Pak-China JV to set up tyre plant

Service Global Footwear Limited (SGFL) - a leading exporter of footwear - has entered into a joint venture with Chinese firms to establish a tyre manufacturing plant for buses and trucks with the aim of exporting a majority of the merchandise.

The new production facility is being established in Pakistan at a time when the US and European Union (EU) have imposed anti-dumping and countervailing duties on tyres made in China.

The development may help the joint venture win export orders from Western markets as the grant of tax exemptions to the company will keep its cost of production comparatively low.

The scheme is in line with the government’s key target of attracting new investment in export projects to improve the country’s international payment capacity and build foreign currency reserves.

Total cost of the project is estimated at around Rs16.43 billion. It is expected to start production in June 2021.

Accordingly, SGFL has targeted to raise a minimum of Rs1.55 billion by offering its 40.88 million shares (around 20%) to the institutional and rich individual investors on April 7-8 and to retail investors on April 12-13 at the Pakistan Stock Exchange (PSX), according to its prospectus having details of the share offer.

The company will begin the auction of shares at a minimum price (floor price) of Rs38 per share.

The price may increase by a maximum of 44% to Rs53.2 per share during the two-day auction for the institutional and rich individual investors. Shares will be sold to the successful bidders at a strike price, which will be set during the auction process.

The company aims to sell 75% of the 40.88 million shares to the institutional and rich individual investors and the remaining 25% to retail investors at the strike price.

SGFL will become the second company to offer its shares to the public at the PSX in 2021. Later, the company will be listed at the bourse, meaning that investors will be able to trade its shares.

“The prime purpose of the issue for SGFL is to invest … into a subsidiary company of SIL ie Service Long March Tyres (Pvt) Limited and become a stakeholder of approximately 18.91% of the total shareholding of SLM,” read the prospectus.

SIL (Service Industries Limited) has ventured into manufacturing of all steel radial tyres of trucks and buses (TBR tyres).

For this purpose, SIL has entered into a joint venture agreement with Chaoyang Long March Tyre Co Ltd and Myco Corporation and established a joint venture company in Pakistan namely Service Long March Tyres (Pvt) Limited on January 7, 2020.

The project is being financed through 50% debt and 50% equity with installed production capacity of 600,000 tyres per annum.

“Total debt requirement of Rs8.215 billion has been arranged through long-term financing facilities from different financial institutions. Of the total equity commitment of Rs8.215 billion, Rs4.500 billion has already been injected….”

“As per SLM’s estimation, 85% of the total sales will comprise exports,” the prospectus added.

“SLM is the first project that has been granted the status of Greenfield Industrial Undertaking and Sole Enterprise Special Economic Zone, which has allowed the company to avail tax exemption for 10 years,” Topline Research analyst Sunny Kumar said in a commentary.