ISLAMABAD: Infrastructure Growth Capital Fund LP (IGCF) SPV 21 claims to own 53.8 per cent shares of KES Power Limited and in that capacity has approached Special Investment Facilitation Council (SIFC) and caretaker Minister for Privatisation, Fawad Hassan Fawad for asserting its position with respect to K-Electric (KE).
In a letter to Minister for Privatisation, a copy of which has also been sent to Lt General Muhammad Saeed, National Coordinator SIFC, Mark Skelton stated on behalf of the IGCF Fund GP that SPV 21 is 53.8% shareholder of KES Power Limited (KESP) and indirectly K-Electric Limited’s largest shareholder with a 35.7% stake.
The SPV 21 intends to address: (i) background to SPV 21’s investment; (ii) update legal and other matters; (iii) critical position of SPV 21; (iv) SPV 21’s response – winding up of KESP; (v) concerns in relation to Securities and Exchange Commission of Pakistan; and (vi) conclusion.
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Mark Skelton referred to previous letters to the Privatisation Commission (PC) on clarifying the IGCF transaction and other relevant details related to the matter.
According to him, KE was privatised via sale from the GoP of its majority interests in KE to KESP – the terms of which were governed by the 2005 SPA (Sale Purchase Agreement). Shareholders in KESP at that time were Al Jomaih Power Limited (AJP) and Denham Investments Limited (DIL) or collectively the Original Shareholders (OS).
He contended that despite impressions given, investors in AJP include external parties to the Al Jomaih family, representing what SPV-21 believes may be in excess of 50% of the economic ownership of AJP.
Key provisions in the Agreement include in the stated clauses: (i) 3.10 – 1 year restriction on direct/ indirect transfers or sales of KE and a similar 3-year restriction on the strategic equity stake – (provision complied with but now expired); (ii) 3.12 – The Purchaser (KESP) is to hold at least 51% (Control) until the 3rd anniversary of the transaction – (provision complied with but now expired); (iii) 5.2 – The Purchaser (KESP) is limited to sales or transfers of KE shares by section 5 of the Agreement – (provision complied with); (iv) 5.3 –( a) Permitted transfers (allowable anytime), including affiliates (defined term) of the Purchaser; and (b) additional transfers – after the 3rd anniversary of the Agreement provided that (KESP) has obtained the Sellers certification stating that the proposed transaction does not affect the national security interests of Pakistan for which certification shall not be unreasonably withheld.
Mark Skelton further noted that SPV 21 subsequently became an investor in KESP on November 27 2008 with approval of the GoP via an Irrevocable Waiver and Consent and the issue of a No Objection Certificate (NOC).
He summarised the Waiver and NOC key conditions as: (i) allowed KESP to be 50% owned by IGCF SPV 21 Limited which included its successors-in-interest and permitted assigns; (ii) allowed KESP to be 30% and 20% owned by Al Jomaih Power Limited and Denham Investments Limited, respectively. This waived the Agreement article 3.10(a) which restricted KESP changing its ownership structure until the 3rd anniversary. The NOC stated SPV21’s acquisition of KE shares did not lessen competition.
According to the letter, SPV 21 is a holding vehicle for the IGCF private equity fund, a $2 billion infrastructure fund, previously managed and partly owned by Abraaj Investment Management Limited (AIML), on behalf of the IGCF Investors. Upon SPV 21 becoming a shareholder in KESP, KESP was now owned by AJP, DIL and SPV 21, with strict corporate governance agreed, including nominations of directors to both the KESP and KE Boards, as governed by the KESP Shareholder Agreement (SHA).
“It is in the public domain that AIML was placed into Provisional Liquidation on June 18, 2018 and subsequently official liquidation on September 11, 2019, by the Grand Court of the Cayman Islands,” he added.
On 14 October 2022, the Grand Court of the Cayman Islands, approved the sale of certain of AIML’s interests as they relate to IGCF (the Sage Transaction), including the sale of the IGCF management company (IGCF GP) to Sage Venture Group Limited (Sage), as led by Shaheryar Chishty.
