Major shareholder abandons Hubco; 140 million shares sold for $60 million

The rumours finally materialised last week when Xenel industries of Saudi Arabia actually sold out its entire holding in the Hub Power Company, Pakistan’s Largest Independent Power Plant, to quit its investment from Pakistan.

Xenel sold its 140 million shares in Hubco for $60 million and sneaked out of the country without any prior call. It was heard in the market segments a couple of weeks ago that Xenel is planning to wind up its investment from Hubco and will sell its holding at a discount to the market price of its shares.

The foreign investor presented no reason for its call to quit his holding in such manner. Some investors believe Xenel’s withdrawal from Hubco will trigger an outflow of Foreign Portfolio Investment (FPI) from the country, while most of them are of the view that it is merely an isolated event.

Currently, $2.5 billion is funded in the country by the foreign investment but it is often said that this amount might not be reckoned to be significant in the aggregate market capitalisation of huge $34 billion. The State Bank of Pakistan admitted in its recent report that “Though the volume of FPI is historically insignificant, the sharp movements in the flows (investment and disinvestment) in recent years can be seen as a source of stock market volatility.”

Unofficial resources already confirmed it two weeks ago that Xenel was about to quit its investment from Hubco and a couple of reasons also were thought. Some financial analysts grumbled that Xenel has aggressively sold its Hubco holding in order to re-buy it once 140 million shares flood the Karachi Stock Exchange (KSE). The dollar denomination also provides the automatic hedge to the company as compared to Pak rupee devaluation, which has already fallen by 1.6 per cent against US dollar in one year’s time.

Mr. Yasin Lakhani, former KSE chairman, made an interesting observation in respect to the unpredictability created by the investment and withdrawal of the foreign investment in the country, stating that: “It is a necessary evil,” he said, and reminded that foreigners “flock to equity markets in search of value buying and not for the love of the country.”

During the last week, Kingho group of China also pulled out of its mining projects in the Thar coalfield in Sindh. Such rapid withdrawal of FPI from the country certainly raises a lot of questions on the stability of  economy and future foreign investments.