SIFC committee formed to resolve KE shareholders’ issues

A view of K-Electric head office with solar panels in the parking area in Karachi on January 24, 2023.  - Reuters
A view of K-Electric head office with solar panels in the parking area in Karachi on January 24, 2023. – Reuters

LONDON: The executive committee of the Special Investment Facility Council (SIFC), formed on the instructions of Army Chief General Asim Munir, has appointed a three-member committee to resolve issues related to Karachi Electric (KE) after the original Saudi stakeholders. Arabia and Kuwait expressed serious concern.

According to sources, the powerful committee comprising the Energy Minister (Chairman), Privatization Minister and Law and Justice Minister was formed after Saudi and Kuwaiti investors raised concerns at the highest level in Pakistan and requested intervention. In view of the claims made by the Infrastructure and Growth Capital Fund (IGCF) regarding the ownership of KE.

People with inside knowledge of the developments said the decision to form a three-member committee was taken to assuage Saudi and Kuwaiti concerns and send the same message to everyone involved in the controversy and claims.

Sources said it was intervention from the highest level that in the first week of September this year, the Law Ministry passed instructions to the Privatization Division to maintain a strict vigil on the case of KES Power Limited (KESP) and K-Electric pending in Sindh . High Court because of the strategic importance of the case.

The Ministry had advised the Legal Advisor of the Privatization Division to continue the stay in the ongoing proceedings in the Sindh High Court between the shareholders of KE on the validity of the sale of shares to Sage Ventures Limited in connection with the change in the KE Board of Directors. by the liquidators of Abraaj Investment Management Limited (AIML), which controlled the Infrastructure and Growth Capital Fund (IGCF).

In October 2022, the Sindh High Court issued an interim order, barring any changes to the composition of KE’s board of directors without the consent of KES Power’s major shareholders Al-Jomaih and NIG Holdings of Saudi Arabia and Kuwait respectively .

This was confirmed by Shahryar Arshad Chishti, Chief Executive Officer, AsiaPak Investments Limited, in a letter addressed to the Federal Minister for Energy, Power and Petroleum, Mr Muhammad Ali.

The letter, available with this publication, said: “I welcome the formation of a three-member committee by the SIFC and appeal to your good offices to help resolve Al-Jomaih’s concerns so that we can all KE So we can concentrate on getting back on track.” recovery.

I am the designated director representing the IGCF in relation to these discussions and would request the SIFC Committee to invite the key decision maker from the Al-Jomaih side to a meeting to resolve these issues in a fair and amicable manner.

This development comes after a controversy in the media over who holds the majority stake in KE.

Saudi Arabia’s Al-Jomaih Group and Kuwait’s National Industries Group (NIG), collectively referred to as the original shareholders, acquired the KE stake in 2005.

In 2008, Abraaj joined the original shareholders through IGCF SPV 21. Following the 2018 scandal of the collapse of Abraaj, the liquidator took over the management of IGCF SPV 21 stake in KESP.

In 2022, Sage Ventures, a newly incorporated entity with no track record owned by Chishti and his spouse, claimed a majority stake in the Cayman Islands through a back-door transaction. This was strongly opposed by the original shareholders i.e. the Saudi and Kuwaiti groups.

In October 2022, Sage Venture Group Limited, a special purpose company registered in the British Virgin Islands under Asiapac Investments Limited, took on the role of “general partner” for the IGCF.

The change occurred through a closed-door court process, whereby AIML sold the assets of a company that was undergoing official liquidation proceedings.

A general partner raises capital from investors and oversees a private equity fund on behalf of the limited partners and acts as manager. It now appears that both the recent general partner and its parent company are ultimately owned by Chishti.

Native stakeholders argue that the claim to majority ownership in KE lacks basis. Acquiring IGCF’s General Partner (GP) involves only management rights, devoid of economic stake in the KE. The IGCF Fund’s holding in the IGCF SPV 21 consists only of non-voting shares.

KESP owns 66.4% of KE.

IGCF SPV 21 holds a 53.6% stake in KESP, while Saudi and Kuwaiti shareholders hold 46.4% each. However, the IGCF fund only holds 70% of IGCF SPV21, with the remaining 30% held by entities controlled by UAE-based bank Mashreq Bank.

In short, IGCF Fund is not a major owner of KESP or KE.

In 2008, the Pakistani government granted a unique exemption to Abraaj’s partnerships, allowing them to enter into investment ventures.

Abraaj used a Cayman Islands-based special purpose vehicle named IGCF SPV21. As confirmed by records, the entity attracted more than 80 investors, including Abraaj, within the IGCF fund framework. No such approval was sought by SEZ, which tried to enter the equation through secret transactions in offshore jurisdictions, said Ashray.

Following the liquidation of Abraaj in 2018 due to a significant scandal, the function of managing the company’s stake, which consisted of Limited Partners (LPs) within the IGCF fund, was taken over by the liquidator. Subsequently, the original shareholders and liquidators worked together to complete the sale of KE to Shanghai Electric.

The original stakeholder owns 30.7% of KE, and Mashreq Bank from the United Arab Emirates, a major stakeholder with 10.5% direct ownership, together own 41.2% of KE.

They share common goals, which aim to improve KE and attract foreign direct investment (FDI) into Pakistan. Since 2005, these shareholders have not taken dividends, reinvesting the funds to strengthen KE’s capabilities and pursue expansion.

A legal dispute has recently opened between Ernst & Young (EY) (the administrator appointed by Mashreq Bank) and the Cayman Islands entity IGCF SPV21, controlled by Shahryar Arshad Chishti, regarding the recent removal of a director from the board. KESP, parent unit of KE.

According to the petition filed in the court, KP Corporate Directors Limited (KPC), the company named by the joint receivers of EY – a global leader in assurance, consulting, strategy and transaction and tax services – was overseeing Abraaj Holdings’ 30% stake. SPV 21 and he was appointed to the KESP Board as Nominee Director in October 2020.

However, a controversy has now emerged when the majority ownership of IGCF SPV 21 recently changed through a transaction involving Shahryar Arshad Chishti and KPC was removed from the directorship of KESP.

The UAE’s major Mashreq Bank in the Cayman Islands, through its representative at EY, has also joined the legal fight as the bank owns about 30% of IGCF SPV21, court filings show.

The formation of a three-member committee is likely to look into all these issues so that an amicable solution can be found as per the direction from the highest quarters while giving importance to strategic relations without creating tension with Saudi and Kuwaiti investors, sources said.

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