Chowrangi

According to news, Abraaj Capital, Dubai based capital investment group, has agreed to buy 50% shares of Karachi Electric Supply Corporation (KESC) from its current holder, Saudi based Al-Jumaa company.

Abraaj Capital, is a Dubai-based investment firm specializing in the Middle East, North Africa, and South Asia (MENASA) region. The firm’s primary strengths include private equity buyouts, strategic minority block positions in public enterprises, and real estate investments within the MENASA region.

The Abraaj group already has several investments in Pakistan, including the financial and steel sectors. It owns a 40 per cent stake in the Bosicor Group, 80 per cent of Manan Shahid Forgings and 50 per cent of BMA Capital Management. Abraaj Capital was primary bidder in privatization of Pakistan Steel Mills. It also owns between 20 to 30 per cent stakes in several airlines and aviation companies in the region. Abraaj manages over AED14.7 billion ($4 billion) of assets, including seven private equity funds, as of 2007.

Several Pakistanis hold key positions in the company, including Arif Masood Naqvi as founder & Group Chief Executive Officer, Waqar Hassan Siddique as chief executive officer, Tabish Gohar, Syed Farrukh Abbas and Omar Lodhi as executive-directors.

Al-Jumaa currently possesses 73% shares of KESC, which it has signed out to Abraaj on “rights shares” bases.

Abraaj has already started the due diligence process in the KESC and the appointment of new MD is in the offing.

The government of Pakistan was later formally informed about the deal after the media had reverberated this issue.

The KESC was privatized and handed over to M/s KES Power Limited (offshore company?), or the Al-Jumaa Group, incorporated in the Cayman’s Island, on Nov 29, 2005, with transfer of 73 per cent shares while the Government of Pakistan still has over 25 per cent stakes in the company.

The new management had employed M/s Siemens Pakistan Engineering Limited as the operations and management (O&M) contractor for the operation and management of the company. Before the privatization, the government was giving an average annual subsidy of Rs 8.5 billion to the company to meet operational cash shortfall.

KESC has issued financial report of company revealing Rs. 10 bn income deficit in the current financial year. Meanwhile, KESC’s Executive Director Tanzeem Naqvi has unveiled that company has been benefited with Rs. 4 bn profit in billing charges. Despite that, the consumers were not relieved from continuous power outrages and 80 gird stations out of 112, found cent percent over loaded.

While Abraaj’s investment can certainly bring in the much needed cash flow, however, how it will manage the administrative and technical issues, that has to be seen. Also, if Al-Jumaa group is issuing right shares this means that they are increasing the working capital which may not reduce their current holding but might effect KESC’s share price.

Can Abraaj Capital resolve Karachi Power Crisis? Only time will tell.

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