Rs 6.6 billion deal signed with PAFL: DHCL sells fertilizer subsidiary for want of gas

Dawood Hercules Corporation Limited (DHCL) is selling its 100 percent shareholdings in Dawood Hercules Fertilisers Limited (DHFL) to Pakarab Fertilisers Limited (PAFL) due to shortage of gas. The development came to give a setback to the federal government's efforts to make the fertilizer companies run on the imported liquefied natural gas (LNG) that a DHCL official said was not commercially viable for the company.
DHFL, a wholly-owned subsidiary of DHCL, is being sold out through a Share Purchase Agreement (SPA) the Corporation signed with PAFL on Monday. The monetary value of the deal totals at Rs 6.6 billion. However, minus the company's Rs 4.6 billion long-term debt obligations the amount of transaction has been calculated at around Rs 2.2 billion.
"The price is essentially the differential between the agreed enterprise value of DHFL... and the total long-term loans... and, at present, the price is approximately Rs 2 billion," reads a stock filing by the DHCL. According to Company Secretary Shafiq Ahmed, under the SPA 100 million shares of DHFL would be bought by Pakarab at Rs 22. The materialisation of the deal, however, is subject to what Ahmed said certain corporate procedures like regulatory approvals, clearance of bank loans etc.
"It was not feasible for us due to shortage of network gas," the secretary replied when asked as to what made his company sell its fertilizer manufacturing subsidiary while the government's current monetary and budgetary policies, seemingly, favour the heavily-leveraged sector like cement and fertilizer.
DHCL, after holding interminable discussions with the government and other relevant institutions, has developed an impression that there would be no network gas available for DHFL going forward. "So we thought why to unnecessarily incur a huge operational loss of Rs 100 million," Shafiq told Business Recorder. The DHFL whereas required what the company official said a continuous supply of 38 mmcfd gas for smooth operation, the SNGPL was hardly able to ensure supplies of 45 days in 2014 and 10 days this year (2015).
"Since 2012 the graph of gas supplies has constantly been declining," he claimed.
About the LNG factor, the secretary said the government had offered his company to run its manufacturing units on the imported thus costly regasified fuel. Imported by Pakistan State Oil at $ 8, the price of LNG, all the taxes added, accumulates to $ 14. "This is not viable for us commercially," he said adding "It does not even take us to the breakeven stage".
Then how would the buyer, PAFL, be managing its operational costs? "I have no idea about that. They may but we can't," the DHCL official was outright. Pakarab Fertilisers, according to Petroleum Minister Shahid Khaqan Abbasi, was one of the private sector buyers of the first 150,000 cubic meters LNG commissioning cargo brought by FSRU-type M/v Exquisite to Port Qasim later in March. Any source of fuel priced over and above $ 8, Shafiq maintained, was not feasible for his company.