Pak Suzuki Motor Co Ltd (PSMC), Pakistan’s largest automobile maker, announced that it is considering a proposal from its parent company, Suzuki Motor Corporation, to acquire all outstanding shares held by minority shareholders and potentially delist from the Pakistan Stock Exchange (PSX).
In a notice to the PSX, the company revealed that its board of directors will convene on October 19 to assess the proposal and the final decision will be communicated following the board meeting.
The announcement triggered the PSMC’s share price up to Rs154.20 on Friday, an 11 percent increase as the move indicates a major shift in the company’s ownership structure.
The decision comes as Pak Suzuki faces a decline in sales, high costs, and currency volatility in Pakistan. The company reported a net loss for the first half of the fiscal year 2023, attributed to factors such as lower sales volume, higher finance costs, rupee depreciation, and increased energy prices.
The company has announced several shutdowns of its vehicle and motorcycle plants in Pakistan throughout the year due to low demand and supply chain challenges. These challenges are part of broader issues facing the auto sector, including high energy costs, political instability, and difficulties in securing letters of credit for imports due to a dollar shortage.
Suzuki Motor Corporation, the parent company, currently holds 73.09% of the company’s shares.
PSX delisting regulations specify that the delisting value will be determined based on the highest of the following criteria:
i) Weighted average closing market price of the last 5 days preceding the date of the board meeting in which the company resolves to delist from the exchange
ii) Three-year weighted average market price one day preceding the date of the board meeting in which the company resolves to delist from the exchange (using closing market prices)
iii) Intrinsic Value Per Share on the basis of the revaluation of assets of the company
iv) P/E Multiple approach (For companies that are profitable one year before the delisting announcement)
v) The maximum price at which the sponsors purchased these shares from the open market in the preceding one year.
Suzuki Motors Japan is encashing one-off PKR currency turmoil and flawed delisting rules of Pakistan. Both PSX and Company’s profitability were at historic lows when they brought up this delisting proposition. They will try to buy shares from minority shareholders at 2 to 3 times of company’s future profitability.