Hyundai to assemble cars in Pakistan in venture with Nishat Mills

KARACHI: Nishat Mills Limited (NML), a leading textile company, will enter into a joint venture with a Korean automaker to set up a car assembling plant in the country, a bourse filing said on Friday – a move aimed at to capitalise on the benefits announced by the government for new entrants.

“The board of directors of Nishat Mills Limited has resolved to enter into a memorandum of understanding with Hyundai Motor Company (HMC), Seoul and Sojitz Corporation, Tokyo for negotiating and establishing a framework for setting up a greenfield project for assembly and sales of HMC passenger and one ton range commercial vehicles in Pakistan,” said a notice issued to the Pakistan Stock Exchange.

The company didn’t mention the investment amount. It said the project is subject to, “applicable statutory and regulatory approvals.”  

Topline Securities, in a report, estimated the project cost at around $150 million to $200 million with a lead time of three years, based on a debt and equity ratio of 50 percent.  

Last year, the government unveiled new auto policy to attract investments into assembling and manufacturing of vehicles in the country, currently ruled by three Japanese automakers, namely Suzuki, Honda and Toyota.

Besides, there is still a huge demand of automobiles in Pakistan. “Pakistan’s car penetration of 13 vehicles per thousand persons is significantly lower than the regional average of 162,” the brokerage said.  The report said there is a strong potential for automobile growth due to higher disposable income and low interest rate environment.

The central bank’s benchmark interest rate stands at decades-low interest rate of 5.75 percent.

Banks’ consumer loans soared more than three times to Rs46.1 billion in the first half the current fiscal year of 2016/17 as soft interest rate piqued people interest towards low-cost funds to own automobiles and houses.

Analysts believed that auto financing must have been the real catalyst.

Home loans would play second fiddle to it. Quarterly trends, they said, showed that auto and house credit had major shares in the total consumer loans of Rs7.8 billion in July-September 2016/17.

A total of 85,901 new cars were sold during the first half of 2016/17.

Through car sale was marginally lower than 89,824 units sold in the comparable period, yet growing demand of imported used cars ate into the new car market share

Reuters adds: Hyundai and South Korea’s Kia Motor used to assemble cars in Pakistan until 2004 but withdrew after their local partner Dewan Farooque Motors Limited went bust.

“Today we have signed a memorandum of understanding between the two companies and we will set up a ...project for the assembly and sales of both passenger and commercial vehicles,” Nishat Mills company secretary Khalid Chauhan said.

Nishat Mills is a subsidiary of Nishat Group, a giant in the country’s banking, textiles, energy and cement sectors. Its share price rose 1.4 percent after the announcement.

Last year, French carmaker Renault agreed to invest in a new factory in Pakistan and South Korean carmaker Kia Motor Co said it would start assembling cars in a joint venture with Karachi-listed Lucky Cement, part of the vast conglomerate Yunus Brothers Group.

Pakistan, with a population of nearly 200 million people, is a potentially huge market, but just 180,000 cars were sold in the 2014/15 fiscal year.  That compares with more than two million passenger vehicles a year in neighbouring India.