The Competition Appellate Tribunal (CAT) rejected an appeal recently filed by Hascol Petroleum Limited to prevent Pakistan State Oil (PSO) from purchasing shares of Pakistan Refinery Limited (PRL) owned by Shell Pakistan. Several reports indicate that Hascol failed to offer any substantial evidence before the Competition Commission of Pakistan (CCP) as well as Competition Appellate Tribunal to prove that the acquisition will lead to a drop in competition.
Despite the fact that PSO is caught in a circular debt trap, many analyst believe that the company move to acquire shares of Shell in PRL will help it to achieve its market ventures in the oil industry. PSO currently has 22.5% stake in PRL along with Shell Petroleum Company and Chevron Global Energy having 30% and 7.5% shares respectively.
The companies mentioned above collectively own 60% of the paid-up and issued shares of PRL’s B class shares, and their relationship as sponsors of PRL is governed by the participant’s agreement and Articles of Association dated March 26, 1970.
As per the agreement, if any participant plans to sell its shares in PRL, the shares will first be offered to other participants in the ratio of shares they hold in PRL. If a participant refuses to buy the shares offered to it, such shares will be offered to the remaining participants in the ratio of the amount of shares they hold in PRL and at the same price and exact terms that are mentioned in the original offer.
Moreover, on May 4, 2015, PRL released the Letter of Rights in a bid to offer 800% of its total shares to its shareholders at par value of PKR 10 per share. Shell declined the offer and conveyed to Chevron and PSO its unwillingness to increase its investment in PRL and sought offers from both oil firms for 84 million ordinary shares. Out of 84 million shares, 63 million shares were offered to PSO and the rest 21 million to Chevron.
Interestingly, Chevron also refused to buy 24 million shares of PRL. On June 16, 2015, PSO signed an agreement with Shell to purchase 84 million ordinary shares in PRL, which will increase the company’s stake in PRL from 22.5% to 49.16%. Adding to that, in order to comply with the regulatory requirements PSO filed a pre-merger application with CCP, which is when Hascol filed a complaint against the transaction that the acquisition deal will increase the competition in the industry.
The CCP categorically declared that the merger transaction was not anti-competitive. Hascol filed an appeal, challenging the order on March 1, 2016 before the Competition Appellate Tribunal. PSO and other respondents defended the CCP’s order whereby it was held that there was no evidence to suggest the existence or possibility of anti-competitive foreclosure or substantial lessening of competition by creating or strengthening of the dominant position in the relevant markets.