The State Bank of Pakistan (SBP) has approved Nishat Mills Limited (NML), country’s leading integrated textile mills to increase its equity shareholding in MCB Bank, reported national daily.
According to SBP’s approval, NML is allowed an investment in the shares of MCB Bank up to a shareholding of 8.03 pc. As of February 13, NML holds 85.645 m shares in MCB Bank Limited with 7.69 pc stake.
NML’s planned increase of shareholding in MCB Bank will be through an acquisition of 3.731m additional shares of the bank from the stock market within three years.
A document said the NML’s board approved long-term equity investment of Rs1.213 by way of purchasing up to 3.731m shares in MCB Bank, an associated company at the prevailing market price but not exceeding Rs325/share.
In addition to the unrealised capital gains, Nishat Mills Limited received healthy dividend income from the bank over the past five years.
“Considering the marvelous growth of MCB, prospective appreciation of its shares and regular dividend income, the management of NML wants to make further equity investment in MCB Bank in the next three years,” an analyst said.
Besides, NML also plans to invest Rs1.5 billion in its subsidiary company Nishat Power Limited (NPL) in the form of working capital loan.
Mansha Group’s flagship company will put the resolutions on the table before board meeting scheduled to be held on March 31.
Nishat Power is plagued with chronic liquidity crisis due to fluctuating trade debt balances, as a result of delay in payments from the national transmission and dispatch company. The company has to borrow funds from banks and financial institutions to meet its working capital requirements.
Analysts said NML’s management believed that it could benefit from lending surplus funds to NPL at a rate higher than the interest payable by the NML on its borrowing.
In 2009, NML provided similar working capital loan of Rs1.5 billion to NPL at the interest rate of three month KIBOR (Karachi interbank offered rate) plus 200 basis points for five years. NPL made all payments of interest and principal against this loan in a timely manner.
The average interest rate of NML is very low due to optimal mix of borrowings, availability of subsidised loans and good credit rating. The average borrowing rate of NML was 3.17 percent per annum for the half year ended December 31, 2016.
Now, NML plans renewal of the working capital loan of Rs1.5 billion to NPL for an additional period of one year on the same interest rate.
The analysts said the NML’s management expects the transaction to be beneficial for the company as this will enhance the return on surplus funds available with the company.
The NML’s directors have started necessary due diligence for the proposed investments, according to the documents.
