JS Securities Limited – Research Beep

Karachi, August 11, 2016 (PPI-OT): KEL’s acquisition price set at Rs16.0/share?

As per a media report, Shanghai Electric and Engro Corporation (ENGRO) have bid US$2.8bn for K-Electric’s (KEL) 66.4% stake, presently held by KES Power. Media report suggests Shanghai Electric will
hold 51% share of KEL, while ENGRO will have a stake of 15%. Based on the media report, these numbers translates into an acquisition price of Rs16.0/share, which will act as a floor for a tender offer for the minority shareholders. However, JS Securities Limited does highlight that this is based purely on a media report, and there has been no confirmation by the company.

From an ENGRO’s perspective, the conglomerate will require an investment of US$636mn (or Rs66.8bn) to buy the reported 15% stake in KEL. Its stakes sale in Engro Fertilizer (EFERT) and Engro Foods (EFOODS) is likely to generate cash of ~Rs60bn, out of which ~Rs20bn is expected to be invested in its Thar Coal project.

JS Securities Limited believes near-term market reaction to this media report is likely to be positive in the case of KEL, whereas it may dampen speculation of a one-time big dividend from ENGRO. JS Securities Limited reiterates JS Securities Limited’s ‘Buy’ rating on KEL with a Target Price of Rs13. JS Securities Limited has already identified in JS Securities Limited’s coverage initiation of KEL titled ‘A Turnaround Story In The Making’ that the potential exit of Abraaj (the Private Equity investor) is likely to provide upside to investors.

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