UAE proposes quid pro quo bailout deal

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ISLAMABAD:

In response to Pakistan’s request for billions of dollars in new loans, the UAE offered to buy minority shares in publicly traded state-owned companies at a negotiated price and a seat on each of the company’s boards. the company.

The offer, if accepted, could give a big boost to the cash-strapped government and will mark a break with the traditional lender-borrower relationship between Islamabad and Abu Dhabi.

The development comes amid China’s decision to refinance another $2 billion Pakistani debt that matures from June 27 to July 23, offering a sigh of relief after transferring $2.3 billion the week last.

Senior sources said The Express Grandstand that the government of the United Arab Emirates has offered to acquire 10-12% of the shares of public companies listed on the stock exchange through its sovereign wealth funds.

“There is a proposal from a friendly country to buy shares of Pakistani companies on a buy-back basis, which means buying securities based on secured loans,” Finance Minister Miftah Ismail said during a briefing. interview with The Express Grandstand.

The sources said the UAE had made a clear offer to acquire stakes in the companies. But the government wanted to add a provision in any such contract where it will have the right to buy out those stakes after a certain period, they added.

The UAE made the offer that it invested $2 billion in Egypt through the purchase of stakes in a number of state-owned companies in April this year in a bid to bail out the Egyptian government. The UAE had acquired stakes in the Egyptian companies through Abu Dhabi Developmental Holding, a Dubai-based sovereign wealth fund.

The offer came in response to Prime Minister Shehbaz Sharif’s request for a multi-billion dollar bailout during his visit to the United Arab Emirates in April. The sources said that in response to the prime minister’s request, the UAE sent a delegation to Pakistan who met with Shehbaz Sharif in the first week of May in Lahore.

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However, unlike in Egypt where the UAE’s sovereign wealth fund managed to secure $2 billion deals in less than a month, Pakistani authorities were unable to come up with a firm response due to confusion about the legality of these negotiated transactions.

Like Pakistan, Egypt’s economy has been struggling for a long time and has survived thanks to bailouts granted from time to time by the International Monetary Fund and friendly neighboring countries.

Pakistan is also trying to revive the IMF program and is waiting for the draft Economic and Financial Policy Paper (MEFP) before reaching a staff-level agreement with the fund.

Yet, despite all the assistance Pakistan and Egypt have received from the IMF and many friendly countries, these two countries have not been able to fully recover their economies and remain deeply vulnerable to external shocks.

The sources said that this time the UAE was reluctant to hand over another $2 billion check to Islamabad, after Pakistan failed to repay the $2 billion loan received in February 2019 In March this year, the UAE renewed its $2 billion debt for one more year.

The sources said the UAE’s sovereign wealth funds – Abu Dhabi Investment Authority (ADIA) and Mubadala Investment Company or Abu Dhabi National Oil Company (ADNOC) – may expose themselves to Pakistan .

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Their interest in Pakistan could boost the stock price of some 20 listed public sector companies, including companies controlled by the military’s commercial arms. The sources said Fauji Foundation companies were also on the plate and the foundation’s chief executive recently attended the meetings.

The five main Saudi sovereign wealth funds in the United Arab Emirates are: Abu Dhabi Investment Authority (ADIA), Investment Corporation of Dubai (ICD), Mubadala Investment Company, Abu Dhabi Developmental Holding Company and Emirates Investment Authority (EIA). Companies are ranked in the top 20 of the Sovereign Wealth Fund Institute’s Top 100 list.

There are about a dozen and a half public companies listed on the stock exchange and open for sale. The largest are: Oil and Gas Development Company Limited in which the government holds 67% of the shares. Pakistan Petroleum Limited (68% GOP share), Sui Southern Gas Company Limited (53%), Pakistan State Oil Company Limited (22%), Sui Northern Gas Pipelines Limited 32% and Mari Petroleum Limited. Fauji Fertilizer Company Limited, Fauji Cement Company Limited as well as other military owned companies.

Pakistan Reinsurance Company Limited, Pakistan National Shipping Corporation, Pakistan International Airlines Corporation, National Bank of Pakistan and Pakistan Telecommunication Company Limited are other companies.
The sources said that Pakistan can immediately get $1-1.3 billion investment by selling 10% shares of blue chip companies.

But the bureaucracy was reluctant to move forward with the deal, delaying the whole process and angering the UAE government.

“The Privatization Commission Order 2000 does not contain a provision for a negotiated, non-competitive sale,” according to the Privatization Commission documents.

They further stated that the rules and regulations of the CP provide additional safeguards to undertake the transparent and competitive privatization process.

The ordinance and the regulatory framework exclude from the competence of the Privatization Commission the negotiated sale which is not the result of a competitive and transparent process.

The commission had recommended a “competitive transaction for bulk trading of shares of the publicly traded state corporation to institutional investors, including government and governmental entities, in accordance with applicable law, rules and regulations.” , without any new legislation.

But the sources said the UAE was not interested in the bidding process. He proposed to Pakistan that the two sides independently appoint financial advisers who should set their prices and a final price should be decided based on their inputs.

In order to find a solution, the case could soon land in the federal cabinet, because the time is not on Pakistan’s side.
The Privatization Commission did not comment on the news.

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