Raising equity: Engro Corp sells partial stake in fertiliser unit for $185m

Its shareholding in Engro Fertilizers now reduced to 56.6%; deal part of strategy to focus on power-related projects

KARACHI: Engro Corporation has sold over 28% of its remaining shareholding in Engro Fertilizers, Pakistan’s second largest fertiliser-manufacturing company, to institutional and high net-worth individuals in a private placement worth approximately $185 million.

In a securities filing on Wednesday, Engro Corporation said it sold 295 million shares, which constitute 22.1% of the total outstanding shares of Engro Fertilizers, at a price of Rs65.47 per share.

Engro Corporation owned as many as 78.8% of over 1.3 billion outstanding shares in Engro Corporation at the beginning of 2016. Its shareholding in the fertiliser-manufacturing subsidiary has been reduced to 56.6% following the transaction.

Engro Corporation did not state the reason for the share sell-off. However, analysts say the deal is part of the holding company’s strategy under which it is gradually steering away from non-energy businesses to focus on power-related projects.



“The proceeds … are expected to finance the equity need of the ongoing Thar mining and power projects,” said BMA Capital Management analyst Sajjad Hussain.

Engro Corporation is one of the largest conglomerates operating in the country with interests in energy, fertilisers, petrochemical, food, trading and chemical storage. As much as 47.8% of Engro Corporation’s total revenues in 2015 originated from its fertiliser unit while the contribution of power businesses in the company’s top line was 7%, according to Bloomberg data.

The deal will result in an annualised drop of 28% in Engro Fertilizers’ contribution towards the bottom line of Engro Corporation, according to Taurus Securities equity analyst Fahad Rauf. “For 2016, our estimations for Engro Corporation profits would decline from Rs30.2 per share to Rs27.1 per share, assuming the impact of lower shareholding for the remaining part of the year,” he added.

He said the probability of a one-off dividend for the shareholders of Engro Corporation as a result of the Rs19.3 billion cash inflow is remote. “These funds are expected to be directed towards Thar coal mining and power projects,” he said, adding that the holding company requires approximately $200 million to finance its equity portion in Thar power and mining projects.

Engro Corporation has recently been selling its stakes in non-energy businesses to raise cash for onward investments in energy-related businesses. For example, it recently began negotiations with a Dutch company, Royal FrieslandCampina NV, for sale of up to 51% shares in Engro Foods, a subsidiary that contributed more than a quarter in the corporation’s revenues last year.

The share price of Engro Corporation gained Rs6.57 in intraday trading, but closed at Rs348.73 by the close of the trading session, up 0.4% from the last day’s closing price. Engro Fertilizers recorded a turnover of 10.1 million shares, which made it the fifth most traded share on Wednesday. It shed Rs0.74 to close at Rs67.61 per share at the end of trading.

Published in The Express Tribune, June 9^th, 2016.

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