LAHORE: The Supreme Court is expected to announce its reserved judgement on Gas Infrastructure Development Cess (GIDC) on August 13, (tomorrow).
According to Ismail Iqbal Securities Limited (IIS) research, if the decision comes in favor of the industry, Fertilizers (Fauji Fertilizer Company Limited FFC, Engro Corporation Limited ENGRO and Engro Fertilizers Limited EFERT), Textiles (Gul Ahmed Textile Mills Limited GATM and Feroze1888 Mills Limited FML) and other industries (Engro Polymer and Chemicals Limited EPCL, Lotte Chemical Pakistan Limited LOTCHEM, and Ittehad Chemicals Limited ICL) would record a one-time liability reversal.
However, in case the verdict does not favor the industries, the result will be neutral in terms of earnings as most of the GIDC has already been provided for by the companies. Based on IIS estimates, liability reversal impact would be highest for Fauji Fertilizer Bin Bin Qasim Limited (FFBL) at Rs15.4 per share, followed by Rs32 per share for FFC, and Rs6 per share for ICL relative to market capitalization. For FFBL, balance sheet structure would improve substantially as book value could jump from Rs2.8 per share (as of June, 2020) to Rs18.2 per share, they stated.
IIS highlighted that FFC, EFERT and LOTCHEM can potentially announce a special dividend (up to 20 percent of current market price) due to excess cash already available with the companies against the liabilities. Other than one-off liability reversal, recurring earnings of industries may get a boost while it would not be material for fertilizers as GIDC was already reduced to Rs5 per MMBTU at the end of January this year.
To shed more light on the background, GIDC was initially implemented in December 2011 on all industrial users of gas for infrastructure development of the Iran-Pakistan (IP) & Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects and Liquefied Natural Gas (LNG) infrastructure.
In 2014, legality of GIDC was termed as void by authorities and thus Federal Government reimposed cess with legal procedures in 2015. However, industries challenged imposition of cess on ground of utilization of funds other than stated purpose which eventually reached Supreme Court (SC). In its last hearing held in Feb-20, SC reserved its judgement which is expected to be announced tomorrow.
This money was paid by end users and should be given to the government of Pakistan treasury.