Sage subsequently acquired the remaining shareholdings in the IGCF GP to own 100% and has acquired a significant interest in the IGCF Fund. Sage is now the largest investor in the Fund. Prior to the closure of the Sage Transaction and investor positions, affiliates of the OS tried unsuccessfully to acquire those same assets by an offer to AIML and IGCF investors, he continued.
Since failing to gate crash the Sage transaction, since October 2022, the OS have sought to try and frustrate the Sage Transaction and have also sought to deny SPV 21’s shareholder rights, including its contractual rights to five board representation on KE.
The OS attempt to block SPV 21’s shareholder rights have principally been expressed through a Sindh High Court (SHC) Injunction filed on behalf of the OS against KESP, KE, SPV 21, GoP, NEPRA and others. Anex parte injunction was granted which stopped the change of the KE Board pending additional hearings. It is claimed the OS sought this relief under wide and varied public policy and further grounds.
Sharing views on current position, Mark Skelton claimed that since initial filing there has been limited activity although additional citizens and shareholders have sought to intervene and continue this case, adding that Privatisation Commission, in December 2022 made a submission in the case which effectively noted that the case was not related to the 2005 SPA Agreement but a KESP SHA related matter;
He said it is unclear what the pending next steps are. The SHC injunction is a flagrant breach by the OS of their obligations under the SHA. This resulted in SPV 21 filing a Cayman Anti Suit injunction against the OS to inject them from breaching their shareholder obligations: (i) SPV 21 won a final injunction judgement against the OS for their clear and wilful breach of the KESP SHA which contains an exclusive jurisdiction clause for SHA related disputes to be heard in the Cayman Islands or England; (ii) SPV 21 won costs against the OS who will be required to pay damages to SPV 21 for their breach of contract; (iii) OS will be required to withdraw their SHC action against the KESP SHA related parties while it may maintain its claim (pending merits) against the Pakistani related parties (E.g. NEPRA, and the GoP); (iv) SPV 21 notes that the OS have brazenly sought to give the impression that they won this claim; however, SPV 21 refer the Minister to the public judgments of July 20, 2023 and October 10, 2023; and (v) OS have sought an appeal of this judgement and have represented they will seek this on an expedited basis and their required withdrawal of the SHC Injunction has been stayed pending the appeal.
He said, in addition, SPV 21 has noted with concern, some extremely misleading statements made by representatives of the OS including comments regarding Sage ownership of KE. Shan Ashary, a representative of AJP, has suggested that AsiaPak Investments Limited (AsiaPak) owns only 5% of KE and thus AsiaPak should only be offered 1 board seat at KE, adding that this is misconstrued and misrepresented as these director seats are not for the OS or Shan Ashary to “give” and rather are contractual rights of SPV21 under the SHA.
He further wrote that IGCF is an investment fund comprising a collective group of investors and managed by professionals on behalf of the fund investors. SPV 21 through KESP is entitled to 4 board seats of its chosen representatives and has allowed the CEO of KE to take SPV21’s entitled 5th seat.
“To our knowledge Shan Ashary is not a principal of the Al Jomaih Group and based on the records we have AJP is only 50% owned by the Al Jomaih Group with significant other 3rd party offshore investors. We have not sought a veto right on AJP’s KE directors and have respected their contractual entitlements. IGCF expects the same level of respect and non-interference,” he continued.
On Shanghai Electric Power (SEP) offer for KE shares from KESP, Mark Skelton said that SPV 21 is aware of Shan Ashary making recent public comments regarding SEP raising its 2016 offer of $1.77b to $2.0b for KESP’s stake in KE adding that SPV 21 would welcome a revised offer from SEP, but questions the basis for these comments considering its communication with SEP which Shan Ashary is aware of.
“We can only view Shan Ashary’s comments as being wilfully misleading and speculative which are especially reckless in the context of KE shares being publicly traded on the PSX,” he further added.
