ENI’s sale: Law Division turns down Hubco’s undertaking
Our Correspondent
The Law Division has turned down an undertaking submitted by Hubco to mature ENI sale deal for transferring assets to the newly born entity PIOGCL due to poor financial health.
The Law Division has advised Petroleum Division to seek original undertaking for future operations of ENI in Pakistan by the new owners.
It found the undertaking submitted by Hubco to transfer control of ENI inadequate for future commercial operations and advised to seek the original undertaking.
The petroleum division wants the established financial strength of the sponsors of Prime International Oil and Gas Company Limited (PIOGCL) regarding the future operations of petroleum exploration licenses and development and production leases.
The Petroleum Division had asked Eni Pakistan to provide an undertaking from Hubco that in case PIOGCL fell short of meeting the financial obligations in respect of running the operations in the future, Hubco would provide such financial support.
The government had delayed the transfer of Eni shares to PIOGCL due to the questions raised over the financial health of the new entity. The deal between Eni and PIOGCL matured at $16.4 million.
Eni Pakistan entered into a sale-purchase agreement with PIOGCL on March 8, 2021, regarding the sale of the entire share capital.
Hubco provides inadequate undertaking for ENI’s sale deal
Hubco said they could support PIOGCL regarding the acquisition price, including the EBO’s share. However, it did not provide an undertaking for future operations as, according to the company, giving such an open-ended undertaking was against the Companies Act 2017.
After that, the Petroleum Division asked the Law Division for guidance on this matter.
The law division informed Petroleum Division (Petroleum division) that the undertaking provided by HUBCO (HPHL) is not adequate in respect of covering the future operation of petroleum exploration licenses.
It further said that the undertaking does not cover development and production leases and decommissioning costs upon the expiry of licenses and leases.
According to a letter, it is the norm in the petroleum exploration and production business that companies holding petroleum rights dispose of their shares under their business plans.
Also, the respective petroleum exploration and production rules do not provide a mandatory lock-in period for holding an interest in the companies for a certain period.
The Law Division said that it is in the government’s interest if no viable option is available with the Buyer, the shareholders must undertake to fund the shortfall.
It added that the government would have the option to enforce the undertaking against HPHL if HPHL fails to meet the funding shortfall of the Buyer.
The buyer should be technically sound to undertake operations
It said that the only requirement from the government perspective is that the Buyer of interest should be technically and financially sound to perform petroleum exploration and production business.
The Petroleum Division had requested the Finance Division and Ministry of Law and Justice to advise specifically about the adequacy of undertaking to cover the obligations of the [Buyer].
The responsibilities cover work commitments and other financial operations, decommissioning costs to incur upon the expiry of licenses and leases.
The Law Division said that the Petroleum division had requested (Hubco) HPHL to submit an undertaking on a judicial stamp paper in favour of the buyer.
Hubco does not submit a proper guarantee
From the material available to this Ministry on the file, it appears that the government required the guaranteer to secure the fund’s needs of the Buyer in respect of completion of the transaction and future obligations of the Buyers in case of insufficient funding under the ENI sale deal.
Regarding the adequacy of undertaking for future financial payments, subject to confirmation and comments by the Finance Division, Law Ministry believes that the existing guarantee language does not provide commitment.
Justification of HPHL regarding compliance with the Companies Act, 2017 does not meet guarantee needs. Therefore, DGPC has not required to make any investments in the Buyer.
However, if there is any funding shortfall with the Buyer, it shall look for funding options, including those briefly mentioned in HPHL’s referred letter, Law Ministry said.
