The sale of a large part of the controlling stake in Karachi Electric (KE) held by KES Power outside Pakistan appears to be in advanced stages, awaiting approval from a Cayman Islands court, but the government of Pakistan is not aware of the deal as it kept completely secret, according to trusted inside information.
The sale of these interests, which control KE, is being spearheaded by Shehryar Chishti who became involved in the KE deal a few months ago through a recently-incorporated entity — Sage Ventures Limited — formed in an offshore tax haven, according to papers seen by this reporter.
Shehryar Chishti is Chairman of Daewoo FastEx buses and Liberty Power. He is known as a distressed asset purchaser — a situation which arose in KE following the collapse of Abraaj Group in 2018.
Though Abraaj Group had contracted to sell KES Power’s controlling stake in KE in 2016 to Shanghai Electric (Shanghai), that sale has run into bureaucratic difficulty even though every successive government since that of Nawaz Sharif, Shahid Abbasi and Imran Khan had publicly supported the deal.
Meanwhile, Shanghai keeps renewing its mandatory tender offer every six months on the Pakistan Stock Exchange (PSE) even though insiders maintain that any deal, if takes place, will be quite different in terms of price from the original deal agreed by Shanghai.
Trusted sources familiar with the Cayman court proceedings have directly informed this reporter that one of Cayman-based the liquidators of Abraaj — Deloitte —and the London-based appointed administrators of an Abraaj-managed Infrastructure and Growth Capital Fund (IGCF) — Alvarez and Marsal (A&M) — have agreed to a deal, which was presented to the Cayman Court for approval under seal.
The sources further said the secrecy around the court documents appears to have even kept the other liquidators, PwC in Cayman and the receivers of a secured creditor, Mashreq Bank in UAE who held a charge over the Abraaj direct ownership in KES Power unaware.
Enquiries made to some KES Power shareholders indicated that they were unaware of the details of this deal, which meant that the deal was being done directly by Sage Ventures with the Abraaj liquidators.
When contacted by Geo and The News, a senior executive of KE said: “I have no information (about the deal) and cannot comment.”
Senior figures at the Shanghai Electric Power (SEP) and the Ministry of Power told this reporter upon query that the authorities were not aware of any Cayman proceedings so far. Another source at the KE, speaking anonymously, said the KE, if aware of the Cayman proceedings, would have to report such a fact to the Pakistan Stock Exchange.
KE supplies power to 22 million consumers of Karachi and is the largest player in Pakistan’s energy sector apart from the government itself. It was privatised by sale to KES Power — a joint consortium of Al Jomaih Group (one of the largest family-owned business houses of Saudi Arabia) and National Industries Group (NIG) (the largest publicly owned company in Kuwait) — in 2005.
In 2009, Abraaj Group acquired an equal share and management control in KES Power with government’s permission. The Abraaj investment stake was 70 per cent owned by IGCF, which was owned by numerous international investors, and 30 per cent by Abraaj itself.
The privatisation of KE was widely considered to have been successful. Between 2005 and 2016, when KES Power agreed to sell it to Shanghai for $1.8 billion, KE underwent a turnaround, posting its first annual profits in 17 years in 2012, exceeding $400 million in 2016.
Pakistan government issued a statement welcoming the sale to Shanghai at that time, which remained subject to regulatory and government approvals including a National Security Clearance certificate and issuance of a new NEPRA tariff. Six years later, the sale process is nowhere near completion.
At the same time, developments at Abraaj itself deeply affected the transaction. The parent and management companies of Abraaj entered into voluntary liquidation in Cayman Court in 2018, which appointed separate liquidators to different parts of the same business group. This did not and should not have affected the solvency of its subsidiaries and the funds like IGCF that they managed for outside investors, and which remained successful and operational.
KES Power was not a subsidiary of Abraaj even though it had been managed by Abraaj until 2018. Since then, it has been managed independently and a new chairman of KE was appointed. He was Shan Ashary, who represented Al Jomaih and NIG.
Shehryar Chishti’s involvement with KE started a couple of months ago. Around two months ago, Shan Ashary’s term as chairman was not renewed and Mark Skelton of A&M was given that role, according to a trusted source in KE. The SECP didn’t raise objections to the latter appointment.
Legal sources also indicate that any change of ultimate control would have to involve issuing a mandatory tender offer since KE is listed, but enquiries have revealed that the stock exchange and SECP are both unaware of the development.
Whilst all this was happening inside Pakistan, Sage Ventures and Chishti began working behind the scenes to make an offer for controlling influence in KES Power in the Cayman Islands by approaching the liquidators of Abraaj. A decision was expected from the Cayman Court on the Deloitte/A&M application about the Sage Ventures offer last week but it was delayed apparently when certain objections were raised. Enquiries at the Cayman Court did not prove fruitful since the court proceedings were sealed adding mystery and suspicion to the moves being made to transfer control of a strategic national security asset of Pakistan without the knowledge of most of its stakeholders.
Documents seen by this reporter and issued by Chishti and Sage Ventures to the IGCF investors have revealed that the KE stake held by KES Power is being attempted to be acquired at a fraction of the Shanghai deal price.
It goes on to say: “…recent public financial and political issues transpiring in the Islamic Republic of Pakistan, including but not limited to the recent change in government and the recent, and continuing, material decline in the value of the Pakistani Rupee” as a rationale for urging international investors to accept this deep discount.
It adds: “In order to help achieve the transaction rationale, the Acquiror has entered into an agreement with ABRAAJ Investment Management Limited (In Official Liquidation) (“AIML”) to acquire AIML’s assets and interests relating to IGCF, including its majority, controlling stake in IGCF General Partner Limited (the “GP Interests”)”.
The documents also clarify that “The Acquiror has entered into an agreement with Alvarez and Marsal Europe LLP (“A&M”) whereby effective as of the closing date of the acquisition of the LP Interests and the GP Interests, A&M shall continue to provide on-going assistance and support to the Acquiror and IGCF GP on a interim basis”. It appears that it is the content of these agreements, which presumably is the basis of the sealed applications to the Cayman Courts for approval.
One document says: “We have made this Proposal on the condition that none of its existence, its contents or our discussions relating thereto will be disclosed publicly or to any third party by you, and this Proposal will be deemed withdrawn upon any unauthorized disclosure”.
A source at the KE said it appears that a deal was done under seal and secrecy with Deloitte and A&M. The source said: “This is a deal cooked in secret about a strategic asset of Pakistan. There is no transparency or clarity on who is funding the acquisition and what is the sources of these funds.” Shehryar Chishti didn’t respond to questions.