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Rebuilding on ruins of nationalisation

November 11, 2013

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TARIQ Sayeed Saigol is on Pakistan’s rich list, in spite of having made some choices that didn’t turn out well for the growth of his business. Still, he commands the kind of respect of his peers, policymakers and politicians that not many can match.

His Kohinoor Maple Leaf Group (KMLG), which has interests in cement, textiles and energy and total assets of close to Rs50 billion, is the fifth largest grey cement producer, with a market share of eight per cent.

It is also the largest white cement maker, with a market share of 90 per cent. His horizontally and vertically integrated textile company is one of the country’s largest producers and exporters of yarn, finished fabric and home textiles.

The group’s cement and textile sales topped Rs31 billion in 2012-13, with pre-tax profits surging close to Rs4 billion, but only after a few bad years that saw Saigol’s companies suffer from losses, financial squeeze and a little bit of equity erosion because of the economic slowdown, energy shortages and high debt repayments.

His cement company’s earnings-per-share (eps) rose dramatically to Rs6.11 per share from Rs0.84, and his textile company’s eps rose to Rs1.97 a share from Rs0.48 a year earlier.

Tariq Saigol hasn’t invested money in any project in the last three years, and has instead focussed on long-term debt reduction by selling non-core assets of his companies and diverting the income towards debt retirement and cutting costs. Lower interest rates and rising domestic cement prices have also helped. His strategy has paid off, as he has significantly cut debt by Rs10.5 billion to Rs20 billion.

The only investment being planned at the moment — the construction of a 20-25MW coal-based power plant — is also part of a strategy to decrease financial burden through cost-cutting where possible and, thus, improving cash flows.

“We are not planning any new investment over the next couple of years. We intend to continue our focus on reducing our long-term debt to reclaim our leveraging position,” the KMLG chairman told Dawn in an interview.

The Saigols, who hail from a place called Khotia (now Saigolabad) near Chakwal, were in farming and a little bit of trading before Sayeed Saigol, the second among four brothers, ventured out to set up a shoe shop in Calcutta in the 1930s.

Soon afterwards, his business expanded into a rubber shoe factory — Kohinoor Rubber Works. When World War II came to Burma (now Myanmar), it gave a huge boost to his business, as demand from the Allied forces for shoes, rain coats and other rubber products soared dramatically.

By early 1940s, Saigol had seen the division of British India coming, and transferred his property to Lahore. After the partition, he saw an opportunity in the textile business, and helped by his two younger brothers — Yousuf and Bashir — set up his first spinning mill in Lyalpur (now Faisalabad) in 1949.

Soon afterwards, the family expanded its spinning capacity to Rawalpindi and Gujjar Khan and added weaving, finishing and printing facilities, before buying a sugar mill in Jauharabad from the Pakistan Industrial Development Corporation (PIDC).

Frustrated by the lack of Punjabi businessmen’s access to bank credit, they founded the United Bank in 1958-59, and diversified into the basic chemicals business as well.

By the early 1960s, the Saigols had become one of the top business groups — one of the 22 families that Dr Mehbubul Haq had alleged dominated the economic and financial life of Pakistan and controlled about two-thirds of industrial assets, 80 per cent of banking and 79 per cent of the insurance business in the 1960s — until Bhutto started nationalising their assets.

The financial squeeze experienced by his companies in recent years is not the only difficult time the 64-year-old Tariq Saigol has seen. The Bhutto government’s nationalisation policy, which also set in motion the unravelling of one of the country’s most diversified business empires, is probably the worst memory of his life.

It was on a cold, early January morning in 1972 when police ‘threw’ him and his cousin Naseem Saigol out of their large Kohinoor Chemicals Complex at Kala Shah Kaku, an industrial town over half an hour drive north of Lahore. The entire basic chemicals business of the Saigol family was nationalised.

The two young cousins weren’t even allowed to collect their personal belongings as they were forced out of the complex, on whose premises they were planning to soon add a new facility to manufacture PVC.

Over the next four years, the Saigols lost their banking, ginning and edible oil businesses to the nationalisation drive as well. By 1976, the family was left with only the textile and sugar businesses. Frustrated and depressed, they decided to split the remaining assets amongst the 15 cousins, fearing the government would take whatever was left of their empire any time soon.

“As we were the most diversified business group, we were hit in each round of nationalisation. It split up our family as well. Had nationalisation not taken place, our family would have grown as one of the top Asian business groups, like India’s Tata family,” Tariq said.

“Nationalisation severely damaged the economy, slowed down industrialisation, discouraged investment, and destroyed many families who could never recover from the losses,” he said. “I wouldn’t be complaining today if the nationalised businesses had survived and prospered under the government’s control. Our chemicals complex, for example, is now reduced to ruins.”

Tariq has advised almost every government, civil and military both, since the early 1990s on economic policy, and has also led powerful business lobby groups like the All Pakistan Textile Mills Association and the Lahore Chamber of Commerce and Industry that his father had helped found.

However, he kept himself from investing for years in the two textile factories in Rawalpindi and Gujjar Khan that he and his brother Taufique had inherited along with their two cousins when the family’s assets were split.

It was only in the early 1980s when he began investing in the existing business to upgrade technology and expand the spinning, weaving and processing capacities. By then, his cousins had sold their holdings in the company to him and his brother. Later on, he set up more state-of-the-art spinning, weaving, processing and stitching units in Chunian and on Raiwind Road near Lahore.

In 1992, Tariq Saigol decided to diversify into the cement business when the first Nawaz Sharif government launched its economic reforms agenda and initiated the large-scale privatisation of state-owned enterprises (SOEs). His group partnered with Mian Mohammad Mansha, a close relative, to buy D.G. Khan Cement and the Maple Leaf Cement Company.

After some time, Saigol bought Mian Mansha’s holding in Maple Leaf and sold his in D.G. Khan to him. Ever since, he has invested heavily in cement manufacturing, and his company has the most debt in the sector.

And in spite of his reputation as a smart and dynamic businessman, Tariq Saigol has made bad decisions. The one he regrets even today is his decision to not participate in the privatisation of UBL.

“When the government was planning to sell UBL, (former prime minister) Shaukat Aziz called me and asked me to bid for the bank that my family had established. He also offered to help find me a [foreign] partner [to raise funds for the bid]. When I consulted my brother, he thought it was a big project and required massive investments and we wouldn’t be able to handle it. I turned down the offer. That was a mistake,” he recalled.

Instead, he decided to invest heavily in his cement plant to upgrade technology and expand its capacity as the domestic demand for the product rose quickly on the back of swift economic expansion in the country under General (retd) Pervez Musharraf, and as opportunities of export to India and Afghanistan opened.

But when domestic demand decelerated on sluggish economic growth and exports to India and Afghanistan slowed down, the group found itself squeezed financially. Rising interest rates exacerbated the situation, and the group found it difficult to service its debt at one stage. “Had we bought UBL, things would have been much different,” he agreed.

Now, Saigol’s future business expansion and investment plans hinge largely on an early economic recovery under Nawaz Sharif. Does he think the new government is moving in right direction? Like most businesspeople, Tariq backs the new government’s reforms agenda. However, he is not happy with the delay in its implementation.

“Apart from increasing the electricity prices, the government hasn’t made the tough, [politically] unpopular decisions — restructuring and privatising SOEs, tax reforms, reducing electricity theft and distribution losses etc.” he replied “With a definite public mandate, the Nawaz government stood a better chance to take the difficult decisions and revive the economy. But the prospects of growth have diminished in the last five months. The sooner the government takes the ‘big ticket’ decisions, the better. It will become more difficult to implement these decisions with the passage of the time,” said Saigol.