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Fauji Fertilizer invests millions of dollars in Thar as Urea sales pick up

Fauji Fertilizer
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Fauji Fertilizer Company (FFC), one of the largest legs of the Fauji industries Pakistan, has agreed to an investment of $121 million in Thar Energy Limited (TEL). This is the largest unilateral investment in the desert’s prodigy in a long while.

In a notification issued last month the company said, “The shareholders of Fauji Fertilizer Company Limited (the “Company”), in an Extraordinary General Meeting of the Company, approved investment in Thar Energy Limited of up to USD 121 Million or its Rupee equivalent (inclusive of total equity investment of up to USD 39 Million and other sponsor support commitments).”

Previously, FFC in a notification sent to the exchange earlier this month said “On April 3, 2018, the board of directors of FFC recommended for approval by the company’s members in terms of Section 199 of the Companies Act, 2017 at an Extraordinary General Meeting of the Company, equity investment of up to $39 million (or its rupee equivalent) and sponsor support commitments of up to an additional $82 million in Thar Energy Limited (TEL).”

Under the current regime, lower supply of urea was due to the closure of a few comparatively larger contributing plants. Moreover, the government is mulling to respond to this situation by importing urea around 300-600,000 tons.

The decision has been taken by FFC further to its decision to invest equity in TEL amounting to $10 million, taken on January 30, 2018, as a result of which TEL will become an associated company of FFC.

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“Hence the approval of FFC’s shareholders is being sought for the investments to be made in TEL after it becomes an associated company of FFCL, comprising equity investment of up to $39 million, inclusive of the said equity investment of up to $10 million to be made prior to the date of the EGM, and sponsor support commitments of up to an additional $82 million, thereby resulting in total investment of to $121 million,” the notification further read.

FFC, incorporated in 1978 manufactures, purchases, and markets fertilizers and chemicals in Pakistan and Morocco. Thar Energy Limited develops, owns, operates, and maintains a mine mouth coal power plant for generation of electricity. The company was incorporated in 2016 and is based in Karachi, Pakistan. FFC shares were trading at Rs96.25, up Rs1.07 (+1.12 percent) at time of filing this report. KSE-100 index in the first hour was trading at 45,847.52 points, down 29.18 points.

Fauji fertilizers is one of the largest contributors to the fertilizer industry. Pakistan’s economy being predominantly agricultural, it is dependent on Urea and other fertilizer-centric products. Urea has been one of the most prominent economic partisans in the agricultural market. This month, Urea off-take is likely to post growth of 51 percent YoY to 377,000 tons due to early procurement by dealers/farmers in wake of its short supply and anticipation of rise in urea prices, as talks on the removal of urea subsidy were hovering around in the said month.

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Under the current regime, lower supply of urea was due to the closure of a few comparatively larger contributing plants. Moreover, the government is mulling to respond to this situation by importing urea around 300-600,000 tons. To note, the government has also projected urea imports amount of Rs5b (130-150k tons based on current landed cost) in its latest federal budget of FY19. Among companies, Fauji Fertilizer Bin Qasim’s urea sales is expected to clock in at 37,000 tons, up by 80 percent YoY, followed by Fauji Fertilizer Company (FFC), +61 percent YoY to 160,000 tons, and Engro Fertilizer (EFERT), +25 percent YoY to 115,000 tons.


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