KARACHI: The Engro Corp. has approached financial institutions to get rescheduling of its loans as the group is facing a liquidity crunch in the absence of cash flows from its fertiliser business.
“We are in discussions with financial institutions to reschedule loans due as our new plant is idle due to the non-availability of the gas supply,” a company spokesperson said.
It is reported that the Engro Group has began negotiations with the banks to get a major rescheduling of its loans. If this is not agreed, default is imminent. However, Engro’s chief financial officer said that there was no chance of default on its term finance certificates (TFC) issued by the Engro Fertilizer.
Khurram Schehzad, head of research at InvestCapital, said that Engro was under severe pressure as its new plant was not operating due to non-availability of gas. He said that there were rumours in the market that Engro might default on its TFC by December.
According to Engro officials, in 2011 it received gas only for about five and half months. In 2012, the new plant had received just a month and a half supply of gas whereas the contract stated uninterrupted supply of gas.
In 2006, the federal government adopted an open and transparent international competitive bidding process for allocation of 100mmcfd gas. This was done for the first time in Pakistan’s history.
Gas Supply Agreement negotiation was not Engro specific but done collectively by Orascom, Abu Dhabi Investment fund (IPIC), FFC and Engro Fertilizers who were the other potential bidders.
Based on that agreement, Engro Fertilizers made an investment of $1.1 billion to establish the world’s largest single train urea plant in Pakistan, with World Bank (IFC) being a debt and equity investor in the project.
The fertiliser sector has fallen prey to serious gas crisis due to poor planning of the government. The plants of Dawood Hercules and Engro were closed due to low supply of gas. The conspicuous reduction in the production from the industrial plants of Pak Arab and Agri Tech was also noticed.
The investors, close to the fertiliser sector, said that four big fertiliser companies, present on the network of SNGPL, would have to shutdown their plants permanently if the same policy of gas supply continued.
It is to be mentioned that total fertiliser demand in the country is about 6.3 million tonnes against the production capacity of 6.9 million tonnes. But this time only 4.5 million tonnes fertiliser production is expected due to a shortage of gas.