KARACHI, June 28: The Privatization Commission announced on Monday that the offer price for the Initial Public Offering (IPO) of Pakistan Petroleum Limited (PPL) would be Rs55 per share, thus ending weeks of speculation on the subject.

The information was conveyed by the PC to the stock exchanges, through the lead managers to the issue, Elixir Securities Pakistan (Pvt) Ltd. The Government intends to offer 10 per cent shares in PPL out of its paid-up capital of Rs6.850 billion. In case of oversubscription, the government could exercise green-shoe option of offering additional 5 per cent stock.

The PC did not, however, put forth the date of subscription, which the market believes could be sometime early next month. It also looks from the tone of the PC letter to its lead managers that the government may have had a change of heart in pricing the issue.

After notifying the IPO price at Rs55 per share, the point 2 of the letter spills the beans: "You are requested to kindly amend the Offer for Sale Document accordingly with information to the three stock exchanges and the SECP." Was the IPO originally intended to be priced at lower valuations?

The 15 per cent divestment of the government's fully owned equity in POL would amount to Rs1.028 billion. Since the government has already announced priority to investors in the minimum lot of 500 shares, as many as 205,751 small applicants are likely to succeed at the balloting, in case more than the required number of applicants turn up.

Investors have been greedily awaiting the PPL offer for eight months since October last year, when many benefited and others passed over the opportunity to subscribe to the IPO of OGDCL. The government had attempted to raise Rs6.9 billion from divestiture of 5 per cent shares in the OGDC.

The issue was oversubscribed seven times and all of the 98,000 small investors who had subscribed for the minimum lot of 1,000 shares offered at Rs32 per share reaped profit of more than 100 per cent in less than six months as the stock climbed to over Rs 70 per share.

The total number of small investors-who the government has declared would be given priority in all divestments-at 98,000 in the OGDC turned out to be too much small. The OGDC was the largest ever stock offering in the history of the stock market and as many as 215,000 applicants in the minimum lot of 1,000 shares, could have been accommodated.

The PC has since reduced the minimum lot from 1000 to 500 shares for each applicant. Investors have been debating whether, at Rs55 per share, the PPL offer has been steeply priced. Given the low price of the IPO in OGDC, most investors were betting on the PPL offer to range between Rs35 to Rs50 per share.

But marketmen recall that shares in Mari Gas Company Limited operating under the same business environment as that of PPL, was offered to general public in 1994 at Rs25 per share. The scrip had opened in formal trading at Rs48 per share, registering appreciation of 92 per cent on the very first day of the trading.

Analysts at Capital One Equities note that PPL is the largest producer of natural gas in the country and account for around 40 per cent of Pakistan's indigenous gas production. Besides numerous other fields, PPL owns 100 per cent stake in Sui gas field, which was regarded as the largest gas discovery in the world at the time of its inception in 1952.

For financial year 2003, PPL had earned net profit of Rs4.2 billion (earning per share: Rs6.11) on sales valued at Rs12 billion. The company also announced cash payout at Rs3 per share. According to Capital One Equities, based on fundamentally driven price-to-earnings (PER) of 7.7x, short term target price of PPL comes to Rs48.

This is based on expected payout ratio of 48 per cent and projected financial year 2004 eps at Rs6.29. However, on the Oil and Gas Exploration Companies sector PER at 13x, the value works out at Rs81 per share.

Our Reporter adds from Islamabad: The Privatization Commission announced that the government had fixed Rs55 as the price per share for PPL IPO to be held next month. The price will be inclusive of the transfer fee and thus no additional fee on this account would be charged.