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Principals invest $91m in ICI Pak

RECORDER REPORT

KARACHI: ICI Plc. UK, have made a new equity investment of $91.1 million in ICI Pakistan which would help reduce the borrowing costs of the company for its PTA plant.

According to an information, ICI Plc UK, the major shareholder in the company provided loans worth $68 million from Mortar Investments International Limited (a financing arm of ICI Plc. UK) at an extremely competitive rate of one percent above 6-month LIBOR. This was in addition to the $50 million received in 1998, thereby increasing the total amount lent by ICI Plc to $118 million.

In addition, new equity was called for and the right issue of 60 percent was almost fully subscribed by ICI Omicron B.V. (Netherlands) who also took up the entire un-subscribed portion as underwriters, which led to an inflow of $91.1 million as new equity from ICI Plc. UK. This inflow of new equity will result in savings in borrowing costs of over Rs 700 million per annum.

The new ICI Plc debt, the company's long term financing requirements also necessitated an additional loan of Rs 1.7 billion from a syndicate of banks led by ANZ Grindlays Bank and United Bank Limited. After repaying $30 million out of $118 million debt to ICI Plc, made possible to improve the cash position of the company. The company's aggregate long-term debt stood at Rs 19.38 billion out of which Rs 18.89 billion or 97.5 percent is related to the PTA project.

The operating profit in the non-PTA portfolio businesses for 1999 was Rs 1.112 billion, which represents a 25 percent increase over 1998. Operating loss in the PTA business for the full-year was restricted to a level lower than that for the six-months to 31 December 1998. Additionally, the company renegotiated the cost of short-term borrowings, which led to a reduction in mark-up rates from range of 13.5 percent to 16 percent per annum in 1998 to a range of 12 percent to 14.5 percent in 1999.

However, despite this significant reduction in borrowing costs and the inflow of new equity, the full-year's interest cost, together with a continuing PTA loss, negated the profit improvements of the non-PTA business and the legal entity incurred a loss before tax of Rs 3.736 billion in 1999.

In the PTA business, price and margins are expected to remain under pressure during the first half of 2000. However, increased demand is forecast for the second half of the year and this is expected to push up prices, and consequently margins.

Looking forward to the year 2000, the regional environment for the PTA and polyester staple fibre businesses is positive and the company is well poised to benefit from this market up-turn with its competitive cost base and highly efficient operating practices.