ISLAMABAD: Mari Petroleum Company Limited (MPCL) has reportedly proposed that the share price valuation should be based on the previous six months' average market price of the shares for determining the fair price of shares or any other value based on the market price, well-informed sources in Privatisation Commission told Business Recorder.

The PC Board in its meeting on January 17, 2017 had approved the following: closing price of MPCL's share on the day prior to which the transfer notice is being served to the JV partners or six months VWAP calculated on the day prior to which the Transfer Notice is to be served.

However, CCoP, in its meeting held on January 27, 2017 approved the divestment of 18.3 percent GoP's shareholding in Mari Petroleum Company Ltd either through the JV Partners (Fauji Foundation and OGDCL) or the domestic stock exchanges.

Giving the background, the sources said, CCoP on May 7, 2016, approved the divestment of Government of Pakistan's shareholding in Mari Petroleum Company Ltd either through the JV Partners (Fauji Foundation and OGDCL) or the stock market.

On Privatisation Commission's request to initiate the transaction, the Ministry of Petroleum and Natural Resources (MP&NR), in its letter of May 11, 2016, communicated to the PC that both the JV partners, ie, OGDCL and Fauji Foundation, desire that the Government of Pakistan (GoP) should give them the requisite notice (transfer notice) of the intention to divest its residual shareholding in MPCL, as they are entitled to the 'first right of refusal' under the relevant clauses (ie clause 3) of Participation and Shareholders Agreement, 1985 and Supplemental Participation and Shareholders Agreement, 1992 (hereinafter 'the Agreement').

Accordingly, it was decided that the GoP would offer the shares to the JV partners and issue the transfer notice in line with the clause 3.02(a) of the Agreement, which reads as follows:

"The seller shall serve the other parties with a notices in writing (the "transfer notice") of his intention to sell, assign or otherwise transfer the shares in question, and shall at the same time deposit the share certificate(s) in respect of such share(s) with the Company along with blank executed share transfer deed(s) and authority in favour of managing Director to take action as contemplated in (g) hereunder. The transfer notice may specify the price per share at which the seller proposes to sell, transfer or otherwise assigns the share in question".

Subsequently, a Transaction Steering Committee, comprising representatives of PC, MP&NR, Ministry of Finance (MoF), Securities and Exchange Commission of Pakistan and MPCL was constituted. The first meeting of the committee was held on June 27, 2016. During the said meeting, PC explored the possibility of serving the transfer notice to the JV-partners without mentioning the price therein and to request MPCL for the provision of Auditor's certificate pursuant to clause 3.02(b) of the agreement, which reads as follows:

"Within twenty-one days of the receipt of a transfer notice, any party shall by notices in writing to the Company have the right to require the Company to request the auditors to certify in writing ("Auditor's Certificate") the value which in their opinion is the fair value of the shares comprised in the transfer notice. Copies of such Auditor's Certificate(s) shall be dispatched upon receipt by the Company to all the parties hereto".

During the aforesaid meeting, MP&NR argued that the financial audit firms might not be able to determine the fair value of the shares as it requires complete analysis of oil reserves and other allied information. Accordingly, MPCL was requested to inquire from their Auditors about the information required to determine the fair value of GoP shares and also the timeline(s) required to carry out the valuation exercise.

MPCL initially communicated to PC that their Auditors have refused to carry out the valuation exercise due to a potential conflict of interest. However, later, vide an email dated July 25, 2016, it was communicated by MPCL that their Auditors have agreed to carry out the valuation exercise, subject to certain pre-conditions.

However, subsequently, in a letter of November 29, 2016, it has been communicated to PC by MPCL that its Auditors have shown their inability to carry out the assignment but have offered the required services through their Financial Services Company M/s Deloitte Financial Services for the said purpose. MPCL maintained that the requirement under clause 3.2 (b) of the agreement is for Auditors' Certificate and not valuation from any Financial Consulting Firm/Advisors. It has further been communicated that the original agreement was executed amongst three major shareholders in 1985 when MPCL was an unlisted company. However, now that the company is listed on the stock exchanges, the market value of the MPCL shares reflects all necessary considerations. Therefore, MPCL has proposed that the share price valuation may be based on the previous six months' average market price of the shares for determining the fair price of the shares or any other value based on the market price.

As per clause 3.02 (d) of the Agreement, the purchasing party may either purchase the shares at the price either mentioned in the Transfer Notice or the price mentioned in the Auditor's Certificate. The same is reproduced as follows :"If any party shall desire to purchase any or all of the shares comprised in the transfer notice at the price certified in either the transfer notice or the Auditor's Certificate(s) it shall give notice in writing of its intention to do so to the company and to the other parties upon the expiration of the period of twenty-one days specified in (c) above but not later than fourteen days there from (the "transfer period") such notice (the "purchase notice") shall specify the number of shares the party in question wishes to purchase, the price at which such shares are to be purchased and any other terms or conditions it may deem appropriate".

Since the MPCL is a 'Listed Public Limited Company', the company's share price is largely determined by the market forces based on the fundamentals of demand and supply. Hence, it would be appropriate to consider the market price of MPCL shares as a benchmark to determine the offer price. It may be noted that market price of MPCL shares as on January 16, 2017 was Rs.1455.28. Moreover, VWAP analysis of MPCL's share (based on Bloomberg data) as on January 16, 2017 is given as under:

a. 1 Month VWAP: Rs.1408.25 per share

b. 3 Months VWAP: Rs.1175.14 per share

c. 6 Months VWAP: Rs.1075.00 per share

Accordingly, the matter was placed before the PC Board on January 17, 2017, with the request to deliberate and determine the share offer price to be mentioned in the Transfer Notice, in accordance with any one of the following options as benchmark: (i) closing price of MPCL's share on the day prior to which the transfer Notice is being served to the JV partners; (ii) six months VWAP calculated on the day prior to which the transfer notice is to be service; or (iii) determine and approve the same price for the purpose in accordance with any other commercial criteria it deems fair and appropriate.

The PC Board was further apprised that once the price is offered to the JV partners in the transfer notice, and in the eventuality that the JV partners refuse to exercise their right, the GoP will not be able to divest the shares in the stock market below this price, as per the stipulation contained in clause 3.02 (h) of the Agreement as follows: "If no party is willing to purchase any of the said shares during the transfer period the seller may within three months thereafter dispose of such shares to any third party at a price not less than the lower of the price (if any) specified in the transfer notice or the Auditor's certificate(s) and the directors shall register promptly and transfer of such shares made pursuant to this sub-clause provided that no transfer/disposal of shares shall be made except to a third party approved by the remaining shareholders, such approval not to be unreasonably withheld."

The PC Board, in its meeting held on January 17, 2017, after thorough deliberations approved option of closing price of MPCL's share on the day prior to which the transfer Notice is being served to the JV partners, ie, closing price of MPCL's share on the day prior to which the transfer notice is being served to the JV partners, along with a 5 percent discount, and recommended it for the consideration and decision of the CCoP. The PC Board further approved constitution of a committee consisting of three PC Board members, to deliberate/negotiate with the JV partners in case of refusal or counter offer by either of the JV partners.

Fauji Foundation in its letter to PC had stated that the government of Pakistan should first obtain written consent/no objection of Fauji Foundation and OGDCL for the sale of government's shares in the company and also amend the participation and shareholders agreement.-MUSHTAQ GHUMMAN