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Pakistan Market: GIDC Verdict Announced; Corporate asked to pay outstanding amount; Details awaited

• The much awaited judgment of Supreme Court was unveiled today regarding Gas Infrastructure Development Cess (GIDC). The court has ordered companies to pay outstanding amount of Rs417bn, as per media reports. However, further details of the verdict are still awaited.
• We believe, this will result in total corporate cash outflow of Rs417bn, however, as per our channel checks companies can opt for a review petition after deliberating on legal language of the verdict.
• GIDC was imposed by the government back in Dec-2011 to raise funds for development of gas infrastructure in the country. GIDC Act provides legal framework which allows government to levy and collect the cess from gas consumers other than domestic sector consumers. According to the Act, the collected amount shall be utilized by the Federal government for Iran Pakistan (IP) gas pipeline, Turkmenistan-Afghanistan-Pakistan-India (TAPI), LNG and other ancillary projects.
• Largest cash out flow would be witnessed from fertilizer companies to the tune of Rs110bn. Fauji Fertilizer (FFC) will be required to pay Rs63bn (43% of market cap) followed by Fauji Fertilizer Bin Qasim (FFBL) - Rs22bn (109% of market cap), Engro Fertilizer (EFERT) - Rs19bn excluding Enven amount (21% of market cap) and Fatima Fertilizer (FATIMA) - Rs6bn (10% of market cap).
• Other companies like Lotte Chemicals (LOTCHEM), Engro Polymer (EPCL), Lucky Cement (LUCK), Century Paper Board (CEPB), Gul Ahmed (GATM) and Feroze Mills (FEROZ) would also be required to submit their dues, amongst others.
• Most of the companies have already provided for GIDC in their accounts, hence they are expected to not take hit on their accounting earnings.
• Fertilizer companies were sitting on huge cash amounts (excluding FFBL) and were earning substantial amount of interest income on their amount invested in T-bills and other government papers.
• Due to this decision, companies would be entitled to submit due amount to the government, which will also hurt their recurring Other Income.

Decision on Enven (new plant of EFERT) is still unclear. We await clarity on this front. If adverse decision also implies on Enven plant then company may witness additional cash outflow of  Rs35-38bn (which so far has not been provided for).  The company will need to raise debt to repay these government dues.