God has once again given us an opportunity to adopt Islamic financing modules & instruments. Now Alhamdulillah we have successfully signed an agreement regarding Islamic SUKUK of Rs 1100 Million for our BMR Membrane-II plant having capacity of 210 MT/Day of Caustic Soda production.
I would like to share that we enhanced our production capacity from 30 MT/Day in 1985 to 200 MT/Day by the year 1999, but after 1999 when we adopted MTFC mode of Islamic financing arrangement and got rid from the menace of conventional interest, our production capacity in almost seven years has reached to 545 MT/Day. This is all due to fortitude and courage given by the Almighty Allah, wishes of my parents and other associates as well as the spirit about elimination of Riba and the promotion of Islamic financing.
SITARA GROUP OF INDUSTRIES: Sitara Group of Industries is one of the renowned industrial groups of the country. This group started its industrial activity with the textile sector in 1956 under leadership of two brothers, Haji Abdul Ghafoor (Late) and Haji Bashir Ahmad. Sitara Group is now in textile (spinning, process and weaving), Chlor-Alkali industries and power plant.
Haji Abdul Ghafoor (Late) and Haji Bashir Ahmad, the present Chairman of the Group, were the two creative and courageous men, later joined by a second generation making a blend of experience and modern business knowledge and managing the business growth and development with assistance of a highly
qualified team of professionals. Faith in Almighty Allah and in their own abilities and commitment to the cause, untiring efforts and leadership qualities of the family established the group which now stands amongst Leading Industrial Groups of the Country, under the Chairmanship of Haji Bashir Ahmad.
UNITS:
-- Sitara Chemical Industries Ltd (Chemical Division)
-- Sitara Chemical Industries Ltd .(Textile Division)
-- Sitara Peroxide Ltd.
-- Sitara Fabrics (Pvt) Ltd.
-- Sitara Textile Industries Ltd.
-- Sitara Energy Ltd.
-- Sitara Developers (Pvt) Ltd.
charities:
-- Aziz Fatima Trust Hospital
-- Aziz Fatima Girls High School
-- Ghafoor Bashir Children Hospital
The evolution of membrane technology for Caustic Chlorine production is hardly 30 years old. The basic idea for developing membrane technology was to get rid of injurious technologies based on Mercury and Diaphragm Cells of asbestos technology.
Membrane technology is under continuous development by improving the cell construction and efficiency of the membrane. The old plant which is being replaced with the latest technology was installed in 1993 having capacity of 130 MT/day production, based on technology from M/S GRUPPO DE NORA (Italy).
With the passage of time there has been significant improvement in membrane technology, therefore, in line with our policy for acquiring latest technology, we decided to replace the old Plant with a new Plant based on latest technology by M/S UHDERNORA, a joint venture of M/S GRUPPO DE NORA (Italy) and M/S Krupp Uhde (Germany).
THE SALIENT FEATURES OF THIS TECHNOLOGY ARE:
1. Less consumption of Power as compared to old Technology.
2. Latest process control system.
3. Enhanced Caustic-chlorine production.
With the commissioning of our BMR Project, we shall be closing our Mercury Plant and thus making Sitara's production absolutely free from Mercury based Caustic Soda production. In addition to above, our production will also be increased from 430 MT/day to 545 MT/day ie 180,000 MT per annum which will be sufficient to meet the national demand for the next three years.
JOURNEY TOWARDS ISLAMIC SUKUK FINANCING: A major financing requirement arose due to a new 210 MT caustic chlorine project. This project is partly for expansion of 105 MT to meet the growing demand and partly of BMR obsolete technology and equipment. Being first SUKUK issue in the private sector in Pakistan, the issue is privately placed.
PRODUCT & TRANSACTION STRUCTURE: This product is based on co-ownership of assets "Shirkat-ul-Milk'. SCIL and the investors are joint owners of the assets financed through this SUKUK issue. This may be called as Musharika part of transaction. Investors have rented their share of project assets to SCIL and are compensated by rental payments.
The investors are entitled to rental in proportion to their share/outstanding share of investment in the project. Rental is based on a benchmark and partly on an agreed thresh hold of production level of that plant.
Investors are a consortium of banks comprising of Standard Chartered Bank, Allied Bank Limited, National Bank Pakistan, First Habib Bank Modaraba and Dubai Islamic Bank Pakistan Limited. These banks have agreed to allocate a part of their investment for development of secondary market.
After a grace period of two years, SCIL has undertaken to start purchase of SUKUK units, belonging to the investors, in instalments, scheduled over a period of three years. Once all SUKUK belonging to the investors have been acquired by SCIL the transaction will come to an end. For the purpose of this transaction, to represent the SUKUK holders and to protect their interest, Meezan Bank Limited (MBL) has been appointed as Trustee. The rental comprises of quarterly KIBOR rate + 1.65% per annum and upto Rs 0.05 per annum based on actual production level achieved.
Standard Chartered Bank is the Arranger/Advisor and Sheikh Nizam Yacouby, Co-ordinator. Standard Chartered Bank has issued a certificate of this transaction conforming to the principles of Sharia on behalf of their Sharia Supervisory Committee.
SCIL ROLE IN DEVELOPMENT OF ISLAMIC FINANCE: SCIL is the leading player in the caustic chlorine industry. Commitment for Islamization of financial dealings started in the year 1997. In order to move in this direction on a fast track, capital outlay on new projects was put on hold and likewise the expenditures which could be avoided for the time-being till end of the year 1999.
All interest based loans were settled. The first privately placed Musharika Term Finance Certificates (MTFC) were issued in the end of 1999 and with the proceeds thereof the long term loan was settled. For an expansion project, a second listed issue of Musharika Term Finance Certificates (MTFC) of Rs 360 million was arranged in the year 2002. Both of the issues were based on sharing of profits and losses. The profits are shared in such a manner whereby MTFC holders are entitled to a higher share up to a base operating profit margin, and beyond that their proportion of share is relatively lower.
MTFC' HOLDERS' ACTUAL PROFIT ENTITLEMENT FOR BOTH SERIES IS GIVEN BELOW:
=================== MTFC Rs 150 Million =================== Year Actual 2000 23.56% 2001 24.93% 2002 23.70% 2003 26.88% 2004 28.59% ------------------- MTFC Rs 360 Million Year Actual ------------------- 2002-03 18.19% 2003-04 19.21% 2004-05 21.25% ===================
The recent issue of Rs 1100 million SUKUK is relatively a much bigger amount and in the environment of a recent volatile situation of returns in financial markets to satisfy institutional investors with relatively more stable return projections and to try the new Islamic product SUKUK.
We are grateful to all those who have contributed directly or indirectly throughout this process, especially, inspiration of Maulana Tariq Jameel Sahib and guidance & support of Maulana Muhammad Taqi Osmani Sahib, Maulana Muhammad Zubair Osmani Sahib and Mr Muhammad Hussain, Chartered Accountant. We have been trying our best to support new Islamic banks opening in the country, through sponsoring and participating in the seminars and other events relating to promotion of Islamic banking & finance.
BOX: Sitara Chemical enjoys very cordial relationship with Diplomats, Government Functionaries, Corporate Sector, Banks, Customers and Suppliers 3.