Engro to acquire Jazz’s telecom infrastructure assets in a $562.7 million deal

Engro Corporation, one of Pakistan’s leading business conglomerates, has signed a deal to acquire Jazz’s telecom infrastructure assets, housed under its wholly owned subsidiary Deodar (Private) Limited.

“Engro Corporation Limited has entered into an amalgamation agreement with Pakistan Mobile Communications Limited (PMCL). By way of this arrangement, PMCL’s tower assets housed under its subsidiary, Deodar, will vest into Engro Connect, a wholly owned subsidiary of Engro,” a bourse filing noted the other day.

Engro will guarantee the repayment of Deodar’s debt of $375 million (PKR equivalent) and provide PMCL with an additional amount of $187.7 million (PKR equivalent).

"The actions taken in Pakistan over the last few quarters, along with hard decisions for macroeconomic stability, have led to this deal. The incoming macro stability and IMF’s seal of approval has a huge impact on foreign financiers to look at Pakistan as an investable market," Samad Dawood, Vice Chairman of Dawood Hercules Corp, which owns 40% of Engro Corp, said.

"This infrastructure business, with scale, allows us to utilise telecom infrastructure better in Pakistan and eventually also serve international markets as well.”

An analyst at Topline Securities noted that company is currently sitting at cash balance of PKR 32 billion as per September accounts and is expected to receive similar quantum from sale of thermal assets.

“In case thermal assets are not sold timely, we believe Engro will meet this capex requirement of Engro connect partially by debt financing and partially through dividend income received from subsidiaries. This will curtail some recurring payouts of Engro Corp.”

Given the high debt levels of this transaction (67% debt), analysts suggest profitability in first years may remain on lower side. However, this venture will turn into sizeable profit of PKR 5-8 billion subsequently by year 3 and year 4, contributing 20-30% of the earnings.

Reportedly, Deodar has total tower count of 10,500, translating into per tower price of $53,590. To note, Engro’s existing tower count under Engro Enfrashare is 4,063 with asset base of PKR 69 billion or $250 million, translating into per tower asset value of $61,545.

Previously, Engro’s parent company Dawood Hercules in August 2017 attempted to acquire these tower assets in partnership with edotco group.

Thereafter, TPL REIT through its digital infrastructure REIT was considering acquisition of these assets with expected USD IRR of 17% with estimated investment amount of $600mn as per news reports.

This arrangement remains subject to corporate and regulatory approvals and sanction of the scheme by the High Court.