According to the letter, the majority shareholder of KESP, SPV 21 views its rights under the SHA as sacrosanct, including its rights to nominate 5 Directors to KE, adding that SPV 21 rejects outright the ridiculous suggestion that the SPV 21 KESP nominees to the KE Board amounts to change of control of KE. KE is run day to day by an independent management team. The KE Board of 13 members provides oversight and guidance to the management team. Simple maths would dictate that 5 directors cannot control a board of 13 Directors, including 3 GoP nominees.
IGCF and SPV 21 assert that there has not been any change in ownership which is contemplated by or restricted by the Pakistan Legal Agreements. There has no change in the shareholding of KE. There has been no change in the shareholding of KESP. SPV 21 remains majority owned by IGCF and its investors.
“We point the Privatisation Commission toward its own submission by Shahzad Asif in the High Court of Sindh at Karachi (CMA No. 15628 of 2022) which accurately summarises the position of the dispute between the OS and ourselves in that it relates to the SHA and not the 2005 Agreement. The OS position has sought to create a divide on the KE board which does not exist. All shareholders in KE are motivated to see the success of KE, but no individual shareholder can control the decision of KE,” he further stated.
Winding up of KESP, he further stated, due to the ongoing breaches by the OS of their obligations in the SHA, the relationship between the three shareholders of KESP has totally broken down. The actions of the OS have caused the termination of the rationale of the continued existence of KESP. As a direct consequence of the OS’s actions, SPV 21 has applied to the Grand Court of the Cayman Island for a Just and Equitable Winding up of KESP.
He said SPV 21 filed a petition that the relationship between itself and the OS at KESP has irreconcilably broken down and that the just and equitable way forward is for a Cayman court appointed liquidator to be appointed over KESP.
This petition follows numerous attempts from IGCF to understand the OS concerns over the IGCF Transaction and attempts to address these concerns. SPV 21 refers to its ‘Open Offer’ in relation to these concerns and will consider solutions which respect IGCF’s shareholder rights while aligning the interests of the OS and SPV 21.
To date the OS have not responded to the ‘Open Offer’ or proposed alternative solutions for the functioning of KESP. SPV 21’s goal from this would be to dissolve KESP and transfer KESP’s pro rata ownership of KE shares to its shareholders, e.g., SPV 21 would become a direct KE shareholder for 35.7%.
The OS filed a strike out application against this petition which was rejected by the Grand Court of the Cayman Island on 11 October 2023. It is expected that the petition will move to trial during 2024.
Although the OS have made vague threats to bring a claim under the SHA, which SPV 21 believes to be without merit, they have failed to do so over one year beyond the date of the IGCF Transaction, he continued.
Expressing concerns in relation to Securities and Exchange Commission Pakistan (SECP), Mark Skelton said that one matter SPV 21 would like to raise with the Privatisation Commission is the role of the SECP in this dispute.
On November 8, 2022, the SECP issued a Directive preventing any change of the KE board composition under the Pakistani Companies Law. To date, SECP have not provided any substantive grounds for their Order. SPV 21 and Sage have responded to all queries raised by SECP and have not had a satisfactory response on why they are continuing the Directive of 8 November 2022.
This is of serious concern to SPV 21 as a significant international investor in Pakistan and the only successful privatisation of a power transmission and distribution company. IGCF is comprised of significant global institutional investors. SPV 21 notes that the actions of SECP would appear to breach the provisions of the waiver. SPV 21 continues to be a shareholder in KESP and its rights as a shareholder in KESP are being impacted by a functionary of the GOP.
SPV21 is concerned at the involvement of the GOP in what is essentially a shareholder dispute. SPV 21 also expresses significant concerns over the conflicts of interest related to Mehmood Mandviwalla who acts as legal representation to the OS and also sits on the SECP policy board.
“SPV 21 regrets the turn of events since the Sage transaction. The dispute as initiated by the OS is an unnecessary distraction to the task at hand of supporting the transformation of KE,” Mark Skelton concluded.
