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KARACHI: Engro Corporation Ltd has sold off 295 million shares of its subsidiary -- Engro Fertilisers Ltd -- to local and foreign institutional investors and high net worth individuals (HNWI) by way of a private placement at a price of Rs65.47 per share.

“The price”, the company said in a statement on Wednesday “was discovered through a private book building mechanism”. Back of the envelope calculations shows that Engro may have realised Rs19.3 billion or $184m from the transaction.

Engro Fertilisers has been recognised as the Engro conglomerate’s flagship, being the chief contributor to the group’s profitability. The sale of a part of its equity surprised some investors at the market. The market price of the stock in EFert was slightly bruised by Rs0.74 at the stock market on Wednesday to close at Rs67.61, with trading seen in a sizeable volume of 10m shares.

EFert Chief Executive Officer Ruhail Mohammed told Dawn that he could not speak for Engro Corporation, but the divestment was perhaps a part of the holding company’s strategic initiatives with respect to its subsidiaries and in order to enable the company to diversify its portfolio and meet its capital allocation requirements for new projects such as Sindh Engro Coal Mining Company.

He said that EFert was continuing to explore opportunities both at home and abroad to expand its business within the agri input space. He elaborated that in foreign lands, the company was looking into the possibilities of expansion of manufacturing fertilisers, while within the country it was concentrating on expanding the scope of marketing of products such as insecticides, pesticides, phosphates and others.

Mr Mohammed thought that the Finance Bill 2016 was a mixed blessing for the fertiliser industry. “The huge agri sector allocation will go to assist poor farmer economics which may help lift volumes, though the fertiliser companies will also be required to contribute to the subsidy”. He considered the negatives as the levy of super tax and adjustment of provincial sales tax against federal sales tax.

Equity analyst Fahad Rauf at Taurus Securities Ltd commented that through the sale of 295m shares, which work out at 22.2pc of EFert holding by Engro Corp, the parent had reduced its stake in EFert to 57pc from 79pc. Besides the total cash flow of Rs19.3bn the deal would provide Engro Corp a one-time gain of Rs31 per share in the unconsolidated accounts. The cash flow would be directed to Thar Coal Mining and Power Project for which Engro requires $400m to finance its equity portion.

Published in Dawn, June 9th, 2016