PTCL Privatization……Etisalat Backs Out….

its official……
Etisalat backed out of the PTCL deal…….
it isnt on the papers as yet…
but it will be all over tomorrow….
this was despite a call by the General Sahib yesterday to the CEO of PTCL…..asking him if they were interested in continuing..since 28th was the deadline, that passed without action.

Apparently, the Etisalat CEO reassured the president that the deal will go through…..

one of the reasons could be the eye opener when they realized that their bid was over 90% higher than the second highest bidder. Another concern could have been the difficulty they faced in raising finances……
USD 2.6 billion is a hell load of money!

comments anyone?

29 Comments so far

  1. Kashif (unregistered) on October 30th, 2005 @ 2:00 am

    Etisalat may back out because they have now realized that they have got it overpriced. Singtel’s pricing was according to the market rates but Etisalat quoted 3 times (i think) than that which caused overhype in the market.


  2. Anathema (unregistered) on October 30th, 2005 @ 2:17 am

    price? is not an issue. etisalat should have realsied that when they picked their advisor and arranger.

    i am sure there is a lot more going on. perhaps, along the same issues as pso’s privatisation?


  3. Kashif (unregistered) on October 30th, 2005 @ 6:16 am

    They should ban Etisalat for future. Stupid arabs!


  4. Khurram Farooq (unregistered) on October 30th, 2005 @ 11:05 am

    Kashif, most Arabs are stupid, but not the ones in UAE. At least not the ones in power in UAE. While the whole Arab world’s economy has been revolving around oil, UAE is one of the only Arab countries which doesn’t depend 100% on oil for its wealth. Granted Abu Dhabi is still the major contributor to UAE’s economy, and that too because of oil, but it’s Dubai that is the center of attraction these days. And no, it’s not because of the oil. And I don’t think money was the issue here. Maybe they don’t believe that even Etisalat can take PTCL out of the mess it currently is in :)


  5. Tee Emm (unregistered) on October 30th, 2005 @ 1:15 pm

    Track Two techno-deplomacy has already been in place when people were sent out to China as well as Malaysia by Pirzada, the privatization minister to ask the interested parties to enhance their respecitve bids that were earlier rejected in view of the high bid placed by Etisalaat.


  6. Imtiaz (unregistered) on October 30th, 2005 @ 2:08 pm

    when did the track 2 diplomacy start??
    who went? any updates on that?


  7. Tanveer Zaidi (unregistered) on October 30th, 2005 @ 3:06 pm

    I agree with Khuram Farooq, Duabi is the only economy in Middle East which is not based on Petro Dollors, infact Dubai have only one oil rig which they share with Sharjah.

    Anyways, its good that Etisalat is not going to own Pakistan’s only landline service, as from experiance, I know the corporate mindset of these guys, they are addicted to enjoy high rates in monopolistic / duopolistic enviornment. I think UAE got one of the expensive call rates in the world.

    I hope the the other bidder will give some relief to already burdened PTCL consumers.


  8. misha (unregistered) on October 30th, 2005 @ 4:52 pm

    Perhaps a move to prevent Singtel getting a hand in and allowing China to get a large chunk of Pakistan’s Telecom sector’s hardware contracts?


  9. Hasan Jafri (unregistered) on October 30th, 2005 @ 5:24 pm

    This is bad news for Pakistan – but not surprising. Elisalat’s bid was a billion dollars more than the second bid, which, I think was China Telecom, followed by SingTel. I can tell you SingTel was shocked.

    I think there is no one in the market who wants to overpay for assets in Pakistan, given the high soverign risk of investing there, and the mess state-owned companies are in. Having said that, the issue could not have been a problem with securing financing: Debt markets are flush with liquidity and will flock to a good-credit grade company like Etisalat, which has strong cashflow.

    The problem lies within Pakistan. PTCL and other state-owned companies are in such a mess that even strong returns on investment will dissade many investors. Labor laws are so old that it is virtually impossible to fire anyone, short of giving them a golden handshake, which to me amounts to a bribe to get lost. PTCL’s corporate culture can be a shock to any foreigner. While there is a telecom regulator, investors will always be uncertain because policies can change anytime. Acqusitions are not always about dollar and cents. Initial due deligence can show you some problems, but not the whole picture.

    I can tell you that the Singaporeans and the Malaysians, until half an hour ago, did not know that the deal is off. Will they get into the game again? I doubt it.

