The privatization authorities in Pakistan have done a good job of renegotiation in their privatization of Pakistan Telecom to Etisalat, the telecoms company of the United Arab Emirates (UAE).
Etisalat bid significantly above the second bidder in the privatization auction and they have been looking for an opportunity to reduce the price ever since, even missing the interim payment which was due.
Having negotiated an immediate payment equal in amount to the price bid by the second bidder gives Pakistan the ability to at least guarantee a price set by the market, with the upside being the remaining payments to be made over a five year period.
If these payments are made during that period, Pakistan will have received the full amount bid by the highest bidder during the bidding process. If Etisalat walk away, at least Pakistan would have received the initial payment, equal to the amount bid by the second bidder and be able to take back the asset.
Pakistan losing out on the interest for the unpaid amount does not appear to be a major concession.
Nicely done!
Onésimo Alvarez-Moro
See article:
Etisalat, the United Arab Emirates telecoms company, will not have to pay interest on outstanding payments for its stake in Pakistan Telecom (PTCL) - prompting concern that Islambad is setting a dangerous precedent for future privatisations.
Etisalat last year promised to pay $2.6bn for a 26 per cent stake and management rights in Pakistan's largest telecoms company but missed an October deadline to make the payment. After protracted negotiations, Pakistan agreed to a deal under which the UAE company would pay $1.14bn now in addition to an earlier $260m downpayment, with the remaining $1.2bn to be paid in nine instalments over five years.
Asked if these instalments would be interest-free, Abdul Hafeez Shaikh, the privatisation minister, told the FT: "Yes, this is the concession we have given to [Etisalat]."
Pakistan government officials argue that they were right to salvage the deal, even with the more favourable conditions, given that it far exceeded any others on the table during the bidding process.
See full Article (paid subscription required).
Also see: Talks aim to salvage PTCL, Etisalat deal
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