China Boom to Churn Out Pakistan’s Largest IPO in Decade

  • Agha Steel plans to raise as much as $95 million this year
  • Company to triple output as China finances $55b in projects

QuickTake: China's 'One Belt, One Road' Policy

Agha Steel Industries Ltd. is planning Pakistan’s biggest-ever private sector initial share sale this year to help boost output as China funds more than $55 billion in infrastructure projects across the nation and a buoyant stock market spurs investor demand.

The Karachi-based company plans to raise as much as 10 billion rupees ($95 million) selling a 25 percent stake, Executive Director Hussain Agha said in an interview. The sale will be the largest since the 12-billion rupees government stake sale of Habib Bank Ltd. in 2007, the country’s largest IPO yet.

Hussain Agha

Photographer: Asim Hafeez/Bloomberg

Steel and cement makers in Pakistan are expanding to meet demand as the “One Belt, One Road” trade route financed by China spurs construction. The nation’s economy has grown at about 5 percent annually since 2013, encouraging Agha’s peers including International Steels Ltd. and Aisha Steel Mills Ltd. to lift production.

“You need roads, sky rises and housing,” said Agha. “Pakistan’s steel industry is in an infancy stage and growing at a massive pace -- the whole environment will change.”

Read more: Chinese Largesse Lures Countries to Its Belt and Road Initiative

The company will use the funds for $50 million expansion that will triple output to 500,000 metric tons within two years. Production will then double to a million tons by 2023, he said. Habib Bank has been appointed financial adviser while Arif Habib Ltd. and BMA Capital Ltd. were picked as book runners for transaction.

Pakistan’s steel output grew 23 percent to 3.6 million tons in 2016, the biggest gain among 40 nations, according to the World Steel Association. Agha Steel expects construction-grade steel, such as rebars and wire rods, to grow as much as 12 percent annually for the next three years.

The construction sector expanded 13 percent in year ended June 2016, more than twice the pace in the previous 12 months, according to State Bank of Pakistan’s annual report. Rapid urbanization and rising income levels has left the nation with an annual shortfall of 500,000 homes, according to real-estate developer Arif Habib.

“Real-estate is the main engine for this growth, it has really picked up,” said Ayub Khuhro, chief investment officer of Karachi-based Faysal Asset Management Ltd., which has about 8 billion rupees in stocks and bonds. “The government is also willing to protect companies with anti-dumping measures.”

Anti-Dumping

In February, Pakistan imposed anti-dumping duty on Chinese imports of galvanized coils and sheets for five years to aid producers in a nation where steel usage per capita is almost half of its neighbor India, said Agha.

Favorable industry policies aside, some family-owned companies are also tapping investor demand that made the nation’s stock market Asia’s best performer in 2016. Even so, less than half a dozen companies list each year in Pakistan, a country where many businesses are conservative in risk taking and often unwilling to open their books to public scrutiny.

Amreli Steels Ltd. has seen its shares more than double after raising 3.8 billion rupees two years ago. The company, whose products are similar to those manufactured by Agha Steel, has announced another expansion this month.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE