At a premium: PSX body determines ‘minimum buyback price’ of Rs609 for Pak Suzuki Motor Company

KARACHI: The Voluntary Delisting Committee (VDC) of the Pakistan Stock Exchange (PSX) has determined the ‘minimum buyback price’ of Rs609 per share for Pak Suzuki Motor Company (PSMC), 50% higher than the sponsor’s offer of Rs406 per share made in December.

The transaction – at Suzuki Motor Corporation (SMC)‘s intended purchase of 22.14576 million shares – will be valued at nearly Rs13.5 billion if the sponsor accepts the VDC’s price.

“The sponsor of PSMC is required to convey the acceptance to the purchase price determined by the Exchange within 10 days under PSX Regulation 5.14.7,” said the PSX notice signed by Syed Ahmad Abbas, the chief listing officer and secretary of the VDC, and issued after trading hours.

SMC, the majority shareholder in PSMC, had originally proposed to purchase the shares representing 26.91% of the paid-up capital at a minimum purchase price of Rs406. At the time, PSMC’s share price closed at Rs504.39, falling to its lower limit triggered by the purchase-price notice that day.

“The PSX’s delisting committee has thoroughly considered the valuation methodologies that are used in the process, and has finally suggested a premium of 50% to the intrinsic price (by an independent valuation), which is in line with delistings in the past,” Shahid Ali, CEO of brokerage house Arif Habib Limited that was appointed purchase agent, told Business Recorder on Monday.

The VDC-determined price would result in SMC doling out nearly an additional Rs4.5 billion if it intends to purchase the entire 26.91% of the paid-up capital. Share price of PSMC plummeted, closing at Rs774.61 on the opening day of the week.

The voluntary delisting, which the PSMC formally announced on October 19, had been attributed to several factors including Pak Suzuki’s losses, lack of dividends, and cheap valuations at the PSX. PSMC incurred a loss of Rs6.34 billion (loss per share of Rs77) in 2022, in stark contrast to a profit of Rs2.68 billion in the previous year. In the nine months of 2023, its loss stands at Rs5.87 billion, despite massive earnings of Rs3.8 billion in July-September.

Since the delisting announcement three months ago, PSMC has also been a star performer at the PSX, rallying from Rs205.94 on October 19 to Rs898.57 on January 11. However, the last two sessions have seen PSMC’s share price plummet to under Rs775.

An analyst, speaking on condition of anonymity, said the sponsor, SMC, is still likely to delist even if it means a higher buyback cost.

“The incentive to delist is high,” they told Business Recorder on Monday. “The share price may go down further (on Tuesday), but the delisting process is likely to go ahead. PSMC’s current losses aside, the company has a massive market share and footprint in Pakistan’s auto sector. It’s still an attractive proposition (even at a 50% premium).”

Another analyst, also speaking on condition of anonymity, said there are several factors influencing PSMC’s decision. “Transfer pricing could be one of them,” they said.

Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, said the VDC-determined price is “fair”.

“The surge in market price (from Rs205.94) has been significant,” he said via text to Business Recorder. “For PSMC, factors other than the price are also important. In their view, a listed PSMC is not worth the effort when it comes to complying with regulations.”

The delisting has been seen as a jolt to Pakistan’s formal economy that has been reeling under high taxation and compliance costs at a time when Islamabad has been running from pillar to post to achieve a primary surplus in line with quarterly programme targets set in the International Monetary Fund (IMF) programme.

Pakistan’s auto sector has also been hit by massive erosion of purchasing power amid high inflation and record-high interest rates, while a dollar shortage also hindered car companies’ ability to secure letters of credit for imports.

It also comes at a time when the PSX saw one IPO in 2023 with the listing of technology firm Symmetry Group, and just three in 2022.

Copyright Business Recorder, 2024