Engro launches certificates to meet working capital needs
Engro announces Rupiya Certificates with aim to target retail investors.
KARACHI:
Engro Corporation on Thursday announced the launch of Rupiya Certificates with an aim to target retail investors and gather funds to meet expansion requirements of its fertiliser and food businesses.
The asset-backed issue of Term Finance Certificates (TFCs) will be for a period of three years offering a return of 14.5 per cent per annum, which Engro believes is a good attraction for people who usually invest in long-term National Savings Certificates.
The total size of the TFCs, which will be available at 11 banks and TCS outlets from Friday with a minimum investment of Rs25,000, is Rs4 billion. Of the total, the initial offer is worth Rs2 billion with a green shoe option of another Rs2 billion.
Giving details at a presentation here on Thursday, Hafsa Shamsie, Manager Finance at Engro Corporation, brushed aside the risk of default on the debt instrument, saying Engro is a leveraged company and is capable of meeting its debt obligations.
“We are already serving Rs89 billion in debt and another Rs4 billion will not be an issue. We have set aside assets worth double the value of the TFC to guarantee returns and redemption.”
Pakistan’s corporate debt market is not yet developed and Engro claims that the objective of tapping the market is to give it a boost and offer a lucrative and risk-free investment option to Pakistani citizens, non-resident Pakistanis and corporate bodies.
“We could have borrowed from banks instead, but the intent is to develop the fledgling corporate debt market. Although banks charge high interest rates of 15-18 per cent, the TFC issue is not cheap either with marketing expenses swallowing Rs200 million,” explained Shamsie.
Of the targeted amount of Rs4 billion for meeting working capital needs, Rs3 billion will be injected into the fertiliser business and Rs1 billion into food business.
With the help of these funds, the annual fertiliser production capacity of Engro will increase 26 per cent from 975,000 tons to 1.23 million tons. “Together with Fatima Fertiliser, we will be able to meet the country’s demand for fertiliser in future when both projects come on stream,” said Shamsie.
According to data released by the National Fertiliser Development Centre (NFDC) last month, fertiliser offtake dropped 14 per cent to 4.9 million tons in January-August 2010 compared with 5.7 million tons in the same period last year. During calendar year 2009, total fertiliser sales stood at 9.3 million tons.
The company sees no significant increase in the demand for fertiliser in the current Rabi crop sowing season after floods damaged and affected an estimated 4.23 million acres of cultivated land. “There was an initial spike in demand in August but we see no significant rise in consumption in coming months. Also, the TFC is not aimed at meeting any increase in demand after the floods,” she added.
In the food category, the company produces dairy products like milk and ice cream and has plans to spread into grain and fruit markets.
Published in The Express Tribune, October 15th, 2010.
Engro Corporation on Thursday announced the launch of Rupiya Certificates with an aim to target retail investors and gather funds to meet expansion requirements of its fertiliser and food businesses.
The asset-backed issue of Term Finance Certificates (TFCs) will be for a period of three years offering a return of 14.5 per cent per annum, which Engro believes is a good attraction for people who usually invest in long-term National Savings Certificates.
The total size of the TFCs, which will be available at 11 banks and TCS outlets from Friday with a minimum investment of Rs25,000, is Rs4 billion. Of the total, the initial offer is worth Rs2 billion with a green shoe option of another Rs2 billion.
Giving details at a presentation here on Thursday, Hafsa Shamsie, Manager Finance at Engro Corporation, brushed aside the risk of default on the debt instrument, saying Engro is a leveraged company and is capable of meeting its debt obligations.
“We are already serving Rs89 billion in debt and another Rs4 billion will not be an issue. We have set aside assets worth double the value of the TFC to guarantee returns and redemption.”
Pakistan’s corporate debt market is not yet developed and Engro claims that the objective of tapping the market is to give it a boost and offer a lucrative and risk-free investment option to Pakistani citizens, non-resident Pakistanis and corporate bodies.
“We could have borrowed from banks instead, but the intent is to develop the fledgling corporate debt market. Although banks charge high interest rates of 15-18 per cent, the TFC issue is not cheap either with marketing expenses swallowing Rs200 million,” explained Shamsie.
Of the targeted amount of Rs4 billion for meeting working capital needs, Rs3 billion will be injected into the fertiliser business and Rs1 billion into food business.
With the help of these funds, the annual fertiliser production capacity of Engro will increase 26 per cent from 975,000 tons to 1.23 million tons. “Together with Fatima Fertiliser, we will be able to meet the country’s demand for fertiliser in future when both projects come on stream,” said Shamsie.
According to data released by the National Fertiliser Development Centre (NFDC) last month, fertiliser offtake dropped 14 per cent to 4.9 million tons in January-August 2010 compared with 5.7 million tons in the same period last year. During calendar year 2009, total fertiliser sales stood at 9.3 million tons.
The company sees no significant increase in the demand for fertiliser in the current Rabi crop sowing season after floods damaged and affected an estimated 4.23 million acres of cultivated land. “There was an initial spike in demand in August but we see no significant rise in consumption in coming months. Also, the TFC is not aimed at meeting any increase in demand after the floods,” she added.
In the food category, the company produces dairy products like milk and ice cream and has plans to spread into grain and fruit markets.
Published in The Express Tribune, October 15th, 2010.