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The Karachi Stock Exchange Limited’s Engro Polymer and Chemicals Limited to invest $15m in 2013

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Karachi, December 19, 2012 (PPI-OT): Enclosed please find herewith the news item published in the daily “The News” December 11, 2012, the contents of which are self explanatory.

It may be noted that under clause 35 (xx) of the Code of Corporate Governance, the listed companies are required to immediately disseminate to the Securities and Exchange Commission of Pakistan and the Stock Exchange on which its shares are listed all material information relating to the business and other affairs of the company.

Engro Polymer and Chemicals to Invest $15 m in 2013

Engro Polymer and Chemicals Limited (EPCL) will invest up to $15 million in the calendar year 2013 to enhance the production capacity of PVC resin, which is a major product of the company, said the company’s chief executive officer.

“EPCL will spend $10 to $15 million during 2013 to enhance production from the existing three PVC resin plants at Port Qasim, Karachi,” said Khalid Siraj Subhani, president and CEO of EPCL. “The company is looking into multiple ways for raising investment funds. It could be debt, equity, or a mix of debt and equity.”

PVC resin is a major product of the company that is a basic raw material for PVC pipes, artificial leather, shoes, rigid sheets for tables, doors and windows, panaflex, blood bags, wrappers around bottles, garden hose, fixtures and a number of other plastic products across the world.

Besides, the company produces VCM, which is a raw material for PVC resin. Caustic soda is another product of the company that is used in the manufacture of textile, soap, detergents, and water treatment.

Subhani said that the removal of bottlenecks will help produce an additional 35,000 to 40,000 tons of PVC resin. “The company produced 150,000 tons of the said chemical in 2011 against the installed capacity of 200,000 ton per annum.”

He said that the usage of PVC resin made products in Pakistan is just 0.7 kilogram per person per year. This is almost double in India, which is a net importer of the chemical. “The per capita consumption of PVC made products in industrial states stands at seven to 9 kilograms.”

The reason behind lower use in Pakistan remains unawareness about higher quality and lower price benefits of products. “However, the usage of such products in the country is increasing by seven percent per annum,” he added.

“PVC is a poor man’s plastic, which lasts for about 60 years,” he claimed and added, “PVC made products is 10 to 30 percent cheaper than the products made of non-PVC material.”

“Sewerage pipes made of the said chemical do not choke lines as quickly as pipes made of non-PVC stuff,” he said. “The deposit time of non-PVC pipes is 10 times higher than the pipes made of PVC resin.”

He said that the import of PVC scrap through misdeclaration from origins such as Saudi Arabia and the Middle East is a huge challenge to the growing industry. The scrap is earning a bad name for products and playing a negative role in developing the downstream PVC industry in Pakistan.

“The company is helping businessmen to develop the downstream industry by suggesting business ideas and launching such ideas successfully,” he said. “Building constructors and the government are also using such products in their development schemes.”

EPCL, a listed company at the Karachi Stock Exchange, is the only company that produces PVC resins in Pakistan. Engro Corporation (the then Engro Fertilizers) set up the company in 2002 under its plan of diversifying business from a single fertilizer manufacturing plant.

International Financial Institution and Mitsubishi Corporation hold about 15 percent and 10 percent shares of the company, respectively.

The company reported Rs83 million profit-after-tax in nine months ended September 30, 2012 against loss-after-tax of Rs440 million in the same period of 2011.

The CEO said that his company incurred a cumulative loss of about Rs1.5 to Rs2 billion in the previous two years due to hiccups in establishing VCM plants imported from Germany.

He elaborated that the company had imported a closed VCM manufacturing plant from a German company called Venality for $260 to $270 million in 2007. The company had agreed to help relaunch such a plant in Pakistan.

However, its officials did not travel to Pakistan after Germany advised its people not to travel to the country at that time. Therefore, the situation caused the company to incur steep losses, as the plant was made operational with much delay.

Reference to you letter No. KSE/C-297-A-8565 dated December 11, 2012 addressing the news item published in the daily “The News”.

We would like to inform you that the information published in the newspapers contains quite a few factual inaccuracies, the more important of which are addressed here. According to the reporter, Engro Polymer and Chemicals Limited produced 15,000 tons of PVC in 2011 against the installed capacity of 200,000 ton per annum. In reality, the installed capacity of our PVC plan is 150,000 tons and that of our VCM (a raw material used in PVC production) plant is 200,000 tons.

To bridge the gap between the installed capacities of PVC and VCM Plants, our Company has plans to invest $10-15m in debottlenecking of PVC units (of which we have 2not 3, as reported) over the next few years, but these projects have not yet been approved.

We will of course notify the Stock Exchanges as per Listing Regulations once these projects are approved. For the sake of clarity we would state that like other manufacturing units, we are also constantly reviewing and evaluating various opportunities to increase capacity and improve plant efficiency, and accordingly, one small PVC debottlenecking projects costing $1.7m was recently approved by the Board for implementation in 2013.

It has also been incorrectly reported that the Company imported a closed VCM manufacturing plant from a German Company called Vinnolit for $260 to $270 million in 2007, whereas the plant was actually relocated from Formosa Plastic Corporation and was earlier operating at their Baton Rouge site. The cost of $ 260-270 million was of the total back-integration project, including PVC, Caustic Soda and associated Utilities.

For more information, contact:
Karachi Stock Exchange
Tel: (92-21) 111-001122
Fax: (92-21) 3241 0825, (92-21) 3241 5136
Email: info@kse.com.pk
Web: www.kse.com.pk

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