May 8, 2003	Thursday	Rabi-ul-Awwal 5, 1424

KARACHI, May 7: Pakistan Steel is seriously considering to retire principal amount of about Rs10 billion of its debt burden to save on payment of mark up every year but the five top banks that offered this loan are reluctant to accept this offer.

“I have sounded this offer to my bankers informally asking them for a suitable discount but did not evoke an encouraging response,” the Chairman of Pakistan Steel retired Lt. Colonel Mohammad Afzal told Dawn in his office on Wednesday.

Declared a sinking business enterprise about three years ago when it sought financial restructuring of accumulated debt of over Rs19 billion, Pakistan Steel is now literally awash with cash.

In last two years Pakistan Steel has paid Rs4.67 billion to the banks against principal amount and on mark up after more than Rs19 billion was frozen and bifurcated into Rs11.35 billion principal amount and over Rs7 billion mark up. Under the arrangement the principal amount and accumulated mark up is to be paid back in 12 years. Clearance of this debt is expected to help Pakistan Steel improve further its profitability in the coming years.

Thanks to the rising prices of steel products showing no signs of let up coupled with increasing demand from the domestic market, Pakistan Steel hopes to earn the highest record amount of Rs21 billion from sales in the current fiscal year by June next. The PS Chairman is confident of showing a net profit of Rs1 billion during 02-03. “Compare this expected profit with original budget estimate of Rs60 million and a target of Rs700 million given by the Industries and Production minister Liaquat Jatoi,” he pointed out. Pakistan Steel now boasts of maintaining a cash balance of more than Rs6.6 billion, which is perhaps one of the highest if not the highest of any business enterprise in Pakistan.

Pakistan Steel has asked the Productions and Industries Ministry to consider this proposal of shedding off the loan burden of Rs10 billion principal amount. Afzal hopes that serious negotiations with the bankers will be held on this issue after June.

Banks are reluctant to accept this offer for obvious reasons. Banks have now with them liquidity in excess with no apparent avenues of investment. Total adjustment of loan with Pakistan steel in one or two instalments will deprive banks of an income source and hence their reluctance.

Pakistan Steel has, however, struck a deal with the National Bank of Pakistan on acquisition of a closed public sector unit. The NBP had taken control of a spinning machine unit of State Engineering Corporation after it failed to pay back Rs1.6 billion to now defunct National Development Finance Corporation (NDFC). The NDFC was merged with the NBP. The NBP therefore took over the control of this unit.

Open auction of this unit invited the highest bid of Rs 155 million only. Pakistan Steel has now offered Rs160 million to the NBP and is in process of acquiring its supervision. “This unit is located on 34 acres of prime land in Lahore,” Afzal said adding that real estate worth of land and building is about Rs450 million.

He hopes that after making some investment in the project Spinning Machine unit can substantially meet spare parts and equipment demands of Pakistan Steel. This unit was set up in public sector to meet demands of textile industry but could not operate because of textile tycoons’ preference to depend on imports rather than on indigenous sources of manufacture.

Afzal Khan said that the Economic Coordination Committee of the cabinet late last month decided on its own to enlist Pakistan Steel on the stock exchange and offer 10 per cent shares.

“I am considering this decision,” the PS Chairman who expects that the current buoyancy in the capital market and enviable financial health of his organization should help in getting a very encouraging response from the investors.

He said that government had offered Rs1 billion help to Pakistan Steel for providing money to those who sought golden hand shake facility and the State Bank of Pakistan too offered Rs1 billion running finance assistance. But Pakistan Steel did not avail any of these two facilities.

The State Bank has now offered foreign exchange component assistance to Pakistan Steel in its expansion programme. A team of Russian experts is being awaited to finalize a deal for taking up production capacity to 1.5 million tons by 2005. Russians have been advised to finalize their basic document by end of this month. “We will accept their offer on our terms and would invite international tenders if it was considered necessary,” the PS chairman said.

The Chinese have also shown interest to expand the capacity to 3 million tons. Chinese have also been told to offer a competitive financial package for this expansion. The two expansion projects can be taken up simultaneously or separately. But Pakistan Steel wants to have a capacity of 3 million tons a year by 2006.