Pakistani firm to invest more in JV with Chinese tyre giant
by Khalid Aziz
ISLAMABAD (June 10): Service Industries Ltd. (SIL) will extend its cross-corporate guarantee in favour of the lenders of its joint venture with China’s Chaoyang Long March Tyre Co., Ltd., it said in a disclosure to Pakistan Stock Exchange.
SIL will enhance its guarantee in favour of the lenders of Service Long March Tyres (SLM), its JV with Chaoyang, from Rs 8 billion to Rs 9 billion for 9 years ending June 30, 2030, the company said. It said that the additional investment is necessary for the early completion of the JV project, which is expected to complete in the third quarter of the current year.
Separately, the company said that it will secure a long-term loan of Rs 2.5 billion from its subsidiary, Service Global Footwear (SGF) Ltd. SIL converted SGF into a listed company in April to raise funds for the purpose. The initial public offering (IPO) was heavily oversubscribed and SGF raised Rs 621 million above the floor price.
On June 9, SGF disclosed to PSX that it will also utilise the excess funds in equity investment in the Service-Chaoyang JV.
SIL had agreed to invest over Rs 4.73 billion in the total Rs10 billion paid-up capital of SLM. The sponsors have so far invested Rs 7.5 billion in the JV. SIL has invested Rs 2.29 billion and has 30.60% shares in the JV. SGF has a 20.40% share with a Rs 1.53 billion equity investment. The Chinese firm Chaoyang has a 44% share with an investment of Rs 3.3 billion. The remaining 5% share is owned by another local investor.
SIL said that it will make the additional investment in SLM as and when required by the JV. The company further said that majority of the components of the plant and machinery had reached the project site. It said that the timely completion of the project will be beneficial for the firm in terms of dividends. It will not only enhance the profitability of the firm but will also add to the value of its shares, it said.
Waheed Ashraf, the company’s secretary, was contacted through phone and email to comment on the development but he did not respond till the filing of the story.
The Service-Chaoyang JV will manufacture all-steel Truck and Bus Radial (TBR) tyres for the first time in Pakistan. The JV aims to produce 600,000 tyres per annum, initially. Then it will enhance the production up to 2.4 million tyres a year by 2027. The project will generate around 700-800 direct employment opportunities, according to an earlier report by China Economic Net (CEN).