The complex transaction involves Kohinoor Textile Mills (KSE: KTML), the second subsidiary of the group, issuing shares worth Rs1b to three institutional investors through a private placement and then in turn investing the same amount in newly-issued shares of Maple Leaf Cement Factory (KSE: MLCF).
The company refused to disclose the underwriters or the advisers to either transaction. Three institutional investors – Mercury Management Inc, Hutton Properties Ltd and Zimpex (Pvt) Ltd – will invest in 100m shares of Kohinoor Textile Mills at Rs10 per share, a 31 per cent premium over the company’s closing share price of Rs7.64 on the Karachi Stock Exchange on Tuesday.
KTML, in turn, will invest in 153m shares of Maple Leaf Cement at a price of Rs6.50 per share, which is 43 per cent higher than MLCF’s closing price of Rs4.56. Muhammad Arshad, company secretary of KTML, said that the group was not yet ready to disclose full details of the restructuring agreement but that the company would do so in the near future.
The deals are still subject to a vote at an extraordinary general meeting of the shareholders, which has been called on May 3, 2010. It is unclear as to how the shareholders will vote on what amounts to a 40 per cent dilution in their equity stakes in Kohinoor Textile Mills to save an associated company that has no direct bearing on the firm’s profitability.
One of the investors – Zimpex – already owns a 15.5% stake in the company and so can be expected to vote for the transaction. But even with Zimpex on its side, the directors, who directly own 14.9% of the company, would still be in the minority. Unlike many companies in Pakistan, the majority of the shares in Kohinoor Textile Mills are owned by the general public, some 54.8%.
Meanwhile, Maple Leaf Cement is majority owned by KTML, which has about 50.1% of the company’s shares. This means that any vote amongst the shareholders of MLCF is likely to support the transaction. Investors were somewhat displeased by the announcement as both MLCF and KTML took a hit in trading on the Karachi Stock Exchange today, with MLCF declining 0.87% and KTML declining even further by 1.93%.
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