Mergers and acquisitions: Arif Habib Corporation agrees to sell Thatta Cement

Four private companies to buy a 61% stake in the construction materials manufacturer.

KARACHI:

Thatta Cement, one of the country’s smallest cement manufacturers, has finally been sold by the Arif Habib Corporation in a deal that values the company at Rs2.4 billion.

In an announcement sent to the Karachi Stock Exchange on Thursday, Arif Habib Corporation, along with its subsidiaries, said that it sold its 61% holding in Thatta Cement to a consortium of four private companies for Rs24.16 per share, a 7.9% discount from Wednesday’s closing price of Rs26.25 per share. The total value of the transaction is approximately Rs1.5 billion.

Two private limited companies called Sky Pak Holding and Al-Miftah Holdings each bought 22.7% of the company’s shares, while two other private companies – Golden Globe Holding and Rising Star Holding – bought 8.5% and 7% of Thatta Cement’s shares respectively.

Little is known about the buyers of the company. When reached for comment by The Express Tribune, they were unable to respond by the filing of this story.



The sale at a discount has caught some analysts by surprise. “Arif Habib Corporation has been performing reasonably well, and it should not be too anxious to sell its stakes in Thatta Cement. The decision may have been taken to diversify its investments in relatively new ventures other than cement,” a cement analyst, who declined to be identified, told The Express Tribune.

But other analysts say that the agreement appears to be a good deal for Arif Habib Corporation because of its timing – cement sector profitability is strong, and the sellers got a good price in the market.

The company posted a profit of Rs24.2 million in the first half of the current financial year, compared to a loss of Rs88.5 million in the same period of the previous year. However, the company continued to post losses in two preceding years. For instance, it posted a loss of Rs43.9 million in fiscal 2012 and Rs74.5 million in fiscal 2011.

Thatta Cement has the capacity to produce only about 450,000 tons of cement per year. The cement plant is located at Makli, a town in the district of Thatta in Sindh, about 115 kilometres northeast of Karachi. Pakistan’s total installed capacity for cement production, in comparison, is over 45 million tons.

The cement sector has grown phenomenally this year, boosted by strong overseas demand as well as a recovery in domestic demand and prices. The combined profits of cement companies of the first six months in fiscal 2013 almost equalled the combined profits for the entire preceding year, according to research compiled by AKD Securities, an investment bank.

Most analysts predict that the profitability of the cement sector will continue to grow during the remainder of the current fiscal year. They also predict that the cement companies’ stocks listed on the KSE are all set to post stellar growth of 75% in 2013, making the on-going year the best ever for cement manufacturers by a fair distance.

Arif Habib Corporation is a diversified industrial and financial conglomerate, with interests in fertilisers, steel, cement, real estate, commercial banking, asset management, investment banking, securities brokerage, and private equity. Thatta Cement is not its only holding in the sector: it also owns a 75% stake in Al-Abbas Cement, a Dadu-based company with an installed capacity of 900,000 tons.

In contrast with the sale of Thatta Cement, the Arif Habib Corporation is investing in a vertical cement-grinding mill at Al-Abbas Cement, which caused production capacity to increase by about 20% – from 750,000 tons annually to around 900,000 tons annually.

The market greeted the news of the sale rather well. Thatta Cement stock closed at Rs27.48 in trading on the Karachi Stock Exchange on Thursday, up 4.7% for the day.

Published in The Express Tribune, March 8^th, 2013.

Like Business on Facebook to stay informed and join in the conversation.