KARACHI, June 8: Sitara Chemical Industries Limited— the flagship company of the Sitara group— is all set to issue the country’s first quoted private sector corporate bond, that would be based on profit and loss sharing.
Around 22 Term Finance Certificates (TFCs) have been floated by the corporate sector in the country’s debt market so far: five this year; 12 last year and ten during all of the five years before. The earliest such debt instrument was perhaps the Rs232 million TFC of Packages Limited that was issued on February 7, 1995. But while all of those TFCs have offered a floating yield, Sitara Chemical’s upcoming TFC would be the first to offer the investors, a return on profit and loss sharing basis.
The size of Sitara’s TFC— expected to hit the private debt market on June 19 and 20— would be Rs360 million with pre-IPO at Rs255 million and Initial Public Offering (IPO) amounting to Rs105 million. Aggregate tenure of the TFC would be five years; it has been rated AA- (double A minus) by credit rating agency, JCR-VIS. Brokerage, InvestCap and Saudi Pak Industrial and Agricultural Investment Company, are advisers to the issue and Meezan Bank is the shariah adviser of the issue.
Sitara Chemical Industries operates a Chlor Alkali plant on the Faisalabad-Sheikhupura Road. Caustic soda is the company’s mainstay. While the plant also produces such other products as, Sodium Hypochlorite, bleaching powder, liquid chlorine, Ammonium chloride and hydrochloric acid. The major contribution in both production and sales comes from caustic soda.
It was perhaps in 1996 that the company diversified into textiles and began production and sale of cotton yarn.
The company took the initiative some years ago of purging the interest/riba from its operations and all its long and short term debts are being attuned to the Shariah compliant modes of financing. The profit and loss on the TFC proposed to be issued now, would be linked to the company’s chemical division’s operating profit/loss.
The recently released accounts of the company for the three quarters ended March 31, 2002 showed the chemical division posting operating profit of Rs308.3 million. Textile division contributed profit of Rs39.1 million in the aggregate operating profit of Rs347.3 million.
Sales of chemical division for nine months period stood at Rs1.413 billion; textile sales were Rs793 million and the aggregate sales of the company amounted to Rs2.206 billion, up from Rs2.136 billion in the corresponding three quarters of 2001.
The company made pretax profit of Rs185.4 million for the nine months under review, which was slightly short of Rs190 million in the similar period of last year. Company chairman Haji Bashir Ahmed stated that the sales for the third quarter (Jan-March) had decreased to Rs691 million, from Rs727 million in the corresponding period of 2001, mainly due to ‘deflated yarn prices’. He mentioned that the third quarter carried power cost increases of Rs0.17/kWh, which translated into an increase in power costs by as much as Rs10 million. The company also undertook some non-recurring repairs and renovations on the Caustic Soda plant that cost the company another Rs10 million.
Fixed capital expenditure during the nine months under review amounted to a huge Rs171.2 million. The chairman said that the company was working on a caustic chlorine expansion plant of 132 tons per day liquid caustic capacity.
The company held Rs185.5 million in paid-up capital; including the several types of reserves and surplus, shareholders’ equity amounted to Rs797.3 million, which produced the break-up value of Rs42.96 for the 10-rupee share (not including the surplus of Rs290 million on revaluation of fixed assets); the stock is trading at the market at about Rs47. The board has maintained a stream of dividend disbursements since listing at the stock exchange in 1987. Cash dividend was paid at 55 per cent in each of the past two years.
Current ratio worked out at 1:1. Including the fixed assets of Rs1.248 billion, the total assets of Sitara Chemical Industries stood in the books at Rs2.651 billion at end-March 2002.