China in K-Electric

The rumours that Shanghai Power Electric is the key bidder for a stake in K Electric Limited (PSX: KEL) have been affirmed as Abraaj Group enters into a definitive agreement to divest its stake in K-Electric to Shanghai Electric Power Company (SEP) for $1.77 billion. Abraaj Group that holds the controlling stake of 66.4 percent in KEL under KES Power, the parent company of K-Electric Limited, had announced its divestment plans back in September 2016, and SEP was a potential contender for sale amongst other Chinese power companies.

The column had highlighted back in September 2016 that If the deal with Shanghai Power Electric gets through, it will be one of the biggest foreign investment deals in the country's recent history. And the purchase will be the third major foreign investment this year in Pakistan, dwarfing the $258-million acquisition of Dawlance by Turkey's Arçelik A.S. in June, and $450-million acquisition of Engro Foods by Netherlands-based Royal FrieslandCampina N.V in July, (See: K-Electric: Shanghai calling, published on September 06, 2016).

SEP's acquisition of a majority stake in KEL will likely bring efficiency to power utility's growth plans like the BQPS's coal conversion, 700MW coal projects and expansion of the transmission network as SEP has a strong background in transmission and distribution equipment manufacturing, and have been investing in overseas markets for quite some time now.

Not only that; The AKD Securities highlight that there is a likelihood of a potential mopping up of dues with the handover of the management. Also, China's entry into KEL can be expected to tame down the friction between the centre (especially NEPRA) and the private-sector utility,

As for China, the deal is in line with the country's ongoing binge for acquisition of the oversea utility companies. as per a Bloomberg report, Chinese companies have announced $10 billion of overseas utility acquisitions in 2016 so far, significantly higher that only $24 million in the same period in 2015. Also, gaining access to 2.5 million customers in south Asian's most populous city and that too in the power sector fits well for China's growing interest in the country after $46 billion worth of infrastructure and energy projects announced under CPEC. The column will analyse the deal terms as and when details are available.