EPCL: Company announces issue of preference shares
- Engro Polymer and Chemicals Limited (EPCL) announced issue of preference shares amounting to PKR3bn at a face value of PKR10/sh to be utilized for the ongoing expansion of PVC capacity of 100K MT and VCM debottlenecking project.
- The project underwent cost escalation owing to PKR depreciation in the previous year where the company opted to issue preference shares in order to maintain the debt-equity mix at 30:70 to qualify for tax credit under Section 65E of the Income Tax ordinance.
- The issue is structured as perpetual, cumulative, callable, and convertible with a preferential dividend at 6M Kibor plus 3.5%. The call option is exercisable after 12 months from date of issue while conversion at a rate of 1:1 is exercisable after 80 months from date of issue.
- We believe the company has opted for the issue to be utilized as a bridge and may exercise the call option once the company avails tax credit under 65E. We flag the event as neutral placing weight on the exercise of call option on the entire issue by the company.
- Having said that, the company would witness outflow of preferred dividend shrinking distributable earnings. Had the company opted for debt financing of the same, the company would have potentially availed tax shield amounting to ~PKR0.1-0.14/sh while forgoing tax incentive on expansion.
- We have a neutral rating for the stock that currently trades at a P/E of 8.0x
Engro Polymer & Chemicals Limited is a chlor vinyl chemical company. The principal activity of the Company is to produce and market chlor-vinyl products, which include poly vinyl chloride (PVC), vinyl chloride monomer (VCM), caustic soda, hydrochloric acid and sodium hypochlorite. The Company operates through three segments: poly vinyl chloride (PVC) and allied chemicals, caustic soda and allied chemicals, and power supplies. The poly vinyl chloride (PVC) and allied chemicals segment manufactures and sells PVC and allied chemicals to various industrial customers, including pipe manufacturers, shoe and packaging industry. The caustic soda and allied chemicals segment manufactures and sells caustic soda and allied chemicals to textile and soap industry. The power supplies segment supplies surplus power generated from its power plants to Engro Fertilizers Limited. The Company manufactures and markets over four grades of PVC under the brand name SABZ.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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