    The government will have to go back to the drawing board and start the whole process again. They just can’t lower the bid price, just because Etisalat is getting cold feet. They have to start again. They may reconsider selling PakTel as one company and instead revisit the idea of of breaking it up (fixedline, IDD, mobile, data) and selling the smaller pieces.

    Lets see
    Hasan


  10. Anathema (unregistered) on October 30th, 2005 @ 7:36 pm

    well assessed hasan. i take it ure in the financial market? securing funfds would have been no problem at all. in fact teh liquidity crunch to emanate with the pullout will be quite something to dread. there is not only soveriegn risk, but also the management and political interference to dread, teh same reason PSO is suffering for over three years now. golden handshake is not the only issue, or lack of expertise. every investor will get wind of tha risk, which is massive. and until a mitigant is found, this sale cannot be.


  11. Kashif (unregistered) on October 30th, 2005 @ 10:49 pm

    This all pee-vee-tization stinks. The govt miserably failed in the KESC deal, now PTCL is on the list too.


  12. M. Shafique (unregistered) on October 31st, 2005 @ 6:13 am

    Why privatise PTCL in the first place when it has been generating a clean profit in the tune of Millions of Rupees every year. PTCL service has been improving and the rates are going down.
    The Govt. should get the PTCL management back to where it belongs (i.e. it’s engineers and technical staff) and get rid of all the contract mafia which is recently hired on lucrative packages.


  13. Sarwar (unregistered) on October 31st, 2005 @ 6:29 am

    Why not open the market to other private investors, and let PTCL compete with them. If they sink under their own corrupt and incompetent weight, so be it. May not be a $2B windfall for the government, but a good long term solution for the public.


  14. Imtiaz (unregistered) on October 31st, 2005 @ 6:34 am

    i agree hassan….
    liquidity flows might not have been the case, but 2.6 billion dollars still is a hell lot of amount!!!

    anyway, i too personally think that PTCL needs to be re-pacakaged into components, that would, in my opinion give a better deal.

    Kashif, there is nothing wrong with the the PRIVATIZATION process, its just that if u notice the only 2 companies that have run into trouble, are not only 2 major infrastructure units, but are also huge both interms if their employee base and the mess they were in in terms of corruption.

    PSO’s privatization, in my opinion, will face a different form of issues. The people of the country are not very keen about the idea of pakistan’s major fuel supplier goes into private hands. (PSO controls 70+% of the total fuel market in voluem terms, it also supplies 95+% of the military fuel). Already in the market is the rumour that PSO’s privatisation will go to the hands of the largest industrial conglomerate in pakistan, the Fauji Foundadtion.

    Naturally, the government also has concerns about the future of the buyer of PSO, what if it gets sold off to a foreign company, indian maybe?
    The fauji foundadtion is the ultimate answer, as long as the army is here, they are here, which pretty much makes things a lot easier.

    If u noticed, the whole list of prospective buyers were international, out of which 3 came for the final bidding process.

    Back to PTCL, why wouldnt an entity like Fauji Foundation bid for PTCL?


  15. Hasan Jafri (unregistered) on October 31st, 2005 @ 8:11 am

    Dear all:

    I’m not in the financial markets, but I am a financial journalist, so know a bit about this stuff.

    Why privatize? It’s a great question to put to our honorable government. Pakistan does it because we have made a mess of state-owned companies and because in the 1980s and 1990s, when we were broke, that’s what the IMF and World Bank told us to do. Hence the Pakistani privatization plan. But now that the economy is “booming,” do we really need to? Is a change of ownership the only way consumers can get good quality service? Is it the only way the government can get good returns?

    The global opinion about privatization has evolved over time and is questioning the neoclassical view about the state and its role in business. There are tons of perfectly good state-owned, or majority state-owned companies around the world. Some that I know well include SingTel and Singapore Airlines, both of which are majority government owned.

    Why are SingTel and SIA (the world’s second most valuabel airline by market value) so successful:

    The government owns the companies, but does not run them.

    The companies are run by a board of directors, which include a large number of independent directors who look after the interest of shareholders. The board is answerable to the shareholders. The board sets the long-term direction for the company. For example, it is not the Singapore government, but the board that decides which planes SIA buys or whether it buys another airline. In the case of SingTel, the chairman of the company is a Thai national, not even a Singaporean.

    The board overseas the management, which is answerable to the board. If the management messes up, they are gone. The top jobs are not handed on a silver platter. The management controls everything else.

