AsiaPak Investments Does Not Control K-Electric, Original Shareholders Do

AsiaPak Investments Does Not Control K-Electric, Original Shareholders Do

In recent times, the complex ownership structure of Karachi Electric (KE) has become a subject of intense scrutiny over ongoing proceedings at the Cayman Island Court for full control of the power utility.

The ownership structure came under discussion after it was reported that the majority shareholding of K-Electric has been taken over by the Sage Venture Group Ltd, a British Virgin Islands–registered special purpose company wholly owned by AsiaPak Investments Ltd, which is owned by businessman and banker Shehryar Chishti.

The businessman, who owns Daewoo bus service, has said he wants to reform the KE system after taking full direct control.

At the same time, original stakeholders have been mulling further legal challenges both inside and outside of Pakistan amid news that Sage Ventures Limited has submitted a winding-up petition of KESP, the immediate parent of KE, in the Cayman Courts, which has led to resistance by Aljomaih Group of Saudi Arabia and National Industries Group (NIG) of Kuwait.

But the question is who really owns K-Electric - which received global attention after it was linked with the now defunct Abraaj Group and its founder Arif Naqvi?

In 2005, the Aljomaih Group of Saudi Arabia and NIG of Kuwait, through an agreement in collaboration with the Pakistan government, secured ownership of the lion's share of KE.

The two groups have retained their shareholding position to date, endowing the two entities with commanding see-through ownership of 30.7% in the company, KE.

In 2008, the Pakistani government granted an exceptional exemption waiver for the entry of Abraaj, enabling their entrance into this investment venture.

This access was facilitated through a special purpose vehicle domiciled in the Cayman Islands, named Infrastructure Growth and Capital Fund (IGCF) SPV 21, which boasted over 80 investors brought in by Abraaj as part of the IGCF Fund structure in addition to Abraaj's proprietary investment, according to records.

In the wake of Abraaj's liquidation, around 2018, after the Arif Naqvi scandal, the mantle of managing stakes in the firm, encompassing interests of limited partners (LP) within the IGCF Fund, fell to liquidators and the original shareholders. The liquidators started working together to consummate the sale of KE to Shanghai Electric.

However, in the latter part of 2022, events took a turn when liquidators undertook a series of transactions, effectively transferring their responsibilities to a company freshly incorporated in 2022. This firm, called Sage Ventures Limited, is owned by Shehryar Chishti and his spouse. The dispute became public when Chishti claimed he possessed the majority stake in KE. In contrast, the original shareholders say Sage Ventures Limited has acquired only the management of the IGCF Fund and a minority share in the LPs of the Fund, translating to just about 7% of see-through shareholding in KE, in comparison to the formidable 30.7% ownership held by the original shareholders.

The original stakeholders say the claim of owning the majority stake in KE is unfounded on the basis that acquiring the General Partner (GP) of IGCF as GP ownership merely gives management rights without any economic stake in KE and that the IGCF Fund's stake in SPV 21 comprises purely non-voting shares.

Adding to the complexity is the existence of distinct share classes, including voting and non-voting shares, in the Cayman Islands. However, an investigation into SPV 21's actual share register revealed that the voting stock's sole proprietor is Abraaj Investment Management Ltd (AIML), which is also currently under liquidation. This raises further questions about the actual ownership of the main company and indicates that there will be hard legal battles ahead.

The original shareholders possess 30.7% ownership, along with Mashreq Bank (based out of UAE), an additional significant stakeholder with 10.5% see-through ownership in KE, collectively accounting for 41.2% ownership in KE. All these stakeholders have aligned interests. According to them, their shared objective revolves around enhancing KE and fostering foreign direct investment (FDI) in Pakistan. The original shareholders have opted not to receive any dividends from KE since 2005, channeling the cash flow back into the company to bolster its capacity and stimulate growth, they say.

Shehryar Chishti said, "With new ownership and management at IGCF, we simply seek to bring focus to improving KE". He said a lot needs to be done at KE and he is aiming to do it at the power utility. what has not been done over the last few years.

Chishti added that his priority would be to deal with the issues of losses, higher cost generation, rising debt, and lower-quality service.