By: Topline Securities (Private) Limited
- Pak Elektron Limited (PAEL) has decided to issue 40mn shares to National Bank of Pakistan (NBP) to swap its Rs3.2bn debt into equity. As per the given formula, market price of the company should be Rs108 in order to retire all debt of NBP of Rs3.2bn at Rs79 issue price of new shares. If this happens, earnings of existing shareholders will have dilution impact of around ~4.0-5.0%.
- If we assume that conversion will take place at company’s current market price of Rs79.4 then the issue price of new shares will be Rs59.3. Thus, company will be able to retire Rs2.4bn of its debt for 40mn shares and remaining Rs793mn will be outstanding. In this case, overall earnings dilution will be ~6-7%.
- These shares will be issued to NBP as other than right issue in order to settle its old loan. To recall, PAEL restructured its debt in 2009-11 due to significant liquidity constraints primarily driven by low business activity and cash flow issues. All lenders except NBP (largest lender at that time) allowed 2-year grace period to PAEL. Restructuring of loans provided breathing space to the company.
Background and Operation
- PAEL is the pioneer manufacturer of electrical goods in Pakistan. In 1956, the company was set up by Malik Brothers, in technical collaboration with M/s AEG of Germany (AEG), to manufacture transformers, switchgear, and electric motors. However, in late 1960’s, AEG exited from the venture and sold their shares of PAEL to the Malik Brothers which was subsequently acquired by the Saigol Group of Companies (Saigols or the Group) in 1978. The group owns a majority stake in PAEL, and is also engaged in the textile and energy sectors. In 1981, as part of the group’s long term diversification strategy, PAEL ventured into the home appliances market.
- The appliances division specializes in manufacturing of home appliances which includes air conditioners, refrigerators, and deep freezers. This division contributed approximately 54% of the total gross revenues in 2014.
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