Agritech may have strong takers

Its official. Azgard Nine is not out of the financial quagmire yet. No surprises there, as nobody expected them to be out of troubled waters anytime soon.
The most recent effort to restructure its debt by off loading its 20 percent stake in Agritech apparently has not done the trick for Azgard, as the company, in its recent notice to KSE, has announced plans of disinvesting its entire holding of Agritech to re-profile the debt.
Rumour has it that Fauji Fertilizer and Mansha Group, through Nishat Mills, have shown interest in bidding for the 79.8 percent stake in Agritech. Reportedly, however, Mansha Group has shrugged off the rumours - ruling itself out among the list of potential takers.
Initially when the rumour spread, many believed Mansha to be a strong contender given that fertilizer is one major sector where the group has no presence and it would have made a lot of sense for the countrys business icon to invest in such a lucrative avenue.
The other potential bidder, Fauji Fertilizer has not officially disclosed any such plans, but there are reasons to believe, that it could eventually turn out to be a serious contender. The strongest point that goes in the favour of Fauji Fertilizer is its expertise in the urea business - and of course its strong financial position.
Agritech is a sizeable urea manufacturing firm with a pre-BMR nameplate capacity of 346 thousand tons per annum. The firm is also at the final stage of the completion of its $58 million BMR project, which is intended to increase urea capacity to 483 thousand tons per annum in the near future.
If Fauji Fertilizer happens to clinch the deal, then pricing will be the most talked about issue.
Bear in mind, Agritechs previous offer for sale was priced at Rs30/share with a premium of Rs20/share, but the scrip currently trades at Rs24.4/share on the exchange. Analysts in the market do not expect Agritech to fetch the same premium as it did in March, expecting the deal to be closed around the current market price.
If FFC has to make it happen, it will most likely have to go for a leveraged buyout, given its history of financing expansion through leverage.
There should be no doubts over FFCs ability to finance the entire deal internally, but it is less likely to happen as dividend payout remains the top priority of the companys policy, which it would not want to be altered.
Another available option is that, the parent group Fauji Foundation could join hands with FFC, just as it did in many previous deals including that of PMP and FFBL. All these scenarios however, remain subject to confirmation from the company itself as it may not be all that easy for the deal to get materialized.
The Competition Commission might want to have a look into the matter, as the potential acquisition would create a dominant position for FFC, securing 56 percent market share. FFC can, however, wait for the Engro plant to commence before merging Agritech into its existing setup to dilute its dominant position.
As for ANL, this may not be the end of disinvesting its businesses - who knows why Mansha Group has opted out of the fertilizer deal. Maybe the groups textile arm, Nishat Chunian, is eyeing ANLs denim business which might be next in line for sale.