The Pakistan Refinery Limited (PRL) is struggling hard to avoid liquidation as the loss-making company's current liabilities have exceeded its assets by Rs 12.88 billion during the first half of current fiscal year (July-December FY15). The company's management, however, is taking various remedial measures one such being the raising of around Rs 2.80 billion equity from the stocks market through issuing right shares to its stakeholders.
Also, the cash-strapped company has arranged Rs 2 billion long-term financing for further investment in the Isomerisation project envisaged to double PRL's motor gasoline (petrol) production. These measures are aimed at helping PRL stay as a "going concern" as the company's loss after tax for July-DecFY15 grew to Rs 3.57 billion from Rs 1.25 billion of the corresponding period last year.
A quarterly account shows that during October-December FY15 the company's loss after tax surged to Rs 2.12 billion from Rs 976.44 million of the same quarter in FY13. The first six months of FY15 saw PRL's operational loss surging to Rs 3.33 billion from Rs 748.12 million of last year. "The company has accumulated a loss of Rs 7.06 billion resulting in negative equity of Rs 6.30 billion," said company secretary Asim Hamid Akhund.
Quoting extracts from the company's condensed interim financial information for H1FY15, the official said "these conditions may cast doubt on the company's ability to continue as a going concern."
To address these liquidity related issues, the company's Board of Directors in its March 9th meeting decided to issue a right issue at par subject to necessary approvals. "Purpose of the right issue is to raise sufficient funds to increase equity base of the company that will provide cover against negative equity and will also meet capital requirements and growth objectives which in turn would ensure continuity of refinery operation and strengthen its financial position," the company secretary said.
The right shares would be issued in the ratio of eight right shares for one ordinary share held by a stakeholder. The issue, the company is expecting, would generate at least Rs 2.80 billion equity.
The expected funds are envisaged to reduce dependence of the funds-starved PRL on bank borrowings that would enable the company to ensure smooth operations and early completion of Isomerization venture. Also, PRL has entered into an agreement for a long term syndicated loan of Rs 2 billion which would be invested in Isomerization project the inauguration of which, the financially-troubled company believes, would improve its profitability.
With work having started on it, the project is likely to be commissioned by the first quarter of FY16. The PRL's Rs 2 billion financing in Isomerization project is envisaged to adjust its current liabilities by the equal amount. Also, the injected equity is expected to help PRL produce EURO II compliant diesel through progressing on Refinery Upgrade Project and Diesel Hydro De-Suphurisation unit.
"In addition, amount of Rs 2.35 billion outstanding against PRL's Taraqqi Term Finance Certificates TFC1 and TFC2 which carry maturity of 3 and 5 years respectively is also classified under current liabilities due to 'put option' in these instruments," said Asim.
The PRL's board has projected the company's assets and liabilities, respectively, at Rs 29.218 billion and Rs 28.072 billion in FY16, Rs 30.917 billion and Rs 28.751 billion in FY17 and Rs 31.90 billion and Rs 29.004 billion in FY18. Based on its projections on present circumstances, the Board foresees the company to post a profit after tax of Rs 775 million in FY16 that would swell by Rs 1.020 billion and Rs 730 million in FY17 and FY18 respectively.
Based on the above projected profitability, the company secretary said that the PRL's management believed that the current negative equity situation would be overcome in future. While the company is running from pillar to post to achieve a financial turnaround, its external auditors said that PRL's financial "conditions indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern".
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