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Case

Educator Copy

Kohinoor Energy Limited

Naim Sipra, Tehmina Shah


INDUSTRY : Energy

AREA : Finance

ORGANIZATION : Kohinoor Energy Limited

LENGTH : 13

LUMS No : 02-573-97-1

PUBLICATION YEAR : 1997

DESCRIPTION

KEYWORDS:

Kohinoor Energy,Limited,Finance,Government Control,Demand,Electricity,Returns,Commercial Operations


DESCRIPTION:

The power sector in Pakistan was under full government control till 1994. The demand for electricity far outpaced supply. As a result, the government introduced a new power policy in 1994, which encouraged the private sector to participate in the sector. Kohinoor Energy Limited (KEL) was the first independent power project to achieve financial closure. Under the new policy, the potential returns to the investors were very attractive. The tariff structure was designed to insulate the project's cash flows from exchange rate fluctuations, inflation and low capacity utilization. In August 1995, the final step for KEL, before the commencement of commercial operations, was the offering of its shares to the public. The market conditions at the time were not good. The company had received an offer from a group of investment banks to underwrite the shares at a price of Rs 17 per share. The Board of Directors were wondering whether they should accept an offer price, much lower than what they had expected.


LEARNING OBJECTIVES:

N/A


SUBJECTS COVERED:

Finance