The split of PSM (Pakistan Steel Mills) has been approved on Tuesday (10 August) by the cabinet. PSM is to split into two companies, and it has been decided to sell most stakes due to the rising prevention of government over lack of progress in the company’s privatization.
The Minister for Finance of the CCOP (Cabinet Committee on Privatization), Shaukat Tarin, approved the split of PSM as requested by the PC (Privatization Commission). However, it is to be noted that the CCOP made a significant alteration to the PC board-approved transaction structure by electing to keep ownership of the new good PSM.
The Steel Corp should be owned by the PSM Corporation, according to the PC board and the Ministry of Industry, to maintain a “corporate veil” and avoid international litigation. However, Shaukat Tarin, the CCOP chairman, concluded that to secure a good offer price, the federal government should keep ownership of the Steel Corp as well.
A fraction of the members of the committee objected to the decision of keeping Stell Corp ownership while arguing that it could expose the government to international lawsuits. After a ship of the defaulter PSM was halted in South Africa to claim the money, the federal government was forced to pay $10 million to a foreign supplier of the defaulter PSM.
The officials informed that the CCOP has decided that 26% of stakes will be retained by the Federal government. 51% to 74% of most stakes will be sold to private builders.
Adviser to the Prime Minister on Institutional Reforms and Austerity, Dr. Ishrat Husain, expressed his disappointment that the government had done nothing to reopen the PSM, which had been shuttered for more than six years, including three years under the PTI administration. PSM was closed by the PML-N government in June 2015 after they failed to Privatize the country’s largest industrial unit.
The CCOP also decided that the PSM’s liabilities, including Rs71.3 billion payable to the Sui Southern Gas Company Limited (SSGC) and Rs67.2 billion owed to the National Bank of Pakistan as of December 2020, will remain with the existing bad company.
When the Scheme of Arrangement is filed with the Securities and Exchange Commission of Pakistan, the CCOP authorized the NBP and the SSGC to issue no-objection certifications to the division of the PSM into two firms. The PSM and the NBP have also struck an agreement, but the SSGC and the Petroleum Division are concerned about the government’s unwillingness to discharge the SSGC’s Rs49 billion late payment fees.
The meeting determined that Steel Corp will be granted a clean balance sheet with assets of Rs134 billion. There are also obligations of Rs38 billion in deferred taxes, although, in the case of a losing company like PSM, it effectively becomes an asset.
The PSM’s total “comprehensive income” for the calendar year ending in December 2020 was Rs89.8 billion, according to amended financial audit statements. The reason for this was the reassessment of the plant, machinery, and real estate. The PSM lost Rs8.7 billion after-tax after adjusting for the impact of the asset appraisal. The PSM lost Rs8.5 billion in the fiscal year that ended in December 2019. Steel Corp Private Limited, the new subsidiary, will have Rs150 billion in authorized capital and Rs1 billion in paid-up capital.
The liabilities have a total value of Rs307 billion. These comprise trader and payables of Rs42 billion, interest accrued of Rs73 billion, and current long-term financing of Rs71.5 billion. There are also Rs59.5 billion in long-term financing liabilities, Rs9.8 billion in gratuity program liabilities, and Rs39 billion in deferred tax liabilities.
The PC board of directors agreed in May to carve out Rs133 billion in total assets and Rs123.5 billion in total liability and revaluation reserve and transfer them to the wholly-owned subsidiary.
Plant and machinery worth Rs88.5 billion, building and structure worth Rs41.5 billion, utility connections for Rs1.2 billion, and deferred tax assets totaling Rs826 million were all planned to be transferred to the subsidiary.
PSMC will keep Rs426 billion in assets and Rs269.5 billion in liabilities after transferring assets to Steel Corp.
