State- backed firms ‘ front- runners’ in sale of $ 1.5b stake in Pakistan utility

State- backed companies in China are front- runners to buy a $ 1.5 billion controlling stake in Pakistan utility K- Electric, sources said, as they bet the benefits of a China- led economic corridor will outweigh the risks of investing in Pakistan.

The Shanghai Electric Power and China Southern Power Grid are among Chinese companies leading the pack of about half a dozen bidders in K- Electric, one person familiar with the matter said.

Shanghai- based Golden Concord Holdings is also among the bidders, as are some local Pakistani and other companies, according to people who know about the process.

In 2015, China announced energy and infrastructure projects worth $ 46 billion in the South Asian nation, with a view to opening a trade corridor linking western regions of China with the Arabian Sea.

“The China- Pakistan Economic Corridor ( CPEC) is the main driver, with a lot of Chinese funding flowing into Pakistan,” said one person aware of the K- Electric deal.

That demand underpins China’s One Belt and One Road initiative, which intends to promote China’s cooperation with Central Asian and Southeast Asian countries.

Under the program, Chinese companies invested nearly $ 15 billion in participating countries in 2015, up one fifth from 2014.

The K- Electric deal would be the biggest merger and acquisition agreement in Pakistan in a decade. Large tracts of Pakistan’s economy remain nationalized or held by private businessmen with little interest in selling to new investors.

Chinese companies are eyeing new Pakistan power projects, roads and some engineering contracts but investing in a large private company that deals directly with consumers would be a first, a senior Karachibased financial adviser said.

Dubai- based private equity firm Abraaj Group, whose 66 percent stake in K- Electric has a market value of about $ 1.5 billion, is seeking final bids for its stake by the end of August.

Sources cautioned that although talks between the parties are advanced, there is no certainty of a deal.

The Pakistan government owns about 24 percent, but a spokesman for the water and power ministry said it was not in talks to sell.

The CPEC envisages the construction of roads, pipelines and power plants across Pakistan that run south to Gwadar port and should mean more business for distribution companies like K- Electric that sell electricity to users.