Ittefaq Iron hides information regarding pending cases from SECP, PSX

Ittefaq Sons Ltd – that was merged into Ittefaq Iron Industry Ltd (IIIL) in 2009 – has a number of pending cases in the court of law and this information has been hidden by the company’s directors from Pakistan Stock Exchange (PSX) at the time of initiating Initial Public Offer (IPO).

The authorities of PSX and the Securities and Exchange Commission of Pakistan (SECP) allowed listing of Ittefaq Iron at PSX after a little procedure of seeking comments from the general public through PSX’s website.

Ittefaq Iron Industries belonged to Alshafi Group of Companies whose roots can be traced back to Ittefaq Foundries established by Mian Muhammad Sharif and his brothers in 1940s. Mian Muhammad Javed Shafi (Group Chairman of Alshafi) is the first cousin of Prime Minister Nawaz Sharif.

Alshafi Group merged Alshafi Steel (melt shop) and Ittefaq Sons (rolling plant) into Ittefaq Iron Industries in 2009 as Ittefaq Sons Ltd was facing over a dozen of cases in the court of law and the company did not mention it before the SECP or para 8.5 on page 88 of the prospectus filed in PSX on April 29, 2017.

The SECP official said, “the clause 27 of Section 1 of Part 1 of the Second Schedule of Companies Ordinance, 1984, requires the issuers to disclose pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the company or any of its subsidiaries is a party.”

In compliance of the said requirement, the issuer in para 8.5 on page 88 of the prospectus dated April 29, 2017 has stated as under – “the audited accounts of the issuer for the year ended June 30, 2016 did not mention contingent liabilities owing to any pending litigation. The draft prospectus of the Issuer was placed by PSX on its website for 7-days to obtain public comments/objections. However, no such comments with regard to pending litigation were received.”

Only in April 2017, Justice Shahid Jamil Khan and Justice Masud Abid Naqvi of Lahore High Court (LHC) heard two cases filed by collector of customs Vs Ms Ittefaq Sons Ltd and another case of FoP through the secretary Vs Ittefaq Sons.

Another case of Ittefaq Sons Vs Federation of Pakistan was heard by Justice Ayesha A Malik of LHC, on August 22, 2016 and issued notices to the respondents. The same case was heard again on May 12, 2017 and adjourned.

Similarly, there are number of other cases pending before the LHC and both SECP and PSX again overlooked all their rules and regulations and allowed the company to list itself at PSX istensibly because of their influential sponsors.

An official of PSX said, “the punishment of misleading PSX is serious crime and the company directors may face criminal proceedings if they provided wrong information.”

In its prospectus attached with the IPO’s file, the company has claimed, “there are no litigations or proceedings by or against the company pending before any court of law or authority other than related to normal course of the business.”

A source in the industry said, “the capacity utilisation of melting iron is only 11.4 per cent which means practically the company’s production has almost been closed.”

He said the main purpose of the use of subscription money is to meet the working capital requirements. “The equity market is a longterm capital funding platform and working capital is generally not raised through capital market,” he added.

In the last ten days, the said IPO received an overwhelming response from institutional and high net-worth individual investors during the book building process as the local investors often look for new ways and companies to raise their gains.

“The company offered 31.312 million shares at a floor price of Rs 12/share, which was oversubscribed by 2.5 times.” “The company was able to generate demand of 78.405 million shares at Rs 30.2/share,” the reports said. Next Capital Limited is the lead manager and arranger for the IPO, while Alfalah Securities (Pvt) Limited is the book runner.

“The strike price of Rs 30.2 is also much higher than the floor price offered by the Ittefaq Iron and has enabled the company generate Rs 1.26 billion from the stock market,” said an analyst of Arif Hahib Securities. “The pending cases against the company are not an issue and every company has cases,” he added.

Ittefaq Iron, involved in re-bars manufacturing business, plans to raise Rs 500 million through IPO to fund working capital. The company will offer 10,437,500 shares at Rs 30.2/share to the general public, due on May 23 and 24.

Analysts viewed that the company’s production remained flat in the last three years due to working capital issues and power shortages despite strong growth witnessed in re-bars demand in recent years.

While Alshafi Group was carved out from Ittefaq Foundries in 1990s, Alshafi Steel (melt shop) and Ittefaq Sons (rolling plant) were incorporated in 2004 and started their commercial operations from 2006.

Alshafi Group of Companies carries its legacy from Ittefaq Foundries, established by Mian Muhammad Sharif in early 1940s, from a small foundry to a group of companies having several sugar, textile, paper and steel mills. After its separation from Ittefaq Foundries during early 1990s, Alshafi Group inherited Ittefaq Sugar Limited and Brother Steel (Pvt) Ltd.

Afterwards, Kashmir Sugar Mills Ltd, Kashmir Feeds Ltd, Alshafi steel (Pvt) Ltd, Ittefaq sons (Pvt) Ltd, Ittefaq Bio Tech (Pvt) ltd and Kashmir Poultry Breeders (Pvt) Ltd and hatchery farms that later merged into Kashmir Feeds Limited, were established during the period from 1990 to date. The group is nowadays actively working on to unveil its power generation projects with both of its sugar units.

Ittefaq Iron Industries Limited has its own grid station equipped with latest electrical equipment to save machines from electrical tripping.

According to the company’s information, “the group’s annual turnover is about $450 million.”

The company also set to get maximum benefits from the continuously growing demand of steel products in Pakistan and Afghanistan and therefore; the management of the company has managed to secure various supply contracts based on its strong clientele base and quality of products.

The company is working on, or has secured commitments to work in, future projects which include Orange Line Metro Project, CPEC (Karachi Lahore Motorway, E-4 Motorway, MIS, Gojra Shorkot Motorway, Karot Power Project, Trimmu Barrage, Greater Karachi Bulk Water Supply Scheme-K IV, Gulpur Power Project and others.


Arshad Hussain
Arshad Hussain
The author is business reporter at Pakistan Today. He can be reached at [email protected]. He tweets @ArshadH47736937

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