International Industries uses SBP’s TERF to expand steel rolling capacity

Use of the central bank’s banking sector bailout to finance an expansion plan falls within the scope of the program, but is unusual among Pakistani industrial conglomerates

The coronavirus pandemic has managed to upend entire countries and economies, and Pakistan is no exception. The much debated lockdown in April, while possibly reducing the number of cases in the first wave, crushed industries, as many companies were forced to shut down production. Pick any company’s financials this year, and all point to a sorry state in the first half of calendar year 2020. 

Enter the State Bank of Pakistan (SBP). Knowing this, the regulator introduced the Temporary Economic Refinance Facility (TERF) on March 17, a concessionary refinance facility aimed at promoting investment in both new and expansion. The financing under the facility is available through any bank or development finance institution, for any sector except the power sector. 

The initial program’s size was Rs100 billion, with a maximum loan size per project of Rs5 billion, and a maximum end-user rate of 7% for 10 years. This scheme was then further amended in May, and then July. In the new scheme, the end user interest rates on TERF was reduced from 7% to 5%. The SBP would also provide refinancing to banks at 1% with banks’ maximum margin of 4%. The maximum loan limit remains at Rs5 billion, with a 10 year tenor and grace period of two years.

Now, here is the catch: the validity of this scheme is only up until March 31, 2021. Thus, one can witness a flurry of activity in the loan space, with companies trying to quickly avail the opportunity before it disappears. By the SBP’s own estimates, the requested amount went from Rs36.1 billion in April 2020, to Rs 517.4 billion by December, while over the same period, approved financing went from Rs 0.5 billion to  Rs 222.7 billion.

One company that spotted this trend? International Industries Ltd. In a notice sent to the Pakistan Stock Exchange on December 11, the company announced that it was in the process of availing TERF. Specifically, it wanted Rs700 million to finance the capital expenditure for its steel division, and increase capacity for four products: cold rolled steel tubes, HDPE (high density polyethylene pipes) water pipes and duct, PPRC pipe for both hot and cold water, and stainless steel tubes. It called this expansion as part of the company’s long-term strategic direction. 

It is an interesting use of the coronavirus bailout package. But then International Industries has always been laser focused on expansion, and is simply using this incredibly unfortunate time, to speed up perhaps what it had already planned. 

International Industries is the brainchild of Amir Sultan Chinoy, an industrialist born, as many of Pakistan’s family patriarchs have, on the other side of the border, in British India in 1921.  He migrated to Pakistan and almost immediately had a massive impact on the industrialisation of the nascent country, incorporating International Industries (it initially dealt in electronic instruments). Chinoy initially named the company Sir Sultan Chinoy & Co. Ltd., after his father. In 1953, Chinoy sponsored the establishment of Pakistan Cables Ltd, for which International Industries acted as a distributor.

It was in 1966, that the company pivoted and began to produce cold rolled tube, and steel furniture.Towfiq H. Chinoy took over the company as Managing Director in 1977, and began to produce galvanised iron (G.I) pipe in 1982. In 1984, IIL was listed on the Karachi Stock Exchange. In 1989, the company set up the country’s first private sector cold rolling mill, and began to export pipes in 1996. 

In 2006, the company began to produce HDPE pipes, and then in 2015, it set up stainless steel pipe facility, and API lines pipes in 2016. 

International Industries also owns a majority share of International Steel Ltd., which was incorporated in 2007 for flat steel products. This focuses exclusively on producing hot dipped galvanized coil (HDGC), cold rolled coil (CRC), and color coated galvanized coils (PPGI). The subsidiary has an annual manufacturing capacity of over 1 million tons and annual revenues of over Rs48.1 billion.

In addition, the company also owns Pakistan Cables Ltd, incorporated in 1953, which manufactures electrical cables, wires, copper rod, aluminum sections. It also has two wholly owned subsidiaries:  IIL Australia, which represents the group’s interest in the Asia Pacific region; and IIL Americas Inc, which is Canadian, and represents the group’s interest in North America.

Much of International Industries success, interestingly enough, has been in serving the furniture and bicycle industry, since 1969, and the auto industry since 1989. It started making bicycle parts, such as chains, rims mudguards etc, and began to cater to the growing two wheel motorcycle market. In fcat, more than 60% of bicycle and motorcycles manufactured in Pakistan use parts made by International Industries. That is a lot of bikes. 

Today, that continued growth has paid off. The company is now Pakistan’s largest manufacturer and  exporter of steel, stainless steel and plastic pipes, with an annual manufacturing capacity of 750,000 tons and annual revenues of over Rs 20 billion. It exports to 60 countries across six continents.

Thus, it seems that TERF was just one way of making sure the company retains its top spot in the steel manufacturing space. Perhaps the covid pandemic will actually turn out to be a bright spot in the company’s long history – who would have thought? 

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