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Fatima Fertiliser planning to issue American Depository Receipts

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KARACHI  : The Fatima Fertilizer Company Limited (FFCL) is planning to issue American Depository Receipts (ADRs) by the end of 2010. The FFCL would be the first Pakistani company to issuing ADRs and to be listed in the US stock exchanges. The company s CEO, Fawad Ahmed Mukhtar, during analysts briefing, pointed out that the Bank of New York Melon is assisting the firm in this regard.

This would be an offer for sale of shares by the sponsors; however, more details, like size, price, etc, were not disclosed. The management of FFCL said that production of urea and CAN fertiliser has been started in November 2009 and March 2010 respectively. At the time of its Rs 2 billion IPO, the schedule given was that the ammonia plant had to be commissioned by the end of 2009 and urea plant by January 2010. Thus the urea production was delayed by 2 months.The management said that in the last 3-4 months the company has produced 54,000 tons of urea and 37,000 tons of CAN. Though the plant capacity is 1500 tons per day (tpd) of urea and 1400 tpd of CAN, the lower production in last few months was due to the teething problems, which the management claimed is a normal phenomenon.On gas curtailment by the government, the management said that there would be no effect on FFCL in 2010, and added that only 9 percent of Mari gas can be diverted to power production. Thus FFCL management does not consider this as a major risk. We, however, feel that gas shortage uncertainty will affect fertiliser stocks in the short run , Farhan Mahmood, an analyst at Topline Securities present at briefing, said.He said the FFCL management said that total project cost was Rs 63 billion, which is higher by Rs 4 billion, as declared during IPO in January 2010. The increase was due to delay in fertiliser production. This cost increase, along with Rs 31 billion loan on its balance sheet in December 2009, will affect cash liquidity of FFCL in the coming months. FFCL has to pay financial charges of around Rs 6 billion annually over and above its principal payments. The company will repay majority of principal payments from October 2010, amounting to Rs 2 billion approximately every 6 months.

Due to proximity to the market, the management said it feels that the marketing and distribution cost would be lower than its competitors. The strong marketing arm of Pak Arab Fertiliser would facilitate Fatima Fertilisers, the management told the briefing.

The company s own projection has shown EPS of Rs 2.8 in 2011 and Rs 3.6 in 2012. Though no details of break-up and assumptions were provided, but we feel there are so many risks associated with this, like acceptability of CAN and NP in the local market, gas shortages, debt repayment and ongoing teething issues , Farhan said.

Bilal Qamar, an analyst at JS Global Capital, said: In the light of the latest figures, along with delays in urea production by 2 months, we have revisited our production and sales estimates and we now expect the company to sell 392,000 tons and 340,000 tons of urea and CAN respectively in 2010 against 442,000 tons and 363,000 tons earlier.

 The increase in prices of both urea and CAN is likely to more than offset the impact of our downward revision in FFCL s new production and sales estimates. Consequently, our 2010 earnings estimates now arrive at Re 0.11 per share against Re 0.05 per share earlier.

The NP plant, however, is still under construction and is expected to come on line by December 2010, as per expectations, he said. According to the management, the ongoing gas curtailment does not pose a hindrance to the company at the moment, as the NP plant has still not begun operation. However, if this curtailment continues in the long term, we believe it will become a major challenge for the company, especially when its NP plant is commissioned in December 2010 , he added.


Courtesy: Business Recorder

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