Pakistan’s largest footwear exporter to sign JV with China to set tire plant

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

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A Joint Venture has been signed between Pakistan’s Service Global Footwear Limited (SGFL) and a Chinese firm to establish a tyre manufacturing plant for buses and trucks with the aim of creating an export-centric brand.

Service Global Footwear Limited (SGFL) held an initial public offering (IPO) briefing on March 24, 2021, to inform investors of the launch of SGFL Joint Venture(JV) on the stock market. The company is offering shares to raise funds to invest in a new JV.

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 tires made in China.

This will incentivize foreign buyers to look for potential new markets like Pakistan, helping the country with an increase in exports.

This will help Pakistan improve its balance of trade as exports rise, thus increasing foreign exchange reserves, according to the wishes of the incumbent government.

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

Reportedly, 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 is expected to 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 institutional and potential individual investors and the remaining 25% to retail investors at the strike price.

SGFL will become the 2nd company to offer its shares to the public at the national stock exchange in 2021. Later, the company will be listed on the bourse, meaning that investors will be able to trade its shares.

According to the prospectus, the prime purpose of the issue for SGFL is to invest in a subsidiary compan0

y of SIL ie Service Long March Tyres (Pvt) Limited and become a stakeholder of approximately 18.91% of the total shareholding of SLM.

SIL (Service Industries Limited) has ventured into manufacturing all-steel radial tires 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 an installed production capacity of 600,000 tires per annum.

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According to analysts, 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.