    If the companies do well, the government’s income from their shareholding also improves. So, there is an incentive for them to do well.

    This is one why things are done; Pakistan is a different ballgame altogether. Maybe its best, someone from the outside comes and run these companies.

    Regarding companies with strategic value, there are a number of ways such interests can be protected, even if foreigners own it. In the U.S., telecom companies that buy local companies need government clearance. In other place, the government retains control over very strategic decisions by owning a “golden share” to protect national interest. But come to think, is anything really that strategic anymore? If PSO continues to be 100% government owned, will it ensure that petrol supplies will not be disrupted if there is a war? If KESC or Wapda are state-owned, will power supply remain uninterrupted? I guess you know the answers already.

    Hasan


  16. Abdul Basid Khan (unregistered) on October 31st, 2005 @ 10:23 am

    Eversince the induction of current management (on contract basis and that too on very high salary packages) in PTCL, things are on the downfall in PTCL. This management is recruiting its favorites in PTCL on contract basis on high salary. They r contributing nothing to PTCL but becoming a financial drain on PTCL. Moreover, PTCL is plagued with lot of other ailments. PTCL financial results show that during FY 2004-05, its profitability has decreased 9% while during 1st quarter of current financial year, it showed 12% reduction in its profitability. It clearly shows that PTCL is already on way towards downfall. Therefore, if PTCL has to survive and grow in a competitive environment, the only solution is to privatize it without any delay. Otherwise, with the passage of time, it will keep going down bcoz the present management is not running this telco on professional lines.


  17. mohummed (unregistered) on October 31st, 2005 @ 10:30 am

    Hey every body , price is not the issue. the arabs can afford even higher prices. the main issue here is that the systems & equipments of PTCL all over Pakistan is obsolete & out dated. & a heavy investment needs to replace it. Other problem is the corrupt staff which mostly consists of punjabis!. Same is with KESC.


  18. ali (unregistered) on October 31st, 2005 @ 10:34 am

    This is clearly Etisalat’s fault and not the Pak governments or PTCL for that matter. When bidding everything about PTCL and Pakistan riks and all were very well known. It really reflects poorly on Etisalat and the UAE government for their judgement in pricing (especially if they are so smart) and more importantly on their credibility – its when you are in trouble that you really find out what one is made off. In this case the emiratees look like a bunch of sharp nosed soukh traders rather than reputable business people with regional and international operations. What is certaily true is that they have caused a big loss to Pakistan.


  19. Humaira (unregistered) on October 31st, 2005 @ 4:46 pm

    We are blaming Arabs not being smart but Etisalat actually appointed consultants.

    Why no one is blaming JP Morgan who happens to be financial consultants of Etisalat and brokered the whole deal.

    Call it a coincidence, they are the one also handling PSO privatisation as well and we all know where this process is going.

    So now your guess is as good as mine.


  20. Tariq (unregistered) on October 31st, 2005 @ 4:58 pm

    Mohummed,

    You should avoid targetting any ethnic background in your blogs.

    I am not punjabi yet I feel very bad when we pakistanis get entagled in races and tries to blame each other. Should we not come out of this narrow mindedness and look beyond. So please do not put messages that affects our national spirit and unity.

    Now coming back to your response, KESC deal was cancelled because the labour unions of KESC (and you know who they are) wrote several threatening letters to AL KANOOZ group in Saudi that their lifes shall be in danger if they
    purchase assets of KESC. The poor investor got so much scared that he decided to cancel the deal.

    Yes, welcome to the world of MAFIA in our state run organisation who would never want that supermacy shall be challenged in case these organisations goes into public hand.


  21. Imtiaz (unregistered) on October 31st, 2005 @ 5:30 pm

    Correction: JP morgan were the financial advisiers for the govt. of Pakistan and privatization commission.

    Etisalat had appointed Aabraj VCapital as their consultants to the issue. Aabraj Capital, had asked BMA Capital, a related company, to condusct a due diligence on behalf of Etisalat.

    If BMA in their study, over valued PTCL, which was later realized by Etisalat, whose fault is it??


  22. Imtiaz (unregistered) on November 1st, 2005 @ 10:19 pm

    another update…..
    Apparently there have been negotiations lasting 2 days over the issue……

    GoP is allowing Etisalat 2 more weeks…..


