Packages - Striking the right balance

Deleveraging is the order of post-crises financial world. And Packages deal to raise $50 million through International Finance Corporation (IFC), after offloading $115 million worth shares in Tetra Pak earlier, clearly demonstrates the business acumen of Syed Babar Ali group in this context.
Packages that has allotted 21.7 million convertible nonvoting preference shares for Rs190 each to IFC, has also completely hedged its assets exposure to rupee depreciation by offloading $30 million debt and reduce its foreign debt liability to zero. The firms long term debt-to-equity ratio, which was already reduced to 33:67 from 44:56 in first three months of 2009; has now improved to 25:75 - an old fashioned gear back in business. Yet in todays cash starved times, PKGS has managed to have additional liquidity of $20 million (Rs 1.6 billion) which can be deployed for capacity enhancement and for working capital requirements.
During 2006-07 the company had heavily leveraged it assets for its green field project, Bulleh Shah Paper Mills, in Kasur which cost Rs17.7 billion rupees to date. This increased its paper and board production capacity by three folds to over 300,000 tons per annum - enough to cater the growing demand of consumer related goods in Pakistan.
In part, the decision to shift plant to Kasur from Lahore was due to environmental considerations as producing paper and board - PKGS main bread and butter - is relatively more taxing on the atmosphere than producing other products such as tissue.
But the other part is even more lucrative, as shifting this facility in a phased manner by 2012 will leave PKGS with 70 acres of land right next to DHA Lahore - providing the firm a ripe opportunity to make hay from real estate business. Although high equity base amid capital expenditure plans to expand capacity over time might lower its return to share holders in short term; but its in the broader interest of share holders to expand in longer term by meeting soaring consumer demand.
And it seems that shareholders agree. After all, the firms share price has outperformed the benchmark KSE index by a long shot - nearly double in the calendar year to date.