Pakistan Stock Exchange benchmark index up by almost 5 percent

Investors returned to stock market on reduction in political noise after the Supreme Court initiated hearing on Panama leaks. The benchmark index of Pakistan Stock Exchange improved by nearly 5% WoW and closed at an all‐time high of 41,842 points. Apart from diffused tensions in the political space, positivity emanated from the announcement by KEL of planned shift in ownership to the Chinese power conglomerate Shanghai Electric Corp and the recent imposition of anti-dumping duty on Chinese steel imports as a protectionist move benefiting local players.

News reports during the week included: 1) Petroleum Minister Shahid Khaqan Abbasi announced that the GoP has decided not to increase the natural gas tariff for any category of consumers because of a decline in the cost of producing gas, 2) Minister of State for Water and Power stated that the GoP would likely renegotiate the terms and conditions of handing over KEL to the Shanghai Electric Power Company and expressed confidence in the Shanghai Electric's ability to overcome the power crisis in Karachi, 3) French automaker Renault announced to start assembling cars in Pakistan by 2018 under the newly approved incentives announced in the Auto Investment Development Policy. Renault would enter the Pakistani market as a Joint Venture with GHNL, committing to invest US$100 million in Pakistan and 4) the cut in sales tax on petroleum products reducing an estimated more than Rs20 billion revenue of the FBR during the last four months.

While gainers at the bourse were: MTL, SHEL, ASTL, and ICI, laggards were: EPCL, AKBL, MEBL and CHCC. With the reduction in political noise, the market is expected to rally on the back of hastening inflation matching a bottoming out of the interest rate cycle, a positive for banks. Additionally, as November meeting of OPEC ministers approaches closer, any news flow on production cuts could trigger global oil price momentum.

S&P Global upgraded Pakistan's sovereign rating to B/stable from B‐/positive driven by successful follow through on IMF dictated reform agenda. Major macro metrics qualifying the country for an upgrade are: 1) fiscal consolidation to 4.6% of GDP, 2) external account strength and 3) greater monetary flexibility. The agency maintains an optimistic outlook on the country's economic prospects, projecting 5-year GDP growth at 5% (FY16‐19) primarily on the back of CPEC related development. Looking ahead, analysts expect Pakistan to maintain credit rating at current levels over the next year, where probability for another upgrade remains low. Their view emanates from the need for stringent reforms in tax collection to support Pakistan's debt affordability (external debt up 20% over 3 years). However, likelihood of the current GoP turning to populist measures can hamper revenue boosting efforts and consequently eligibility for an upgrade.

K‐Electric (KEL) has notified that KES Power (Abraaj‐controlled) entered into an agreement to divest its 66.4% shareholding in KEL to the Shanghai Electric Power Company Limited (SEP). At a disclosed deal size of US$1.77 billion (Rs184.2 billion), the deal price works out to Rs10.05/share. As SEP is acquiring a majority stake in KEL and the shareholding of KES Power Ltd is shifting from Abraaj and Al-Jomiah/NIG to SEP, a tender offer is likely for 50% of the remaining shares voting shares. In this regard, regulations (Listed Companies Takeover Regulations 2008) suggest that the tender may be offered at the SPA price (which is the highest amongst the stated criteria). Despite risks evident in the operation environment of KEL, analysts opine that SEP (of which the 43.0% is owned by the State Power Investment Corporation) will be on firmer footing to negotiate with the GoP concerning crucial operational aspects (PPA with NTDC, renewal of MYT, generation licenses).

During this past week, Cherat Cement Company (CHCC) became focus of investors’ attention for two reasons, announcement of attractive quarterly financial results and COD one month earlier than planned. The Company announced its 1QFY17 financial results posting profit after tax of Rs404 million (EPS: Rs2.29), registering 51%YoY growth over net profit of Rs268 million (EPS: Rs1.52) for 1QFY16. Key highlights of results were: 1) Topline grew by 14%YoY to Rs1.77 billion due to improved dispatches, (2) gross improved owing to cheaper energy cost and 3) tax expense jumped 97%YoY due to 61%YoY higher pre-tax earnings and effective tax rate of 27% as compared 22% in 1QFY16.

CHCC's 1.3 million tons per annum (tpa) expansion is expected to achieve COD by end November 2016, one month earlier than its plan. Currently, the new line is under testing. Being the first of expansions in the current cycle, CHCC can gain significant market share as other major manufacturers are operating above 90% utilization, while the next contender, Lucky Cement is not expected to commence production before end CY17. In this regard, AKD Securities report forecasts CHCC's incremental production to result in growth in revenues. Likewise, its market share will also increase, boosting its EPS.

