ANL cutting a deal

Caught in the credit crunch, Azgard9 (ANL), a vertically integrated, specialized textile company, is among a handful of large companies in Pakistan that has knocked the doors of its investors for debt restructuring during the past two years.
Although, a lot of cloak-and-dagger developments have been involved in the negotiations, it is believed that the company has now reached an understanding with its lenders.
In a series of corporate actions big and small - during the past few months - to heal its financial health, the decision to sell remaining 79.85 percent of shares of its subsidiary Agritech limited is also primarily part of its restructuring deal, according to people close to the situation.
Amid this process, negotiations once again came in the public eye when Fauji Fertilizer Company lately announced its intention to acquire 79.85 percent of shares of Agritech.
On the face of it, the potential deal seems cheerful, as FFC is the largest fertilizer company in Pakistan, but believing in the saying, beggars are not choosers, a lame duck company ANL will find it challenging to strike a good bargain.
The major stumbling block in getting a good price is not only ANLs dismal financial position, but also because Agritechs balance sheet is also high on debt. PACRA has already downgraded ratings of both ANL and Agritech, with negative outlooks for both, on the back of credit risk.
As the countrys largest denim manufacturer is currently without a magic wand, the market presumes it will be able to fetch a deal at or below Rs20 per share. While a few optimists believe that an agreement could be reached between Rs25-30 per share.
With debt of around Rs15 billion on ANLs books if the deal materializes at Rs20 per share, it would reduce the debt by nearly 40 percent.
In a nutshell, a successful divestment of Agritech would clamp down the financial risk by reducing the financial cost which currently stands at Rs2.5 billion per annum.
Even if the company successfully reduces the financial risk, there seems to be no saviour for the business risk as ANL faces declining gross margins and low capacity utilization. Chances of improvement on that front are dim in the near future.

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LEARNING TO BALANCE

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Agritechs sale price   Reduction in ANLs debt*

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At Rs18                                      38%

At Rs20                                      42%

At Rs 25                                     52%

At 30                                        63%

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Debt includes non-current liabilities, short-term liabilities and current portion of long-term liabilities.