Foreign sponsor plans exit from Shell Pakistan

Foreign sponsor plans exit from Shell Pakistan
KARACHI: Shell Pakistan Ltd said on Wednesday that its foreign sponsor is planning to sell its entire 77.42 per cent stake in the oil marketing company (OMC) as part of “simplifying” its global portfolio. With a market share of 7.6pc in volumetric sales, Shell Pakistan remained the third largest player in the first 11 months of the fiscal year 2022-23. It claims to be the top lubricant supplier, even though verifiable consolidated data is difficult to find in that segment.“Shell is seeing strong interest from international buyers,” a statement from the company said.

Shell Petroleum Company Ltd, which is a subsidiary of Shell plc, is currently the single largest shareholder in the Pakistani firm with a stake of more than three-quarters. The general public owns 15.2pc shares while the rest is controlled by public-sector companies, banks and mutual funds etc.

Analysts see divestment as part of energy giant’s strategy to pivot from retail to exploration, production

Speaking to media, Alpha Beta Core Ltd CEO Khurram Schehzad said the exit by Shell had been in the pipeline for about a decade in view of the global energy giant’s strategy to pivot from retail to the exploration and production side of the business.

“Blaming the poor economic conditions currently prevailing in Pakistan for Shell’s planned divestment is unjustified. Multinationals don’t take big decisions so reactively,” said Mr Schehzad whose investment bank brought in a $6 million foreign direct investment deal early this month.

Shell Pakistan posted a net loss of Rs4.7 billion in January-March versus a net profit of over Rs2bn a year ago. It attributed the negative bottom line to devaluation, inflation and macroeconomic uncertainty — factors that contributed to a slowdown in economic activity, decrease in demand and risks to supply-chain security.

The sale of the sponsor’s shareholding in Shell Pakistan will include its downstream businesses as well as a 26pc stake in Pak-Arab Pipeline Company Ltd.

According to AKD Secur­ities, total volumetric sales of petroleum products went down 26pc year-on-year in the first 11 months of FY23 to 15.3 million tonnes. Product-wise, diesel and furnace oil sales dropped 36pc and 80pc year-on-year, respectively, amid muted industrial activity and lower power generation.

The stock price of Shell was Rs89.17 on the Pakistan Stock Exchange at the close of Wednesday’s session after increasing 7.5pc, which is the upper limit in a day allowed under the current rules.

At the going market rate, the value of the foreign sponsor’s entire shareholding in the OMC is around Rs14.7bn.

Prices of petroleum products sold at pumps are regulated, which makes OMCs vulnerable to regulatory risks that eventually reflect in their profit margins. The pricing mechanism includes fixed OMC and dealer margins of Rs6 and Rs7 per litre, respectively, over and above the ex-depot rate which, in turn, is calculated on the basis of the ex-refinery price.

The company statement said its overall business footprint in the country includes a network of more than 600 sites, 10 fuel terminals and a single lube oil blending plant.