Chinese steel giant offers to pump $778m into Pakistan Steel Mills (PSM)

[Shotgunner51]

The problem with PSM is obsolete cold-war era machinery which has low efficiency and high break down cost...PSM is essentially worth scrap...

Well let's rebuild the value of this company by bringing in a powerful strategic investor, industry leader more ideal, so Sinosteel is good option. As a banker myself, I will advise such move, instead of issuing bonds. Too bad I miss that road show held by the Privatisation Commission in China, gonna see the next one if any.

If Sinosteel invest $778m for say 51% stake, that's means the pre-money valuation is $747.5m, not bad for a 1.1 million tonne p.a. (installed capacity) company. Upon completion of deal, PSM is a $1.5255 billion (valuation) company, may consider IPO when it becomes $5-8 billion (note KSE is around $75-80 billion in market cap) and become a heavy weight public company, pride of Pakistani national industry!

Good luck PK bros!

P.S.: The above path is pretty much many state-owned-enterprises in China have chosen.

 

[Donatello]

The land under the PSM is alone worth more than that.............

With Port Qasim seeing lots of economic activity, the land price is only going to go up.

 

[Shotgunner51]

The land under the PSM is alone worth more than that.............

With Port Qasim seeing lots of economic activity, the land price is only going to go up.

That's trivial. Clearly segregate asset ownership, land to the state, other assets retained within PSM's balance sheet, and make a land lease agreement (fixed rental, or variable rental) between PSM and state at market rates (land use become an OPEX in the company's P&L), all very normal practice, I believe the professionals must have covered this agenda. Other non-market factors should have covered as well, say tax, labor law, import/export, utilities, transport, etc.

Market reform is a big process, the objective is efficiency, productivity.

P.S.: You know win-win deal right? Well I do that for a living in Shanghai. Also my impression is that you are advising against the deal, how's that? Let all be optimistic about PK's future, and work things out step-by-step.

 

[I S I]

The land under the PSM is alone worth more than that.............

With Port Qasim seeing lots of economic activity, the land price is only going to go up.

Land is worth $1 Billion?


How so?

 

[Zaneesh852]

The land under the PSM is alone worth more than that.............

With Port Qasim seeing lots of economic activity, the land price is only going to go up.

Then why not just to dismental it and sell it to land developers? Cuz PSM isn't getting any operational benefit from the land.

 

[Shotgunner51]

Then why not just to dismental it and sell it to land developers? Cuz PSM isn't getting any operational benefit from the land.

True that. I am also confused, a steel plant on a golden district (in terms of land value) doesn't sound right. Planners should relocate the steel plant and maximize the land revenue.

Put heavy industries on cheaper land.

 

[Bouncer]

The problem with PSM is obsolete cold-war era machinery which has low efficiency and high break down cost...PSM is essentially worth scrap...

Apparently not since the Chinese are willing to pay $ 778m for it.

Power is not the only problem...you are more of a troll than industrial expert..so you dont know..

He said will power.

That's trivial. Clearly segregate asset ownership, land to the state, other assets retained within PSM's balance sheet, and make a land lease agreement (fixed rental, or variable rental) between PSM and state at market rates (land use become an OPEX in the company's P&L), all very normal practice, I believe the professionals must have covered this agenda. Other non-market factors should have covered as well, say tax, labor law, import/export, utilities, transport, etc.

I can't find that article right now, but this is exactly the plan. They'll segregate the land, equipment and other resources. Plus they have also set the base price at PKR 90 billion, that's about $900m these days so I guess Sinosteel will have to increase its offer.

True that. I am also confused, a steel plant on a golden district (in terms of land value) doesn't sound right. Planners should relocate the steel plant and maximize the land revenue.

PSM was set up in the 70s and the land wasn't worth much then. I guess relocating steel mill of this size isn't easy.


Selling this white elephant and firing these corrupt bastards running the show will be a relief package in itself for the entire nation. Billions of dollars have been squandered since that Kanna Yaddar Cheap Justice blocked its sale in Mushss era.

 

[AZADPAKISTAN2009]

The work force need over haul , new blood and new engineering practice is needed old timers are killing productivity

 

[Shotgunner51]

I can't find that article right now, but this is exactly the plan. They'll segregate the land, equipment and other resources. Plus they have also set the base price at PKR 90 billion, that's about $900m these days so I guess Sinosteel will have to increase its offer.

PSM was set up in the 70s and the land wasn't worth much then. I guess relocating steel mill of this size isn't easy.

Selling this white elephant and firing these corrupt bastards running the show will be a relief package in itself for the entire nation. Billions of dollars have been squandered since that Kanna Yaddar Cheap Justice blocked its sale in Mushss era.

Thanks for the info bro!

I suppose Sinosteel will purchase new shares issued by PSM, i.e. Sinosteel be an new additional shareholder rather than be sole shareholder of PSM, and the proceeds ($778m, in 3 tranches) stay on PSM's balance sheet.

On the land part, since PSM will lease, not purchase, so I guess PSM will pay rental, i.e. treated as a cost in it's P&L (Profit & Loss Statement). If the land is valued at $900m (I'm not familiar with Pakistan's law of land, or its real estate market) by certified valuator then the annual rental would normally be around $25~30m. An alternate is that government don't charge fixed rental, but add a new tax on PSM to cover this.

