Engro Fertilizers conducts first phase of IPO successfully

75% of total issue size sold off in book-building phase.

KARACHI:

The first phase of the initial public offering (IPO) of Engro Fertilizers concluded on Thursday, with as many as 410 bidders taking part in the book-building portion of what may arguably be the most anticipated public listing in the country’s recent history.

Engro Fertilizers is issuing 75 million ordinary shares at a floor price of Rs20 per share, which includes a premium of Rs10.

The money raised through the IPO will be utilised to fund development capital expenditures for securing additional gas supplies along of the balance sheet restructuring to optimise the company’s capital structure.



Only institutional investors and high net worth individuals (HNWI) were allowed to take part in the three-day book-building portion of the IPO, which involves 75% of the total issue size, or 56.25 million ordinary shares.

Speaking to The Express Tribune, AKD Securities Vice President for Investment Banking, Syed Khurram Shahid, said the offer’s book runners have determined the cut-off/strike price of Rs28.25 per share through the Dutch Auction Method, an auction structure in which the price of the offering is set after taking all bids and determining the highest price at which the total offering can be sold.

AKD Securities, along with Next Capital, is the joint book-runner for the issue. Habib Bank and Allied Bank are serving as financial advisers, lead managers and arrangers for the IPO.

“We expect the public subscription to be held by the middle of next month,” Shahid said, referring to the general public portion, which will consist of the remaining 25% of the total offer size. This means roughly 28.25 million ordinary shares will be issued to the general public at the rate of Rs28.25 per share, a price that has been determined through the book-building exercise.

The issue of 75 million ordinary shares constitutes 5.8% of the total post-IPO paid-up capital of the company. The book-building portion of the IPO has been oversubscribed by 3.9 times, according to Shahid. “The response from institutional investors and HNWIs has been overwhelming, even though the issue size was huge,” he said, adding that he expects the general public portion to be oversubscribed by many times as well.

With the establishment of a 1.3 million tons, state-of-the-art fertiliser complex in 2011, the company’s annual urea production capacity stands at 2.3 million tons, which is equal to one-third of the country’s total urea production capacity.

Engro Fertilizers has consistently faced gas supply shortages in recent years, which resulted in a net loss of Rs2.9 billion at the end of 2012. However, the company regained stability in the first half of 2013, as it posted a profit after tax of Rs1.4 billion at the end of the six-month period.

Apart from issuing 75 million new shares its parent company, Engro Corporation, will also divest up to 30 million shares− or 2.3% of post-IPO paid-up capital− out of its current holding at the strike price of Rs28.25.

Therefore, subsequent to the IPO and the divestment, Engro Fertilizers’ shareholding structure is expected to be Engro Corporation (91.9%), book-building participants (4.3%), general public (1.4%) and divestment to local and international investors and HNWI (2.3%).

Published in The Express Tribune, November 22^nd, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

In an earlier version of this article the headline stated Engro, which is already a listed company,  instead of the full name Engro Fertilizers. The error is regretted.