Isuzu Pakistan and Ghandhara Tyre and Rubber Company, both subsidiaries of Ghandhara Automobile, have announced their intentions to raise capital through the issuance of additional shares. The companies have notified the Pakistan Stock Exchange that they plan to raise Rs 1.5 billion and Rs 1 billion, respectively. These plans are subject to approval by their respective boards. The board of directors at both companies have recommended increasing their authorised share capital to the aforementioned amounts. This will be discussed at the Extraordinary General Meeting on June 22.
What does an increase in authorised share capital mean?
An increase in authorised share capital refers to an expansion in the maximum number of shares that a company is legally permitted to issue or offer based on its corporate charter. This is often done to provide headroom for future issuance of additional stock in the event that the company needs to raise capital quickly. A company’s authorised share capital will not increase without obtaining shareholder approval.
In the cases of Isuzu and Ghandhara Tyre and Rubber Company Limited, the proposed increases in authorised share capital from Rs 1 billion to Rs 2.5 billion and from Rs 1.25 billion to Rs 2.25 billion, respectively, are subject to the approval of shareholders at an Extraordinary General Meeting.
What is Gandhara’s play?
Profit sought to elicit responses from the aforementioned companies, however, no comment could be obtained. Subsequently, we can only list generic reasons as to why companies would undertake this exercise. Companies generally decide to increase their authorised share capital when there is either a need to raise capital to fund growth and/or obtain more credit from financial institutions.
Perhaps Gandhara foresees the current economic crisis coming to an end, and has therefore then sought to double down on its subsidiaries?
