Equity Analysis /
Pakistan

ICI Pakistan: ICI emerges as a potential bidder for Pakistan’s sole PTA producer

  • ICI Pakistan Limited (ICI) has announced intention to acquire c.75.01% shareholding of Lotte Chemicals Pakistan Limited

  • The intention to acquire LOTCHEM leads to strong chance ICI skips its year-end dividend

  • Our back of the envelope estimates suggest that LOTCHEM trades at a 27% discount to its replacement cost PKR32.5/share

Intermarket Securities
25 July 2022

ICI Pakistan Limited (ICI) has announced intention to acquire approximately 75.01% shareholding or (1,135.86mn shares) of Lotte Chemicals Pakistan Limited. A few weeks ago, ICI received a conditional bid from Morinaga Milk, Japan to acquire approximately 33.3% of NutriCo Morinaga Limited for US$56.6mn. ICI owns 51% of NutriCo and its Board of Directors has already granted in-principal approval to move forward with divestment of 26.5% only. The total consideration for the 26.5% stake in Nutrico comes to an estimated c.PKR9.5bn, with a one-off gain for ICI of c.PKR7.4bn. The intention to acquire LOTCHEM leads to strong likelihood of ICI skipping its year-end dividend, so as to fund the potential acquisition. In this regard ICI, may get further assistance from its parent group, which includes Lucky Cement (LUCK), to raise the additional capital for the acquisition of LOTCHEM.

Growth and synergies are likely outcome

Lotte is currently the sole producer of PTA in Pakistan with an active capacity of 500,000tpa. It is important to remember that in 1998, ICI initially commenced PTA business. However, during the year 2000, ICI demerged the business and sold it to Pakistan PTA Limited. In 2009, Lotte Worldwide Group acquired majority shareholdings in Pakistan PTA Limited and renamed it. In our recent note, we mentioned that ICI can use the proceeds of their Morinaga stake sale to invest in inorganic avenues. LOTCHEM is a viable option as ICI has prior experience within the chemicals industry and originally, LOTCHEM was part of ICI. This, coupled with multiple synergies within the group (e.g. Gadoon Textile Mills), emphasize the rationale behind the interest.

Our back of the envelope estimates suggest that LOTCHEM trades at a 27% discount to its replacement cost of PKR32.5/share on yesterday closing. The stock hit upper cap in the last hour of trading session today.