ISLs IPO on the horizon

Amongst a handful of corporations aiming at going public this year, International Steels Limited (ISL) is making huge strides to get listed by the end of the quarter ending March 2011.
It so happens that International Industries Limited (IIL), Pakistans largest steel pipe and tube manufacturer, which has invested around Rs4.35 billion in the form of equity in ISL, thus making ISL its wholly-owned subsidiary, is seeking to offload nearly 45 percent of ISLs shares.
ISL, which was incorporated in 2007, was hived off from its parent company last year, after IIL transferred all assets and liabilities of the cold-rolled and galvanised-sheet project and power plant to ISL. ISL possesses around Rs8.049 billion of assets, as of September 2010, with a total debt-to-asset ratio of around 50 percent.
ISLs manufacturing facilities include capacities to produce 150,000 tons of galvanised and 100,000 tons of cold-rolled steel sheets, as well as a 19-MW gas fired co-generation power plant and a 100 cubic meter reverse osmosis water treatment plant.
Reportedly, IIL has used its contacts established over the last 45 years in the international steel industry to procure state of the art equipment at highly competitive prices from reputable international manufacturers.
IIL has taken a loan of Rs0.536 billion from the International Finance Corporation (IFC) to purchase equity in ISL. This loan is convertible at the option of the lender, into ordinary shares at 20 percent discount on the premium arrived through the book-building process. This means that nearly 10 percent of ISL shares are likely to be purchased by the IFC.
Similarly, around 10 percent of ISLs stake will be transferred to the Sumitomo Corporation, one of Japans leading trading houses, that has agreed to purchase equity of ISL on the same terms as IFC.
This will leave 25 percent equity, which is roughly around Rs 1 billion, for offering to various investors. Of this amount, nearly Rs400 million is to be raised from offshore private placements and Rs350 million through the book-building process, leaving Rs250 million for direct offer to the public.
"As there was no EPC (engineering, procurement and construction) contractor involved, we saved substantial costs in installing the project. Given the lean cost structure of ISL manufacturing facilities laid out over 34 acres of land, we are hoping to get a good price for ISL." Towfiq Chinoy, Managing Director of both ISL and IIL, told BR Research.
As KSE has seen just a few new entrants during the past two years, ISLs IPO is likely to get a warm welcome in the market.