Power Cement borrows 30 million euros from DEG Germany to expand clinker production

Power Cement today announced that the Board of Directors in a meeting held on 23rd June, 2018 at company offices accepted Arif Habib Equity (Pvt.) limited as the guarantee of the loan agreement with DEG – Deutsche Investitions-Und Entwicklungsgesellschaft MBH, a financial institution incorporated in Germany.
Power Cement Limited (“PCL”), a listed company of Arif Habib Group is doing a mega Expansion in its Cement plant by installing a New Line of Clinker with a total Capex amount of Rs. 25 billion. PCL’s board had decided to finance this Expansion Project with a 65:35 Debt: Equity ratio.
PCL’s Board has also decided to make PCL a Sharia Compliant Company by raising the debt amount completely under Islamic modes of financing (either borrowed from Local Lenders or Foreign Lenders). For this purpose PCL has selected world’s renowned Danish Cement Plant Supplier M/S. F. l. Smidth (“FLS”).  At the time of opening of LCs in favor of FLS, the SBP has laid a condition on PCL that at-least Euro 46 million are to be arranged by PCL through foreign sources whether Debt or Equity, the same shall be used in retirement of the said LC.
In order to comply with above referred condition of SBP, PCL has already arranged Foreign Equity of Euro 11 million, the same has been received into PCL’s foreign currency bank account and shares against it have also been issued. Additionally, PCL has also chosen three Foreign Lenders namely (i) ICD of Saudi Arabia (ii) OFID of Austria and (iii) DEG of Germany. The first two lenders have agreed to lend their portion of loans under a Musharika arraignment. However, the third lender (DEG) is restricted to lend under Islamic modes of financing by virtue of its Articles of Association therefore DEG can only lend under the Conventional (Non-Islamic) Financing Modes.
As per aforementioned arrangements, PCL will repay the loan to AHEPL which in turn shall pay the same to DEG, so, to secure this ultimate receipt of DEG, PCL is required to issue a corporate guarantee to DEG to ensure punctual performance by AHEPL of all AHEPL’s obligations under the financing documents entered into between AHEPL and DEG.
The repayment period under the facility agreement with DEG will have a time period of eight and a half years (ending in 2026).