KARACHI: Engro Corporation sold more than one-fifth of its shareholdings in Engro Fertilizers Limited, Pakistan’s second biggest fertiliser making firm, to local and foreign investors at approximately $184 million.
The company, in a notice on Wednesday to the Pakistan Stock Exchange, said it sold 295 million shares of Engro Fertilizers Limited (EFERT) to local and foreign institutional investors and high net worth individuals.
“The deals were done by way of a private placement at a price of Rs65.47/share discovered through a private book building mechanism,” said the bourse filing.
On Wednesday, Engro Fertilizer closed at 68.35/share.
An analyst said the divestment from EFERT was to meet financing for Thar coal power projects, undertaken by Engro.
In April, the government issued guarantee to Engro Powergen Thar Ltd (EPTL) to formally recognise its two billion dollars financial close of the coal mining and power project at Thar.
An announcement by EPTL said a joint venture of Sindh Engro Coal Mining Company (SECMC) and ETPL will undertake the project construction at Thar (Block-II) for power generation starting from the mid of 2019. SECMC is a joint venture company with the government of Sindh, Engro Powergen and others. It will extract 1.57 billion tonnes of lignite coal available in its allocated area of Block II in Tharparkar.
“We calculate the total cash inflow of Rs19.3 billion ($184 million) to ENGRO and a onetime gain of Rs31/share in the unconsolidated accounts," said equity analyst Fahad Rauf at Taurus Securities Limited.
Rauf said after the divestment, Engro shareholding in EFERT dropped to 57 percent from 79 percent, resulting in an annualised 28 percent fall in EFERT contribution in ENGRO profits.
“For 2016, our estimations for ENGRO profits would decline to Rs27.1/share from Rs30.2/share, assuming impact of lower shareholding for the remaining part of the year,” he said. “We believe probability of a one-off dividend is remote as these funds are expected to be directed towards Thar coal mining and power projects.”
Engro is in need of at least $200 million to finance its equity portion in Thar power and mining projects.
In the quarter ended March, EFERT’s earnings dropped 30 percent to Rs2.12 billion. The company’ profit amounted to Rs3.05 billion in the same quarter last year.
The company’s earnings per share also declined to Rs1.55 as against Rs2.30 last year.
Major reason behind the downward profitably was a decline in urea net sales and a two percent fall in prices. Net sales fell 29 percent to Rs12.61 billion in Jan-March from Rs17.67 billion a year earlier.
Cost of sales was recorded at Rs7.66 billion as against Rs10.90 billion. Gross profit of EFERT was posted at Rs4.94 billion as against Rs6.76 billion.