Askari Cement merges into Fauji Cement in a share exchange deal

KARACHI: Fauji Cement Company Limited (FCCL) would issue 800.5 million shares for every Askari Cement share as the equity swap ratio for the merger between the two cement makers is set at 5:1, which implies every one share of Askari Cement will be entitled to five shares of FCCL for the amalgamation between the two companies, a bourse filing said.

The entire undertaking of Askari Cement with all its properties, assets, rights, trademarks, patents, liabilities, and obligations will be transferred to and vest in Fauji Cement Ltd. Askari Cement will be dissolved in Fauji Cement without winding up its operations.

FCCL was trading positive at Rs18.9/share, generating over 10 million volumes after midday.

Askari Cement presently has 160.1 million outstanding shares. The post-amalgamation outstanding shares of FCCL would stand at 2.18 billion.

“FCCL’s latest prices suggest that Askari Cement’s enterprise value is estimated at Rs31 billion. Post the amalgamation, the merged entity’s annual capacity would increase to 6.36 million tonnes,” an analyst at KASB Securities noted.

Post-amalgamation, FCCL’s annual capacity would increase to 6.36 million tonnes. Moreover, both FCCL and Askari plan to further enhance their capacities by 2.05 million tonnes each, taking their overall production capacities to 10.46 million tonnes by FY24.

“As such, FCCL’s capacity-based share in the Northern Region would increase from 6.6 per cent presently to 12.2 per cent when the sector’s expansions come online.”

FCCL’s planned capacity expansion is estimated to cost Rs32 billion, while Askari Cement’s planned expansion cost is projected at Rs27 billion.

“We estimate additional capital expenditure (Capex) for setting up captive power plants at Askari’s base plant to insulate itself against rising tariff costs. Based on the latest available figures, Askari’s margins were 8.3pps below FCCL in the first-half of FY21 because of Askari Cement’s reliance on the grid and the notable absence of efficiency measures, such as solar panels.”

The cement sector has a positive outlook because of the recent surge in construction activity and the consequent increase in the industry’s pricing power.

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