Agha Steel Industries Looking to Raise Rs. 3.6 Billion in IPO

Agha Steel Industries will be conducting an Initial Public Offering (IPO) at the Pakistan Stock Exchange (PSX) in October, in what will be the third IPO of 2020.

The company is looking to raise an amount of Rs. 3.6 billion at a floor price of Rs. 30. Floor price means the minimum price offered to the public per share. Book building will take place in the first half of October.

The principal purpose of the issue is to finance phase II of its expansion project that includes setting up Mi.Da. rolling mill and an in-house air separation unit. Mi.Da. Rolling Mill is characterized by a single strand Continuous Casting-Rolling process featuring ultra-high speed Power Mold Caster, in-line billet inductive heating as well as bar quenching and tempering system, and a Direct Rolling Bundling system, all arranged in an extremely compact layout.

The company is planning to almost triple its capacity to produce gray steel bars, used to build everything from homes to dams.

The sales to builders accounted for 30% of Agha Steel’s revenue in August from 12% in FY 2019-20.

Agha Steel, which supplied material for many coal-fired power plants financed by China, has bid for five upcoming dam projects. A contract to supply steel for the Mohmand dam can generate Rs. 10 billion in revenue, or 63% of its sales last year.

The issue comprises of 120,000,000 (120 million) ordinary shares having a face value of Rs. 10 each, which constitutes 20.83% of the total post-IPO paid-up capital of the company.

The issue is being made through the book-building process at a floor price of Rs. 30.00/- per share (including a premium of Rs. 20.00/- per share), whereby 75% of the total issue size i.e. 90,000,000 (90 million) ordinary shares will be issued through the Book Building process to eligible investors.

The book-building portion will be underwritten by the Securities brokerage company Arif Habib Limited and the names of the underwriters to the retail portion will be published in the supplement to the prospectus. The share capital will increase from 456,075,293 ordinary shares to 576,075,293 ordinary shares.

A brief history of Agha Steel Industries

Agha Steel Industries Limited started its commercial operations in January 2012, producing billets and rebars at an installed capacity of 250,000 million ton per annum, and 150,000 MT p.a. respectively. The company also introduced a composite unit whereby the steel melting and re-rolling takes place on the same premises located at the industrial hub of Port Qasim.

In 2018, the company completed the BMR and Expansion Phase I of its existing facilities. Through this Expansion phase I, the company was able to increase its production capacity of intermediary (Billets) and final product (Rebars) from 250,000 MT p.a. to 450,000 MT p.a. and 150,000 MT p.a. to 250,000 MT p.a. respectively.

The company undertook further expansion (Phase II) with a view to increase its capacity and also continue its technological advancement by installing a state of the art and first in Pakistan Mi.Da. Rolling Mill. The IPO proceeds of Rs. 3.6 billion will go towards financing this expansion.

Future Outlook

The demand for construction steel will improve largely due to the Government of Pakistan’s move towards documenting the economy. It is expected that a large number of fragmented and unstructured steel producers (ungraded steel producers) will cease to exist, creating a much larger space for the structured integrated units like ASIL to further expand their capacities.

Construction activities will take an uptick due to the incentive package for the construction industry announced by the Government of Pakistan and large infrastructure projects planned by the government hugely with regards to China–Pakistan Economic Corridor and the Naya Pakistan Housing Scheme.

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