out by local book runners using methodologies that were used for EFERT
and AVN for example. At current levels, PPL trades at a FY15F P/E of 6.8x and
D/Y of 5.9% - attractive multiples that merit a subscribe stance particularly
if the floor price is set at a 5 to 10 percent discount to market
price.
After
raising US$313 million and a further PkR7.62 billion from UBL's stake sale, the
GoP intends to raise US$150 million by selling 5% of its stake in PPL which
translates into 70 million shares.
Taking cue
from the UBL transaction, the floor price is likely to be close to the 6-moonth
average share price PkR215.4/share in case of PPL. However, considering the
current share price hovering around PkR210, a further discount to the 6-month
average share price appears likely.
In this
regard, a 5% discount to the 6-month average price results in a tentative floor
price of PkR205/share. This translates into a FY15F P/E of 6.6x while last
closing price implies a forward P/E of 6.8x. These stack up well against the
broader market's forward P/E of 7.9x.
While
analysts await the transaction's formal details, those privy to the details
believe PPL transaction could be similar to that of Engro Fertilizer and AVN,
run by a local book runner with the color of the book being visible at all
times.
Analysts believe
that while the onus of participation may be on local investors, foreign
investors will be free to participate as well. Presently, PPL has free float of
21%, which translates into 410 million shares. Out of this, 24% is held by
foreign institutions which include Lazard Ltd., Invesco Ltd., Robeco AMC and
Tundra Fonder amongst whom Lazard Ltd. has the largest declared shareholding
(as far as free float number of shares are concerned) holding 18.3% of the
total free float, while remaining are with local participants.
Foreign
investors have clearly been keen on PPL in the past and this could manifest at
the time of the book building. At the same time, PPL remains an attractively
valued stock and is likely to result in strong local interest.
In UBL
transaction, despite international and local interest, the strike price inched
up by mere 2% against the floor price of PkR155/share. Analysts believe this
was mainly due to the sheer size of the transaction.
Analysts believe
the same might not be the same in case of PPL due to: 1) the size of the PPL
transaction being roughly two-fifths that of UBL where a small size also means
less supply concerns, 2) a 76% of PPL's free float with local investors, which
limits the number of shares that can be acquired through the market, without
affecting the price and 3) PPL's book building is being done by the local book
runner who will be using similar methodologies that were used in recent book
buildings.
This
familiarity with the process can potentially lead to the strike price coming
much higher than the floor price. .
