Pakistan Refinery Limited (PRL), which is controlled by state-owned Pakistan State Oil (PSO), and a leading smartphone distributor have jointly expressed the intension to acquire Shell Pakistan with management control, according to a bourse filing on Monday.

The lead to the offer, Next Capital, said in a public announcement at the Pakistan Stock Exchange (PSX) that PRL and Air Link Communication had collectively expressed the intention to acquire 77.42% shares and control of Dutch oil marketing company Shell Pakistan.

The acquisition proposal is, however, against the intension of the Dutch firm, which has put itself on sale. Earlier, it announced that it would welcome acquisition proposals from foreign firms apparently in a bid to avoid hurdles in the way of dispatching sales proceeds to its headquarters.

Over the past one year, the foreign businesses operating in Pakistan have largely been unable to send earnings to their headquarters abroad owing to Pakistan’s thin foreign exchange reserves.

In addition to buying 77.42% (165.70 million) shares directly from Shell, the potential buyers will also purchase 11.29% (24.16 million) shares from the general public under the existing substantial acquisition laws.

Shell Pakistan’s share price rose 4.12%, or Rs4.55, and closed at Rs115.05 with trading in 1.46 million shares at the PSX on Monday.

The price has surged by a cumulative 39%, or Rs32.10 per share, since the 75-year-old firm announced plans in mid-June to pull out of Pakistan amid a faltering economy.

At the current market price, the value (market capitalisation) of the oil marketing company comes in around Rs24.62 billion ($88.17 million).

However, this may not reflect true value of the company due to fluctuations in share prices. The acquirers will conduct due diligence to find a fair value.

The announcement says PRL, a subsidiary of PSO, is one of the five refineries operating in Pakistan. It is engaged in the production and sale of petroleum products.

PSO holds 63.56% shares in PRL while the government of Pakistan directly holds 22.47% shareholding in PSO. However, no individual shareholder owns a substantial PSO stake.

Air Link Communication is one of the largest smartphone distributors, manufacturers and retailers in Pakistan with over a decade-long experience in the telecom industry.

It has a nationwide network linked with over 16+ hubs and regional offices, over 1,100 wholesalers, and over 4,000 retailers with aftersales support service centres in all major cities of Pakistan, according to the announcement.

In mid-June 2023, Shell Pakistan’s parent company, Shell Petroleum Company Limited, announced the desire to sell its stake along with management control. The sale is subject to a targeted sales process, regulatory approvals, and the execution of binding documentation.

Although the company cited no reason as to why the decision was taken, a recent financial report spoke volumes about how the deepening macroeconomic crisis and mismanagement on the part of policymakers pulled the firm into troubled waters, impacting its business in the country.

While the announcement does not impact Shell Pakistan’s current business operations, the decision comes after the company reported a net loss of Rs4.76 billion for the quarter ended March 31, 2023.

Its quarterly report cited the unprecedented rupee devaluation, rising inflation, and macroeconomic uncertainty as significant factors that contributed to the company’s struggles in the country.

Pak-Kuwait Investment Company Head of Research Samiullah Tariq said the other day that in addition to currency devaluation and stagflation, the sale of smuggled petroleum products in domestic markets was negatively impacting sales of enterprises like Shell Pakistan.

Furthermore, the ban on repatriating profits to the headquarters abroad gave a jolt to many multinational companies (MNCs) owing to an acute shortage of foreign currency in Pakistan. Shell may be one such MNC encountering trouble in sending profits overseas.

Tariq mentioned that Shell Pakistan had long pressed for deregulating petroleum product prices, such as petrol, to improve the industry’s competitiveness and profit margins. The regulated margins of Rs6 per litre have not proved to be any favourable to the company.

The decision to exit Pakistan is not surprising as the Dutch firm has been pulling out of financially unviable markets worldwide.

As of May 2023, Shell Pakistan held a 7% market share in nationwide sales and ran a strong lubricants business.

Pakistan’s economic growth slowed down to 0.3% in the previous fiscal year ended June 30, 2023 compared to 6.1% in the prior year.

The demand for petroleum products dropped 27% to a 17-year low at 16.61 million tons in FY23 in the wake of a substantial rise in prices and economic slowdown.

It was the lowest oil marketing companies’ sales number since FY06, excluding FY20 when Covid disrupted businesses across the country.

Published in The Express Tribune, July 18th, 2023.

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