In a significant move on May 3, 2024, the boards of Engro Corporation Limited (Engro Corp) and DH Corporation Limited (DH Corp) approved a restructuring plan involving, aiming to optimize capital allocation and enhance shareholder returns.
This decision, which was reported to the Pakistan Stock Exchange on Monday, follows a proposal from DH Corp, Engro Corp’s largest shareholder.
The proposed restructuring, recommended on April 19, 2024, is designed to achieve financial synergies and maximize value for both companies’ shareholders.
The plan involves a Scheme of Arrangement that will be reviewed and sanctioned by the relevant High Court. Under this scheme, DH Corp will demerge into two separate legal entities. One entity will hold all assets and liabilities of DH Corp, except its investments in Engro Corp, which will be transferred into a newly formed company, ultimately owned by current DH Corp shareholders. Post-restructuring, DH Corp will retain its investments in Engro Corp, leading to Engro Corp becoming a wholly-owned subsidiary of what will be known as Engro Holdings Limited.
The restructuring will also see Engro Corp shareholders (excluding DH Corp) receive shares in DH Corp in proportion to their current holdings. This shift means that these shareholders will indirectly maintain their economic stake in Engro Corp through shares in Engro Holdings.
Engro Corp has evaluated this restructuring as highly beneficial, particularly in the current challenging macroeconomic climate, which limits opportunities for large-scale projects and capital deployment. The restructuring will allow for a more efficient use of capital within the Engro system, potentially yielding higher returns for shareholders.
This move is seen as a response to persistent feedback from minority shareholders who have advocated for broader and more flexible capital deployment strategies to improve returns. As DH Corp has experience in diverse sectors and a history of sound investments, it is expected to manage capital allocation effectively across a wider range of opportunities. In contrast, Engro Corp will continue focusing on managing and developing large-scale industrial projects.
The proposed restructuring will not only harmonize capital deployment efforts of both companies, which currently invest independently, but also open up more opportunities for investment. This integrated approach is expected to improve the potential returns for all shareholders, without increasing operational costs. Engro Holdings, managed by a team of investment professionals, will facilitate broader avenues for cash flows generated from Engro Corp’s investments.
Ultimately, the restructuring ensures that Engro Corp’s shareholders, who will transition to holding shares in Engro Holdings, continue to benefit from their investments in Engro Corp, while also gaining from returns on other investments made by Engro Holdings.
With the in-principle approval by Engro Corp’s board, the next steps involve finalizing the details of the restructuring and appointing advisors for the Scheme of Arrangement, which will then be presented for final approval and execution by the respective boards. This strategic restructuring is poised to bolster the financial health and market position of both Engro Corp and DH Corp, aligning them with long-term growth and profitability objectives.
