Shanghai Electric to buy Rs177 bn K-Electric stakes

KARACHI: The Dubai-based Abraaj Group said on Sunday it had signed a definitive agreement for the sale of its 66.4 percent shareholding in K-Electric to Shanghai Electric Power Company (SEP), a subsidiary of the State Power Investment Corporation of China, for a total of $1.77 billion (Rs177 billion).

Upon completion, it will be one of the largest private sector transactions in Pakistan and represents one of the global power industry’s most well-recognised operational turnaround stories, Abraaj said in a statement.

The agreement is subject to regulatory approval, and “the transaction will close once customary closing conditions and requisite regulatory approvals are obtained,” said the emerging market-focused private equity firm.

The deal, when materialises, will be the biggest private-sector acquisition in the country’s history. China has stepped up investment in Pakistan as part of a $46 billion China Pakistan Economic Corridor unveiled last year. The neighbouring country is investing in infrastructure, power and transport projects.

K-Electric, formerly known as Karachi Electric Corporation, set up in 1913 as a public-sector company, was sold to Saudi Arabia’s Aljomaih Group in 2005, who in turn sold it to Abraaj in 2009.

Arif Naqvi, founder and chief executive of Abraaj, said the group entered into a definitive agreement to divest its stake in K-Electric to a strategic buyer “who is fully committed to continuing this success story into the future.”

“At Abraaj, we remain focused on the standout opportunity that Pakistan and wider Asia presents to us and we look forward to identifying, growing and building regional champions as a core part of our investment philosophy,” Naqvi said.

He said the group fully recognised the outstanding growth opportunity that K-Electric represented for the power sector in Pakistan when it made investment in 2009.“Over the past seven years, we have worked very closely with the management and staff at K-Electric to catalyse that potential and achieve real and tangible value for the business, its consumers, and the city of Karachi at large,” Naqvi said.

“This is symbolic of a successful public private partnership model where the Government of Pakistan is a core stakeholder.”Wang Yundan, Chairman of SEP, said the signing of the definitive agreement is a result of collaborative efforts of both the companies.

“SEP appreciates what Abraaj has achieved at K-Electric over the past seven years and recognises the performance and capability of K-Electric’s management team,” Yundan said. “SEP will leverage its own strengths as a strategic investor and further realize K-Electric’s potential to provide better services to the people of Pakistan and the government of Pakistan.”

He added that the SEP is confident about working together with Abraaj in the future to transform K-Electric into one of the best companies in Pakistan.

“The K-Electric transaction only marks the beginning of SEP’s cooperation with Abraaj and we look forward to further collaboration between the two parties in many other areas in the future,” Yundan said.

K-Electric has exclusive distribution rights for Karachi and its adjoining areas, serving 2.5 million consumers. Abraaj’s investment into K-Electric was predicated on the burgeoning growth of the power sector in Pakistan, an enabling policy and investor-friendly environment that encouraged private sector participation, and critically, the ability of Abraaj to transform an under-utilised strategic asset into a leading Asian energy player.

Mohammad Sohail, chief executive officer of Topline Securities, said the transaction will help boost investor confidence “in spite of ongoing political noise in the country.”“This landmark deal proves that Pakistan is on the path of recovery and offers attractive return to investors,” Sohail said. “After this deal many big ticket merger and acquisition deals are likely to occur in future.”