Translated material
Reassessment of values
Pakistan will hold a new tender for the sale of Pakistan Steel, taking the plant away from MMK and its partners
The government of Pakistan will reassess the value of Pakistan Steel Mills Corporation Limited and announce new tenders, which, as the government of the country hopes, will bring more income to the treasury than the $360 million proposed by MMK and its partners last year. According to ITAR-TASS, the minister announced this Privatization and Investment Officer Zahid Hamid told local newspaper Dawn.The winner of last year's auction, which offered 75% of the company's shares, was a consortium led by the Magnitogorsk Iron and Steel Works and with the participation of the Saudi Al-Tuwairqi and the Pakistani Arif Habib Group. The stake was sold for 21.6 billion rupees (about $360 million). However, in June this year, by a decision of the Supreme Court of Pakistan, the deal was annulled at the request of the country's government and trade union organizations. The sale of the stake to a consortium dominated by foreign investors displeased the local business elite, which initiated public outrage over the results of the auction. As a result, opposition political parties, plant workers and a number of public organizations demanded a review of the results of the plant's privatization. The forces behind the idea believe the enterprise is worth at least 91 billion rupees (or $1.5 billion).
However, from a business point of view, the enterprise has a number of significant shortcomings. The enterprise, with a capacity of 1.1 million tons of metallurgical products per year, was built in the early 80s under the leadership of Soviet engineers. It is practically not provided with its own raw materials and exports them from neighboring China and India. Taking into account the development of their own industry in these countries, in the future the plant may face the problem of supplying raw materials.
After the collapse of the USSR, Soviet engineers ceased to control the operation of the enterprise, transferring management to local specialists. The plant was fully owned by the government all these years, but recently it has been operating inefficiently. To develop the industry, the government decided to attract an external investor and announced a tender. Its conditions, in particular, included increasing the enterprise's capacity almost threefold, to 3 million tons of rolled products per year, and the requirement to sell most of the enterprise's products in Pakistan.
Even before the terms of the tender were announced, analysts said that they were ready to value the entire plant at $500-600 million, emphasizing that given the political and economic risks in the region, the price could be lower.
At the same time, in a statement yesterday, Minister of Privatization and Investment Zahid Hamid expressed the hope that the review of the results of the privatization of the plant will not scare away potential investors and their circle will be expanded.
MMK stated that it would consider the possibility of re-participating in the tender for the acquisition of Pakistan Steel only after the announcement of new trading conditions. “There have already been statements (about the revaluation of the asset and changing the terms of the tender. - Ed. ) before. Whether we go to tender again will depend on what the actually announced tender conditions will be. Only after this will it be possible to consider the possibility of re-participating in the competition,” a source at the plant told Vremya Novostey.
With the ongoing consolidation of the global steel industry, an asset like Pakistan Steel looks very attractive to investors. Two factors could scare them away - the lack of raw materials and the bureaucratic system of Pakistan (as analysts say, only those who already have experience here will be able to work in this market). That is why last year Magnitogorsk, which has long-standing trade ties with Pakistan, decided to participate in the auction. For other Russian companies, this asset is less attractive, since this region is not within their sphere of influence. The global industry leader, Mittal Steel, is obviously not a player in this deal. The point is not only that this asset is “too small” for Lakshmi Mittal, but also that a plant that was not sold to a Russian investor will certainly not be sold to an Indian investor by Pakistan.