After the deal, PSM will have two shareholders, the original shareholder (representing the government) plus new comer Sinosteel. Board of directors, senior management, will be restructured. PSM is converted from SOE into JV.

 

[Donatello]

Then why not just to dismental it and sell it to land developers? Cuz PSM isn't getting any operational benefit from the land.

The land was acquired very cheap in huge area in 1970s when Karachi was not this big. You can still sell the PSM and land separately. But if Land, all of it, is sold with the Mill, then someone is getting a steal. You can already see urban development there. Once it used to be only steel town, now you have businesses, highway and everything there. In the next 10 years, Karachi would've expanded that much and hence this land can be sold for real estate or industrial estate. Port Qasim is seeing a rise in activity. A new powerplant is under construction along with LNG terminals....plus the usual industries.

That's trivial. Clearly segregate asset ownership, land to the state, other assets retained within PSM's balance sheet, and make a land lease agreement (fixed rental, or variable rental) between PSM and state at market rates (land use become an OPEX in the company's P&L), all very normal practice, I believe the professionals must have covered this agenda. Other non-market factors should have covered as well, say tax, labor law, import/export, utilities, transport, etc.

Market reform is a big process, the objective is efficiency, productivity.

P.S.: You know win-win deal right? Well I do that for a living in Shanghai. Also my impression is that you are advising against the deal, how's that? Let all be optimistic about PK's future, and work things out step-by-step.

I am not advising against the deal. Pakistan Steel Mills is an obsolete entity. Anyone buying it would need to seriously upgrade. However, there is so much surplus land owned by the Pakistan Steel Mills entity, that if it is sold today at actual market rates, the value of that land alone will be higher than Steel Mill.
The reason is that when Steel Mill was setup 1970s, government bought large amount of land as it was cheap, and above all it was of no value since it was a dry, arid and desolate area far from the city.

However, 45 years later, Karachi has expanded rapidly and now the city is knocking at the gates of the steel mill. So the same desolate, useless land is now worth a lot more.

So what i am saying is that, if it is sold to anyone, that person can spend 1 billion USD and end up making half billion more.

 

[Bouncer]

If the land is valued at $900m

Small correction, the base price (on which bidders can build) is at $900m. The land has to valued lower than this, I am sure.

 

[Shotgunner51]

The land was acquired very cheap in huge area in 1970s when Karachi was not this big. You can still sell the PSM and land separately. But if Land, all of it, is sold with the Mill, then someone is getting a steal. You can already see urban development there. Once it used to be only steel town, now you have businesses, highway and everything there. In the next 10 years, Karachi would've expanded that much and hence this land can be sold for real estate or industrial estate. Port Qasim is seeing a rise in activity. A new powerplant is under construction along with LNG terminals....plus the usual industries.



I am not advising against the deal. Pakistan Steel Mills is an obsolete entity. Anyone buying it would need to seriously upgrade. However, there is so much surplus land owned by the Pakistan Steel Mills entity, that if it is sold today at actual market rates, the value of that land alone will be higher than Steel Mill.
The reason is that when Steel Mill was setup 1970s, government bought large amount of land as it was cheap, and above all it was of no value since it was a dry, arid and desolate area far from the city.

However, 45 years later, Karachi has expanded rapidly and now the city is knocking at the gates of the steel mill. So the same desolate, useless land is now worth a lot more.

So what i am saying is that, if it is sold to anyone, that person can spend 1 billion USD and end up making half billion more.

I understand your concern. OK let's discuss land which is not supposed to be center of spotlight here.

Imagine John has a candy factory, old and not profitable, but located in downtown Manhattan, what will he do? Anyway he can't sell it to Peter nor he can invite Peter to co-invest while insisting the factory stays. Because the land is useless when the factory occupies it, the factory matters. He should build a hotel on the land, and ask Peter to jointly invest into his factory in somewhere suburban, somewhere land price is cheaper.

No one operates heavy industries in land of high residential/commercial value. If an old factory insists staying on an expensive land, well, see above example.

 

[Zaneesh852]

The land was acquired very cheap in huge area in 1970s when Karachi was not this big. You can still sell the PSM and land separately. But if Land, all of it, is sold with the Mill, then someone is getting a steal. You can already see urban development there. Once it used to be only steel town, now you have businesses, highway and everything there. In the next 10 years, Karachi would've expanded that much and hence this land can be sold for real estate or industrial estate. Port Qasim is seeing a rise in activity. A new powerplant is under construction along with LNG terminals....plus the usual industries..

This would mean selling building as scrap and adjusting it against the accumulated losses. PSM roughly suffers 20 Billion Rs in loss every year and even if we assume 7 years of loss, the accumulated loss comes at around 140 billion Rs or roughly 1.4 Billion $. So for privatization, government would end up paying the private investor rather than receiving anything.

 

[Ghazwa e Hind]

Uncle Jee, i said "will power" is needed. Not electricity wali power!

 

[waleed3601]

this is so damn embarrassing!
its like Pakistani universities don't produce any management or engineering graduates at all that we have to ask for literally every penny of a thing from china!
we built our own ports (bin qasim) when we were poor, we built our cities when we were poor, we built our industries when we were poor, but now that we have more money than back then, suddenly we have to beg for everything?
why dont we just import a damn prime minister from china as well? bet they'd be glad to take over our worthless politicians! damn it is there any limit to how much we can shame ourselves? no self respect left in us anymore!