Mergers & acquisitions: Arif Habib selling Aisha Steel, but not all of it

Orient Group is likely to buy a majority stake; Meezan Bank managing the offer

KARACHI:

A ‘substantial stake’ in Arif Habib’s Karachi-based steel mill may be up for grabs, but that does not mean that the business magnate has given up entirely on the country’s steel sector.

The Arif Habib Group holds a 52% stake in Aisha Steel Mills, which is the largest supplier of cold rolled coil (CRC) steel in the domestic steel industry with an approximate market share of 49%.

According to two stock exchange filings on Friday, an up-and-coming player in the local steel industry, Orient Metals, wants to enter the CRC steel business by acquiring a substantial shareholding in Aisha Steel.

The two separate notices by Aisha Steel, a publicly traded company, and Meezan Bank, the buy-side merger and acquisition (M&A) adviser to Orient Metals, stopped short of stating the exact shareholding that the acquirer wants to buy. However, official sources confirmed on Saturday that the Orient Group is eying more than a 50% stake in Aisha Steel.

Apart from the Arif Habib Group, two other shareholders namely Metal One Corporation and Universal Metal Corporation own 19% and 17% shareholdings, respectively, in Aisha Steel. In addition, institutional investors and the general public own another 12% shares in the company.

Speaking to The Express Tribune, an Arif Habib Group official said the acquirer is likely to buy out the entire shareholdings of Metal One Corporation and Universal Metal Corporation. Moreover, the Orient Group will also acquire some minority shareholding in line with the Substantial Takeover Ordinance, he added.



“It is the Orient Group’s preference that the Arif Habib Group should continue to own some of its shareholding in order to facilitate further growth of Aisha Steel,” said Kashif Shah, who serves as adviser to the chairman of the Arif Habib Group.

The Orient Group will soon start conducting due diligence of Aisha Steel, which will take a few months to conclude. In the case of a favourable conclusion of the due diligence process, a binding share sale purchase agreement will be executed among the stakeholders.

This will be followed by a mandatory tender offer for minority shareholders. It is at this stage that exact percentages of shares sold by each of the three sponsors – the Arif Habib Group, Metal Once Corporation and Universal Metal Corporation – as well as institutional investors and the general public will be finalised.

“Being the majority shareholder, the Arif Habib Group has agreed to facilitate the Orient Group in achieving its target shareholding,” Shah said.He added that it is expected to be an all-cash transaction. In other words, the acquirer will pay the current sponsors of the company in cash as opposed to a share transfer.

Aisha Steel made a net loss of Rs285.2 million in the quarter ending on September 30, the latest three-month period for which financial accounts are available. Its net loss in the July-September quarter of 2013 was Rs367 million.

The company is highly leveraged, with a debt-to-EBITDA ratio of 7.32, and has been under financial pressure because of many reasons, including falling international CRC prices and poor cash flows. It has also been actively lobbying for the restoration of a 10% tariff protection to local CRC steel manufacturers.

Shares in Aisha Steel rose 4.2% to Rs8.35 in trading on the Karachi Stock Exchange on Friday. With 270.9 million outstanding shares, a 50% stake in Aisha Steel should be worth around Rs1.1 billion at the current share price.

The Orient Group consists of several privately owned white goods companies. According to one source familiar with the matter, Aisha Steel is likely to stay on as a publicly traded company because it is difficult to take such an entity private under the current regulations governing Pakistan’s capital markets.

No one from the Orient Group was available for comment.

Published in The Express Tribune, January 4^th, 2015.

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