  23. Asif Mushtaq (unregistered) on November 3rd, 2005 @ 1:35 am

    There is no point in extending the date. If a deal couldn’t be brokered in whole six months then it’s very unlikely that any headway could be made in 2 weeks time. I don’t know what the Etisalat people want, they created this whole mess and now they ain’t brave enough to just tell that they are not interested instead they are allowing it to linger it on.
    It would be wise on privatisation commission’s part to just cancel the deal with Etisalat (and surely confiscate the 10% initial payment) and make an offer to other contentders, maybe the big bucks are keeping them from doing it.


  24. TAHIR ALMAS (unregistered) on November 3rd, 2005 @ 10:03 am

    Keeping in mind the arab mindset, It look difficult to me that they will be able to run PTCL in professional and compititive manner, if it happens bcoz they lack professionalism as reflected from their bid price that was too high from other competetors …

    singtel or chinatell will be better for ptcl as well as for pakistan ….
    also ptcl resources are outdated as well as its employees those all need to be replaced bcoz it is very hard to train and prepare them for new environment


  25. Imtiaz (unregistered) on November 3rd, 2005 @ 10:44 pm

    apparently Etisalat did realize that they have priced it too high……

    they asked the govt if they could cut the price to below PKR 2 bn…..but the govt. has refused….

    The 2 week extension is to ensure execution of the deal……Etisalat had certain financing conditions, some of which have been agreed to….

    lets see what happens….

    I wouldnt comment on the Arab mindset….they are running quite a few companies very successfully globally as well…….

    Actually, there are 2 mindsets…..1 is that of the rulers of Abu Dhabi (the Nahyan Conglomerate) and another of the rulers of Dubai (the Maktoum & Ghurair Conlomerate). Bank Alfalah and Warid are part of the Nahyan Coglomerate, whereas Emirates Airlines and Etisalat are part of the Maktoum Conglomerate. They have ment other companies too, im just quoting prominent examples here…….

    The perative mindset is pretty much visible if you just take a look at the companies…..


  26. Faraz khan (unregistered) on November 19th, 2005 @ 3:36 pm

    I think is a very very crucail time not only for PTCL but also for pakistan.bcoz as the deal is being delayed the trust of the customers from PTCL services is finishing.I dont know y the deal is not implemented.if this situation remains more than three months then PTCL will not only loose its huge revnue but also the customers.PTCL should get rid of Contract mafia as soon as possible whose pays are millions in a month(Single Person).otherwise it will be more approproate to take PTCL in Govn. possession.


  27. Farrukh (unregistered) on November 19th, 2005 @ 3:53 pm

    I totaaly agree with faraz,that now PTCL is going with a non techncal administartion and management which dont know what to do and how to do,a loss of 4 billion Rs in one year to PTCL is a cear indication that the recent top management of PTCL is totally incompetant and not aware of the telecom market.It is not a charity firm to donate others.i wish that the management of PTCL should be handed over back to PTCL regular staff otherwise company will collapse


  28. Imtiaz (unregistered) on November 19th, 2005 @ 10:26 pm

    Im sorry farrukh but what ur calling a loss of 4 billion is actually a just a drop in net profits from 29.17 bn to 26.6 bn PKR.

    A loss is when u pay out of your own pockets to meet expenses!

    Neither has there been a recent change in management, aside from a rotation of 2 non-exec directors!

    These are the same people that have been running the company pretty smoothly and steadily upwards for the past 6 years since it was re-organized.

    On realistic terms, you must understand that the deregulation policy implemented in Dec 2004 means that PTCL will have to compete on fair grounds with other Telecos for revenue and business, which is exactly why you see all Cell Phone and calling card companies giving you dirt cheap calling rates. Just fo rthe record, they have just taken Paknet from a losing to a prifit making company.

    Kindly refrain from making such sweeping and unsubstantiated staements!


  29. Ejaz Ahmad Abbasi (unregistered) on November 21st, 2005 @ 9:49 am

    In my opinion the etisalat is trying to get some relaxations from Government of Pakistan as they think that they have quoted high price for the bidding of PTCL than the market rate. In my opinion government should not allow them any more relaxation in already committed terms and condition and if they are backing up let them go. The amount which they deposited at the time of bidding may be forfeeted in favor of PTCL and my be utilised for Golden Hand Shake of PTCL employees.No need to worry PTCL is a profitable entity and remain profitalbe for many years inshallah with some strict administrative decisions.



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