KARACHI, Sept 6: The Nishat Group has unfolded its Scheme of Arrangement for the amalgamation of Group's concerns: Umer Fabrics into Nishat Mills and Nishat Chunian.

The group has specified the benefits it aims to reap from the proposed amalgamation.

"First amongst these is an expanded resource base, referring to higher capital base for the post-merger Nishat Mills and Nishat Chunian", says Khalid Iqbal Siddiqui, analyst at brokerage firm the Invest Cap.

He said that the group also expected to improve risk absorption capacity due to the enhanced capital base. Administrative costs might also be sharply reduced, as the number of companies would be cut down from three to two.

The merger plan according to the group was in line with the encouragement by the regulatory authorities, which have forever asked companies to get stronger and viable entities, through mergers.

The Nishat Group is expected to place before the shareholders the proposed Scheme of Arrangement at the stockholders' meeting on September 29, 2004. According to proposed plans, Umer Fabrics would be 'de-merged', in the fashion of the ICI-PPTA de-merger.

Umer Fabrics will be divided into two parts, i.e., Umer Fabrics 1 and 2. Khalid Iqbal Siddiqui at the InvestCap says that it would be interesting to see exactly how the group decides to go about splitting Umer Fabrics. As per the proposed Scheme, Umer Fabrics 1 will be merged into Nishat Chunian and Umer Fabrics 2 will be merged into Nishat Mills.

For the basis of merger, the Group would consider the Book value, average price, and average dividends. Three methods shall be used to determine the respective swap ratios for the two amalgamations.

Firstly, the book value of the shares as per the 2004 annual audited accounts will be used. Looking at current book values, for 2 shares in Umer Fabrics its shareholders will get close to 1 share in Nishat Mills, and around 1.6 shares in Nishat Chunian.

Based on average prices, the swap would be 0.8 shares of Nishat Mills and 0.7 shares of Nishat Chunian for 2 shares of Umer Fabrics. Finally, based on average payout of last three years, the swap would be 1.4 shares of Nishat Mills and 0.7 shares of Nishat Chunian for 2 shares of Umer Fabrics.

Analyst believes that it would be interesting to see how the Group goes about its plans to split up Umer Fabrics and what would be the capital structure of the company's two de-merged parts: i.e., Umer Fabrics 1 and Umer Fabrics 2.