Engro Energy offers 15 per cent shares to public

In order to overcome the financial crisis, Engro Corporation has decided to offer 15 per cent shares of its well performing subsidiary Engro Energy Limited to the public, and in this regard the corporation has already sent a proposal to the regulators. Sources informed Profit that the corporation is awaiting the approval of the proposal from Security Exchange Commission of Pakistan (SECP) and Karachi Stock Exchange (KSE) and as soon as they get approval, the Initial Public Offering of the 15 per cent shares of Engro Energy would commence. The success of Engro Rupiya certificates, twice, is probably conducive for this move of the corporation, as 27 million shares of Engro Foods were offered at Rs25 per share, including a premium of Rs15 last year. The first edition of the certificates achieved its target, and now the second edition has also reached target amount of Rs2 billion along with additional Rs750 million by exercising green shoe option.
However, according to the analysts’ briefing in 1H2011 other businesses for Engro besides foods which ended in the positive include the energy and terminal services business. Meanwhile, the chemicals business continues to see red incurring a loss to the tune of Rs195 million for 1H2011. Analysts forecast that the strong business dynamics which have driven the 37 per cent jump in consolidated revenues of the company are one thing, but they count for little if they do not translate appropriately into the bottom-line of an entity; large debt levels continue to raise eyebrows and concerns from the perspective of the investor. Engro, with borrowings crossing Rs110 billion, has a leverage ratio of 74 per cent, presenting no more room to borrow considering senior lender debt covenants (max. leveraging allowed: 75 per cent). In the analyst briefing, the management shed light on higher financial cost, which went up by 92 per cent YoY during 2Q FY11. It is this financial cost which is proving to be a significant burden on the company’s profitability, which largely remained stagnant relative to the healthy growth in revenues.
In addition, the performance of Engro Foods and Engro Energy seems to be heartening as both companies have continued their trend towards healthy profitability. However, given the sheer quantum of leveraging in the company’s capital structure, it is rational to anticipate a gradual decline in debt levels rather than a one-time significant reduction. According to the fact sheet, Engro Energy Limited has established a 220 MW power plant in Qadirpur. This will be Engro’s first Independent Power Project (IPP) which will utilise permeate gas, currently being flared from the Qadirpur gas field thus helping reduce carbon emissions. This power plant will be one of the first ‘green’ power plants in the country.