Buy-out: Interested Chinese group tries to acquire Masood Textile Mills

Notice sent to KSE; share price of manufacturing company appreciates.

KARACHI:

A Chinese business group has shown interest in acquiring 52% shares in one of Pakistan’s leading textile manufacturing companies, according to a recent notice sent to the Karachi Stock Exchange (KSE).

As per the KSE regulations about substantial acquisition in a listed company, Shandong Ruyi Technology Group has formally expressed its intention to acquire up to 31.2 million ordinary shares of Masood Textile Mills through AKD Securities, which is acting as a manager to the offer.

Based in Faisalabad, Masood Textile Mills is one of the few vertically integrated textile mills in Pakistan with in-house yarn, knitting, fabric dyeing, processing, laundry and apparel manufacturing facilities. For the fiscal year 2012-13, its profit after tax amounted to Rs906.3 million, up by 8.5% on an annual basis. Its revenues grew at an annualised rate of 25% between 2008 and 2012.



A little over 10 million shares constitute the free float of the company, whose total issued shares are 60 million. The Chinese group aims to buy the majority stake through a share price agreement as well public offering, the notice said. This means that the potential acquirer will try to accumulate maximum number of shares in the company through the stock market before trying to strike a share purchase agreement with its sponsors.

Hence, it is not surprising that the share price of Masood Textile Mills, which has traditionally been an illiquid stock, has seen an unusual appreciation over the last many weeks. For instance, it increased from Rs58.26 on December 2 to Rs74.34 on December 9, which shows an increase of 27.6% in only six trading sessions. Notably, its share price has increased by 134.3% in the last one month.

“There has already been a significant increase in the company’s share price during the past few weeks,” Waqar Ali of Elixir Securities, a Karachi-based brokerage house, told The Express Tribune. “This is because of the Chinese company already trying to acquire the Masood Textile’s shares as well as other investors wanting to profit off the transaction.

“Any shortfalls in the number of shares the Chinese company faces will be most likely covered by buying shares at a premium to the market price.”

As opposed to the current price, which is at Rs74.34 a share (at the end of Monday’s trading session), the company should be able to fetch a price between Rs75-Rs100 per share, Ali noted. Assuming that the transaction takes place at the per-share price of Rs85, the deal will lead to an inflow of approximately $25 million.

Unprecedented investment

There has been no precedent of a huge Chinese group acquiring a stake in a Pakistani textile company. “A Pakistani textile company offers a lot to Chinese companies, largely because of lower costs. Cotton prices and labour costs in China are much higher than they are in Pakistan,” Ali noted.



Masood Textiles Mills is a composite manufacturing concern that produces value-added textile products. Value-added exports to the European Union (EU) are expected to increase due to the GSP Plus status that Pakistan is likely to receive in January 2014.

“Acquiring the company will enable the Chinese group to make duty-free, value-added textile exports to its customers in the EU. Moreover, China’s transit to higher value-added segments might be a trigger for the acquisition,” he added.

Published in The Express Tribune, December 10^th, 2013.

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