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Photo Source: The Express Tribune

Pakistan Reader# 632, 27 July 2023

Shell Pakistan: What next?



Analysts have remarked that the acquisition of stake in Shell Pakistan Limited is an attempt to diversify its business ventures

Ryan Marcus Manuel

On 17 July, Pakistan Refinery Ltd (PRL) and Airlink Communication Ltd submitted a filing to the Pakistan Stock Exchange, expressing their interest in procuring a stake in Shell Pakistan. Analysts believe that the potential buyer could take advantage of Shell Pakistan Limited's poor performance and complete the transaction at a significant discount. The Public announcement revealed the intention to acquire 77.42 per cent shares and control Shell Pakistan Ltd. The acquisition will consist of Shell Pakistan Limited's downstream businesses and 26 per cent shareholdings of the Pak-Arab Pipeline Company (PAPCO). Both parties described the acquisition as a joint venture and stated that details are yet to be disclosed.

Why did Shell disinvest in Pakistan?
The bid for the acquisition came following Shell Petroleum Company’s (SPC) withdrawal from Shell Pakistan Ltd (SPL) with a sale of 77.42 per cent shareholding. The SPC stated that the decision to withdraw was part of its global operations. Additionally, it cited that SPL had suffered losses in 2022 due to exchange rates, the devaluation of the Pakistani rupee, overdue receivables and Pakistan's economic slowdown. SPC's new CEO Sawan announced plans to ramp up the company's dividend and share buybacks while maintaining oil output through 2030. Shell Pakistan stated that it initiated a process to sell its shareholdings. Shell Petroleum Company stated that its withdrawal would not impact Shell Pakistan Limited's current business operations. 

Enter Pakistan Refinery Limited (PRL)
PRL is one of the five refineries operating in Pakistan and Pakistan State Oil Company Ltd owns 63.5 per cent shareholdings in PRL. Air Link Communication is a publicly listed distributor, manufacturer and retailer of smartphones.
 
PRL CEO Zahid Mir is interested in acquiring Shell's fuel, lubricant and pipeline business in Pakistan and would lead the transaction. Additionally, Zahid Mir stated that Airlink's management experience in representing global brands and access to capital makes them ideal partners for the bid. Airlink CEO Muzzaffar Hayat Piracha stated that acquiring SPL was Airlink's goal of diversifying. Airlink is primarily a smartphone manufacturer, distributor and retailer. Analysts speculate that PRL would utilize the fresh equity from the Saudi investment to buy the stock. Hayat Piracha stated that the details regarding the shareholdings between the two companies would be disclosed shortly.

What next?
Following the PRL-AL bid on 17 July, Shell Pakistan ended the trading day at PKR 4.55, up as it closed at PKR 115.05 a share, trading 1.47 million shares. However, it was down from its opening level of PKR 118.79. PRL experienced a minor boost of PKR 0.11 following the news of the bid. Airlink witnessed a price dip of PKR 0.17 in its share. Zahid Mir stated that the companies would require approval from the competition commission of Pakistan to proceed with the transaction. 
 
Shell Pakistan Ltd stated that it has received expressions of interests from international and local companies as a response to the announcement. The second series of acquisition will consist of a public offer up to 50 per cent of the remaining shareholding in Shell Pakistan Limited that’s controlled by the general public, public-sector companies, banks and mutual funds. Following the acquisition, the two companies will be bound to extend a public offer for 11.29 per cent shareholding in Shell Pakistan Limited.
 
The News International reported that the acquisition is estimate is valued over approximately USD 90 million. Additionally, analysts have remarked that the acquisition of stake in Shell Pakistan Limited is an attempt to diversify its business ventures. The potential acquisition of stake in Shell Pakistan Ltd by PRL and Air Link could indicate rising conglomerates, the energy and telecom stakeholders would lead such acquisitions. The primary reason does not stem from domestic conditions in Pakistan entirely, rather it is the global redrawing of supply chain and monetary networks as well.

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By Ryan Marcus Manuel

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