April 01, 2021 (MLN): The last year 2020 brought several highly awaited initial public offerings (IPOs) such as The Organic Meat Company (TOMC), Agha Steel Industries (AGHA), TPL Trakker (TPLT) and Engro Polymer (EPCL) all hit the capital markets. Despite a lockdown across the country amid pandemic, 2020 turned out to be a memorable year regarding the performance of the Pakistan Stock Market (PSX), with 4 IPOs raising nearly Rs 8.4 billion through the markets.
Another IPO for 2021 is around the corner. Service Global Footwear Limited, the largest footwear exporter of Pakistan since the last decade, is all set to go public as it plans to issue 40,887,500 ordinary shares at a floor price of PKR 38 per share. The entire Issue will be offered through the book building method. The bidders shall be allowed to place bids for 100% of the Issue size. However, 75% of the issue size i.e. 30,665,625 Ordinary Shares will be allotted to Successful Bidders and the remaining 25% of the issue i.e. 10,221,875 Ordinary Shares will be offered to Retail Investors.
The transaction size of the Issue is PKR 1,533 Mn to PKR 2,175.
The principal purpose of the issue is to invest the entire amount raised at the Floor Price as an equity investment in “Service Long March Tyres (Private) Limited (SLM)” and become a stakeholder of approximately 18.91% of the total shareholding of SLM.
According to the research report by Arif Habib Limited, SLM is the first All Steel Radial Truck bus (Tyre manufacturing unit in Pakistan, being set up through a JV between Servis Group and Chaoyang Long March Tyre Co., Ltd (LM) of China. Due to the imposition of anti-dumping countervailing duties by the European Union and the United States of America on imports from China, LM opted for SIL for the establishment of manufacturing lines to meet the demand of these export markets. The rationale of this joint venture is to exploit the opportunities created by the current geopolitical relationships among the global markets. Hence, SLM would utilize the sale channels of LM and export 85% of its total production, as per the estimation of the management of the company.
Further, it is the first company in Pakistan to be granted Sole Enterprise Special Economic Zone and Greenfield Industrial Undertaking status which will entitle the company to duty- and tax-free import of plant and machinery and 10 years Income Tax exemption on Income.
Whether carrying cargo or passengers, trucks and buses are the lifeblood of the world's economy, Service Long March aspires to bring new technology in TBR tyre manufacturing to Pakistan. With a full line-up of tyres tailored to meet the rising demand of commercial vehicles, locally and globally, SLM aims to start commercial production by August 2021. The company’s initial production capacity would be 600,000 tyres per annum to be increased to 2,400,000 tyres per annum by 2027 in three phases.
Source: AHL
It is pertinent to mention that after the equity investment from SGFL, the aggregate holding of SIL and SGFL in SLM would constitute 51%.
Any excess proceeds raised over the Floor Price would be utilized either to fund the internal working capital requirement of SGFL or to make an equity investment in SLM, as deemed appropriate by the BOD of SGFL. Additional equity investment in SLM from SGFL would reduce the holding of SIL in such a way that the aggregate investment of Servis Group wouldn’t deviate from 51%.
*at a floor price of PKR38 per share
Source: AHL
The book bidding process shall take place between April 07 and April 8, 2021, while public subscription dates are April 12 and April 13.
Arif Habib Limited is the lead manager and book-runner for this IPO.
Looking at the financial statement of the company, SGFL’s performance is quite robust as well, as the topline income of the company stood at PKR 6,984 Mn in CY2020 despite the economic slowdown. The company succeeded in maintaining its topline wherein exports contributed to 94% of the revenue.
On the export front, SGFL exports more than 95% of its total production. During CY2020, it exported footwear to 20 countries over 5 continents. Global brands like Zara, Caprice, Diana Ferrari, Dockers, Jack Jones, London Rebel, etc are its top customers.
SGFL was operating as an integrated unit of Service Industries Limited (SIL) since 1988 which was demerged in 2019 into a separate entity. The primary reason for demerger was to avail maximum tax duty benefits available to Export Oriented Unit.
In addition, the company has invested in solar power generation with a total production capacity of 2 MW, making SGFL the first solar-powered shoe manufacturer in Asia.
Copyright Mettis Link News
40496
