Fauji Foundation eyes Agha Steel acquisition

Fauji Foundation (FF) has expressed interest in acquiring Agha Steel Industries (AGHA) with management control as part of its strategy to diversify its extensive portfolio across multiple sectors, including construction, energy, fertiliser, food, and financial services.

Agha Steel informed shareholders through a notification to the Pakistan Stock Exchange (PSX) on Thursday, stating that FF aims to explore vertical integration within the steel industry. FF, which has been in the construction sector for over 25 years, sees this acquisition as a natural extension of its cement business.

The acquisition process will involve due diligence by FF to determine the price and stake it would like to acquire along with management control. This announcement triggered a surge in Agha Steel's share price, which rose 10.03% (or Rs1.26) to reach Rs13.82—a seven-month high—with over 20 million shares traded on the PSX.

Agha Steel, primarily engaged in manufacturing and selling steel bars, wire rods, and billets, reported a net loss of Rs2.03 billion in the first three quarters of FY24, a sharp contrast to the Rs905 million profit recorded in the full fiscal year of FY23. The company's financial struggles have been ongoing, with profits declining from Rs2.03 billion in FY21 to losses in the current fiscal year. Total assets also decreased to Rs39.99 billion in the first three quarters of FY24 from Rs41.47 billion in FY23.

Fauji Foundation, established as a charitable trust in 1954, has appointed Integrated Equities Limited (IEL) as the lead manager for the potential acquisition. IEL described FF as a growth-driven 'Social Hybrid Enterprise' with a diversified portfolio in sectors such as fertiliser, cement, food, power generation, and financial services. The foundation's associated companies listed on the Pakistan Stock Exchange have demonstrated strong performance, reinforcing shareholder confidence in FF's management.

The acquisition's completion depends on finalising terms, conducting due diligence, securing regulatory and corporate approvals, and executing necessary agreements. The minimum level of acceptance for the offer will be specified in the public offer.

However, the public announcement clarified that the offer could be withdrawn if the required approvals from regulatory authorities are not obtained.

The construction materials sector, including steel and cement, has faced significant challenges due to inflation, reduced disposable income, and cuts in public sector development spending. Agha Steel's financial report for the first two quarters ending December 31, 2023, pointed out the need for government action, including completing the $3 billion International Monetary Fund programme, to stabilise the economy and create a business-friendly environment for industrial recovery.