OGDC discovers hydrocarbons reserves in Sindh

 Pakistan’s largest oil and gas exploration company, Oil and Gas Development Company (OGDC) has discovered hydrocarbons reserves in Sindh’s Ghotki and Khairpur districts. This has been stated in a communique sent to Pakistan Stock Exchange on Thursday.

According to the details the three discoveries – at Gundanwari-01, Mithri-01 and Khamiso-01 wells – would cumulatively add up to 29mmcfd gas and 15 barrels per day (bpd) of oil. It would increase OGDC’s earning by Rs0.40/share.

At Khamiso-01 in Ghotki, a joint venture of Guddu Block – comprising of stakes as OGDC as operator (70%, SEPL (13.5%), IPRTOC (11.5%) and GHPL (5%).

The structure of Khamiso-01 was drilled and tested by OGDC’s in-house expertise. The well was drilled down to the depth of 753 meters, which tested 2.95mmcfd of gas through 32/64-inch choke at wellhead flowing pressure of 505 PSI from Pirkoh Limestone formations.

At Gundanwari-01 in Khairpur district, where OGDC is an operator with 95% stake and Government Holdings (Pvt) Limited has remaining 5%, the well structure was delineated, drilled and tested. The well was drilled down to the depth of 3750 meters. It tested 19.40mmcfd of gas and 15bpd of Condensate through 32.64-inch choke at wellhead flowing pressure 3300 PSI from Lower Goru (Massive Sand) Formation.

Next US President: Hillary or Trump

The fast changing poll results are creating more confusion, rather than providing a credible forecast about the outcome of US presidential elections being held on 8^th November 2016. Around the world Muslims and particularly Pakistanis are anxiously awaiting the official announcement. I posted a blog on Wednesday exploring the possible implication of the outcome on Pak-US relationship. The bottom line was that whoever wins the election ‘status quo’ will remain, meaning the relationship will get good if Pakistan’s services are needed or will get bad if the US focus shifts to other regions.

Some of the readers of my blogs asked a funny question, who will win the election? I wondered if they believe I have a crystal ball or I am a fortune teller. Despite knowing my inadequacies I sat down to explore the probability. Born in a third world country, having witnessed domestic, South Asia and MENA geopolitics for nearly half a century I have also started believing in conspiracy theories. Based on my observations, I tend to say that Hillary Clinton could be the next US president. The reasons are following:

The US ruling junta has created a history by electing a black and half Muslim President. This time they will create another history by electing a woman as US president.

It is often said that in third world elections are engineered. I tend to say that the elections are also engineered in the US and the active players are part of electoral system. This time the female members of the system will play a decisive role. I say this because often the female members have not played a key role, some reports say they prefer to abstain from casting their vote.

A closer look at the outcome also indicates that the elected president should be from Republican. However, it the ruling elite are adamant at making Hillary the next president, they will not hesitate in violating this norm. If they want to continue proxy wars, maintain US hegemony in South Asia and MENA and even South China Sea they have to elect Hillary who is known as ‘queen of status quo’.

   

Pak-US relation after the election

Elites as well as commoners of Pakistan while passing time in their drawing room talks often indulge in discussions on a variety of topics. These range from civil-army relations to Pak-India border situation to proxy wars going on in the neighborhood. However, lately the talks also drift to the outcome of US elections and US-Pakistan relations in the aftermath. The diversity of discussion depends on the knowledge of the participants about the facets of the US foreign policy.

The commoners often have the consensus that historically the successive governments in Pakistan have been towing the US foreign policy agenda since independence. They also say that Pakistan’s foreign policy has mostly remained under the shadow of US foreign policy. However, there have been good and bad patches, good during the time US needs Pakistan and bad when the US focus shifts away from the region where Pakistan is located.

During cold-war era as well as Afghan war, Pakistan was often termed key partner in war against terror, but mantra of many US senators and congressmen remains ‘do more’. Pakistan has played a contradictory role in Afghanistan, a friend as well as a foe. Pakistan with the help of Taliban fought against Russian troops but post 9/11 it was asked to fight the same Taliban.

The US is often termed the biggest democracy of the world, which also take active part in ‘regime change’ programs around the world to dislodge ‘dictators’. However, it is worth noting that the US has supported three dictatorial regimes in Pakistan, spread over nearly thirty years. Supporting these regimes was need of the super power, as it believes that negotiating with a dictator is easier as compared to an elected/democratic government, which is accountable to the masses.

This is not unique, the US has been installing, supporting and even prolonging and dislodging dictators’ rule in many countries in the name of ‘regime change’. Surprisingly, the biggest democracy of the world does all this but its citizens and/or elected representative, in one way or the other, endorse acts of ruling junta. One may say that the deception prevails over only because of the much talked about liberal media that is not free in real sense.