The board of directors of Packages Limited has resolved to sign an agreement to start a 50/50 joint venture (JV) with Stora Enso OYJ Group of Finland in its 100 percent wholly-owned subsidiary Bulleh Shah Paper Mills (Pvt) Limited. According to a communication sent to Karachi Stock Exchange, Stora Enso is the second largest paper and board producer in the world.
Their initial shareholding will be 35 percent by way of subscription to right shares with a commitment to increase the shareholding to 50 percent at a later stage subject to certain conditions being met, it added. The JV will include operations in Kasur Mills (paperboard and corrugated packaging) and Karachi (corrugated packaging).
The main reason for this joint venture is that it gives Packages' paperboard and corrugated packaging businesses core focus and access to Stora Enso's technology as well as an opportunity of being a regional player. The target of joint venture is to serve key local and multinational brand owners in Pakistan with packaging products, such as liquid packaging board, folding boxboard and corrugated packaging.
Also, the JV will continue with its extensive investment programme to improve its product quality and competitiveness including new alternate fuel based boiler investment. The agreed value for 100 percent of the joint venture company is $107.5 million on a cash and debt-free basis with additional equity to be subscribed by Stora Enso, through right shares in the joint venture company of $17.5 million, based on the financial results of second half of 2012 and the first half of 2013. Its sales are forecast to be approximately $130 million in 2012. Packages will continue to hold minimum 50 percent ownership and future profits of the joint venture.
As part of the agreement, both parties are committed to a substantial $135 million investment programme during 2013 and 2014 to develop the business further. To finance this investment programme, Packages will contribute $18.5 million in cash to the JV Company subject to regulatory approvals. The joint venture will meet Stora Enso's and Packages investment targets and the investment at Kasur mill, including a new alternate fuel based power plant, will further improve the product quality, competitiveness and profitability of the mill.
The joint venture will employ about 950 people and its annual capacity will be 360,000 tons of paper board when the investments have been completed. The board of directors of Packages believes that this partnership will bring considerable benefits to ht shareholders. The joint venture agreement is expected to be completed during the first quarter of 2013, subject to approval by regulatory and competition authorities, and other customary transaction conditions, it added.