Struggling Fauji Foods given lifeline by SECP 

Company to raise Rs 11.7 billion through new share issue

The Securities and Exchange Commision of Pakistan (SECP), which is the premier regulatory body for publicly listed companies on the Pakistan Stock Exchange (PSX), has finally allowed Fauji Foods Limited (FFL) to raise Rs 11.7 billion through issuing 1,170,874,980 ordinary shares. FFL made the announcement to the PSX on Tuesday.

Back in August of last year, the Fast-moving consumer goods (FMCG) company held an Extraordinary General Meeting (EGM) where it decided to increase its total authorised share capital from Rs 18 billion to 28 billion. A 10 billion increase in authorised shares at the time suggested that the company was going to issue another big round of shares soon. Naturally, on September 20th, 2022, FFL held a Board of Directors (BoD) meeting where the board recommended to issue new shares, other than right shares, pending approval until another EGM on October 18th. The following shares were to be issued:

  1. 400,000,000 shares to be issued at Rs 10 per share amounting to Rs 4 billion to FFBL Power Company Limited (FPCL) against cash.
  2. 465,000,000 shares to be issued at Rs 10 per share amounting to Rs 4.65 billion to FFC energy limited (FFCEL) against cash.
  3. 235,000,000 shares to be issued at Rs 10 per share amounting to Rs 2.35 billion to Fauji Foundation (FF), out of which Rs 350 million is fresh cash injection while Rs 2 billion is against conversion of subordinated loan to equity
  4. 70,874,980 to be issued at Rs 10 per share to Fauji Fertilizer Bin Qasim Limited (FFBL) against conversion of accrued markup on subordinated loan amounting to Rs 708 Million to equity.

Corporate history – Fauji foundation and Fauji foods 

The problems at FFL have been well documented over the years. The company is a subsidiary of the Fauji Foundation, which is the conglomerate owned by the Pakistan Army involved in cement, fertiliser, and food among other things. 

The Fauji Foundation itself has a long and rich history. It was originally founded in 1945 at the end of the second world war as a Post War Services Reconstruction Fund (PWSRF) for Indian War Veterans who served the crown against the axis powers. In 1947, the fund’s balance was divided between India and Pakistan and the civilian government continued to operate it until 1953. 

In 1954, however, the civilian government ceded control of the fund to the army which is where the Fauji Foundation took root. Instead of disbursing the balance of the fund worth around Rs 18.2 millions among the beneficiaries, the army invested it in establishing a textile mill. Later, from the income of the textile mill, it established the first 50 bedded TB hospital at Rawalpindi.

And that also became the purpose of the Fauji Foundation. It would go into business and grow that business so that the profit could be spent towards looking after veterans of the Pakistan army and other charitable causes. For decades, the conglomerate grew and ran successful ventures including in the fields of fertiliser and cement. 

However, FFL has been an entirely different story all together. The Fauji Foundation is supposed to be a conglomerate that makes money and spends that money on the welfare of veterans and serving men and women. FFL has long proven to be a drain on the resources of this organisation.

On Aug 25, FFL released its half-yearly financial statements for the first half of 2022, ending June 30, which highlighted its continued struggles, despite a “healthy growth” of 7% in net sales. The statement showed that the company’s loss, after tax, stood at a whopping Rs1,253 million compared to Rs758 million in the same period last year. Gross profit was down to Rs178 million from Rs545 million. 

The accounts showed a massive uptick in revenue costs, marketing and distribution expenses, leaving the loss from operations at Rs708 million, skyrocketing from Rs 117 million in the first half of 2021.  “The company has started multiple cost efficiency and margin improvement initiatives which should start kicking in from H2 of 2022,” read the report. 

A habit of needing help 

The financials that have come out from FFL are terrifying to put it mildly. The solution that is being offered is that the army uses some of its more successful enterprises to essentially subsidise FFL. In one of the stock market notifications mentioned earlier, it was announced that the Fauji Foundation shareholders will be providing a loan to FFL worth Rs2,350,000,000. 

The Fauji Foundation shareholder loan to FFL is meant to enable it to meet its working capital requirements. The loan is interest free for a period of two years after which it will carry mark-up at the rate of 6 Month Kibor +2%, according to the announcement to the PSX. Fauji Foundation also has the option to convert this loan into equity capital at any time. 

In addition to this, another notification announced that assistance was also coming in the form of an agreement with Remount Veterinary Farms Corps (RVFC), to provide 1,250 tonnes of skimmed milk powder for the year 2022-23, according to an announcement on the PSX website posted last week. 

This, of course, is not the first time something like this has happened. The FFL has made a habit of needing the army to bail it out. The assistance from the RVFC is no different, since RVFC in Pakistan was established by the army college of veterinary sciences some 30 years ago. This contract, according to the announcement, is supposed to help grow both revenues and profit. 

EGM decisions

The EGM on October 18th, 2022, gave its approval for the new share issue pending approval from the SECP. Now the SECP has finally given the green light to FFL to raise more equity in order to save its bleeding business.

It is interesting to note here that two new subsidiaries of the Fauji Group, namely FPCL and FFCEL, are investing 8.65 billion PKR into FFL. This suggests that the Fauji group’s problem child has become so big of a burden that it now needs the support of the remaining members of the business conglomerate as well.

Even though the company has not disclosed its financial results for the year ended December 2022, the company is again expected to post a negative net profit of at least Rs 2 billion, judging by the losses incurred in the first three quarters of the previous year. 

The share price of FFL increased by 4.09% during the Tuesday trading session to close Rs 4.58. 


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Muhammad Raafay Khan
Muhammad Raafay Khan
Sector Analyst for Profit Magazine. Focus on corporates on the PSX. Can be reached at [email protected]



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