ISLAMABAD: Kohinoor Spinning Mills Limited (KOSM) have temporarily shut down their operations due to economic downturn, the company announced to the Pakistan Stock Exchange (PSX) on Wednesday afternoon.
According to the company notification, “Due to prevailing global and economic downturn, overdue plant maintenance, high cost of production and low price and demand, it is not feasible to operate the production facility. Therefore, the management of the Company has decided to temporarily close/stop the production activities of the Company with immediate effect.
The management is hopeful that the current situation will improve in the first quarter of 2023 enabling the Company to restart its operations.”
KOSM’s stock price opened at Rs 3 per share which declined by 6.67% to close at Rs. 2.80 per share by the end of trading session. The share volume traded of the company was the eighth highest in the Wednesday trading session with a total volume of 4,318,000 shares being bought or sold.
History and financials
Kohinoor Spinning Mills Limited was incorporated on 23rd July, 1970 as a public limited company in Pakistan. The company is engaged in the business of textile spinning. The principal activity of the company is the manufacturing and sale of yarn.
The announcement of shutdown was no big shock given the recent tough times the company had been experiencing in light of economic hardships faced by businesses in general and the textile sector in particular.
The textile sector is the largest export-oriented sector of Pakistan.
The shutdown was also expected in the directors’ report for the quarter ending September 2022 which said that global recession, non-existent demand for fabric, floods and political turmoil in the country, Russia-Ukraine war, and food and energy inflation have all resulted in a significant decline in sales.
The report continues, “In our opinion, this is the worst crisis being faced by the textile industry in recent times with no recipe in sight. We can hope for the best in this scenario. If this crisis continues, it would be difficult for us to run our mills despite all out financial support from the directors.”
In the Extraordinary General Meeting (EGM) of KOSM in April this year, the company increased its authorized share capital from Rs. 1,500,000,000 to Rs. 2,200,000,000 in an attempt to raise more liquidity for the cash starved company. Moreover, the company has also been unable to pay off its bank loans or director loans.
KOSM has a significant amount of borrowings from banks and other financial institutions amounting to Rs. 2.299 billion for which the banks have filed recovery cases in the Lahore High Court. The quarterly report states that the company is “vigorously and diligently” contesting these cases and expect that there are good chances of a favorable result.
It should also be noted that corporate insiders of the company including the directors and higher management have sold 22,016,000 shares worth a net of Rs. 65,146,680 since the beginning of the year.
The company has been incurring losses since 2015. It has a total negative equity of Rs. 1,640,349,560 as of 30th September, 2022, after it incurred a quarterly negative loss after tax of Rs. 112,737,431. KOSM reported a last annual loss after tax for the year ended 30 June 2022 of Rs. 433,908,135.
In spite of the unfavorable conditions faced by the company, the company expects the economy to become stable in the first quarter of next year after which they plan to resume operations.