KARACHI, Dec 5: The Fauji Cement offer of 638 million right shares, to shareholders at discount of 50 per cent (at Rs5 for the par value of Rs10) may have now brought windfalls for the parent company-- Fauji Foundation.

The offer at 92 per cent was to be subscribed or renunciated by the shareholders by June 20, 2011. It was hugely under-subscribed. Figures available show that the individual shareholders opted for only 14,000 shares, paying Rs572,000.

Fauji Foundation itself took up 172 million shares, which amounted to 20 per cent of the offer. Yet as underwriters to the issue, Fauji Foundation, was obligated to pick up all the unsubscribed right shares, which amounted to a huge 465 million shares or 73 per cent of the offer. Including its own subscription, it meant Fauji Foundation having to saddle itself with almost 99 per cent of the shares on offer. It must have been painful for the Fauji Foundation at such a setback to its right issue. Instead of raising capital from the market for its new plant, the company had to convert its own cash into equity.

But that was June 2011, when investors' sentiments in stocks were at low ebb. For the year 2010-11, the KSE was also able to mobilise comparative tiny funds amounting to Rs31 billion, which stood down to the lowest in seven years. The average traded price of the Fauji Cement stock in 2011 was at heavy discount--at Rs5.54. Besides the dullness of the stock market, the Fauji directors also preferred retention over distribution of profit to shareholders. As a result, the company had skipped payout in all the years, after paying Rs1.50 for the year 2006.

"Due to heavy investment in construction of new line, the company has not declared dividend for shareholders," directors stated in their annual report for 2011.

With the turn of tide and a bull onslaught at the Pakistani capital markets, the KSE index of 100 shares has climbed to currently dodder at its all-time high 16,600 points and the stocks have this year to-date yielded fabulous return of 49pc, easily performing all regional and global equity markets. The retail and small investors in equities have been dangerously and indiscriminately dabbling in second and third tier scrips (penny stocks) which has triggered widespread trading in all sectors across the board. The share in Fauji Cement stock has climbed to Rs6.90; its high price was Rs7.40 in 2012.

A cursory glance at the current holdings show that Fauji Foundation has sold 330 million shares, since the beginning of the bull run. It is for that reason that in most trading days, Fauji Cement ranks among the three top traded scrip on the Karachi Stock Exchange.

What might have seemed a junk for the shareholders who decided to renunciate the 2011 huge right issue offered at half the face value, appears to have brought big bonanza for Fauji Foundation, which at the time of the offer was constrained to pick up the unsubscribed right. Even at the selling price difference of a rupee, Fauji Foundation could have made Rs330 million on profit-taking in offloading part of its huge holdings.

Fauji Cement Company is located at Jhang Bhatar, district Attock. The company claims to be a leading producer of the Pakistan Cement Industry and a major concern of the Fauji Foundation. Incorporated as public Limited Company, it started operations in 1997. For the last two years, June 30, 2011 and 2012, Fauji Cement recorded profit after tax at Rs 426 million (earning per share: Re0.52) and Rs553 million (eps:Re0.29). Total assets of the company amounts to Rs 14 billion.