Pak Suzuki mulls selling minority shares to parent company, de-listing from PSX

• Suzuki Motors has proposed buying shares.
• Company has notified PSX about proposal. 
• Pak Suzuki’s share price rose by 5% after announcement.

KARACHI: Pakistan’s biggest carmaker Pak Suzuki Motor Co Ltd said on Thursday that it will be considering a proposal by its parent company Suzuki Motor Corp to buy out its minority shareholders and de-list from the Pakistani bourse, reported The News.

The company in a notice to the Pakistan Stock Exchange (PSX) said that its board of directors will take up the issue on October 19.

“This is to inform you that a meeting of the Board of Directors of PSMC, will be held on Thursday, 19 October 2023 to review and consider the majority shareholder’s intents to purchase all outstanding shares of Pak Suzuki Motor Company Limited held by other shareholders and de-listing under Rule 5.14.1. of the listing regulations,” said the notice.

"The decision taken by the board shall be communicated after the board meeting."

Following the announcement, the company’s share price rose by 5% to Rs146.20 as the investors view the move as a major shift in the company’s ownership structure.

Analysts are of the view that if the decision goes through it would indicate the majority shareholder’s intention to gain full control and influence over the company’s future direction. 

This move is expected to bring significant changes to the dynamics and governance of PSMC and have a potential impact on the automotive sector in Pakistan, they added.

The move comes as Pak Suzuki is facing a slump in sales, high costs and currency volatility in Pakistan. 

The company has been operating in Pakistan since 1983 and reported a net loss of Rs9.68 billion ($58 million) in the first half of the ongoing fiscal year, compared with a profit of Rs1.15 billion seen last fiscal year.

The company blamed the loss on low sales volume, higher finance cost, depreciation of rupee and hike in energy prices. It is also facing tough competition from new entrants such as Hyundai and Kia who have introduced new models at lower prices and better features.

Pak Suzuki also announced several shutdowns of its vehicle and motorcycle plants in Pakistan during the year due to low demand and supply chain issues. 

The decision, however, did not surprise analysts as the auto sector has been facing challenges on several fronts, including high energy costs, political instability, and an inability to secure letters of credit for imports amid a severe dollar shortage.

Car sales fell 30% year-on-year in September to 6,410 units. For the first quarter of the fiscal year 2023/24, passenger car sales dropped 44% to 16,021 units, compared with 28,571 units in the same period last year.

"The decision to de-list suggests that the company is not seeing an incentive to remain listed at the bourse as compliance cost is high," Fahad Rauf, head of research at Ismail Iqbal Securities Limited, said. 

“The company likely believes its shares are available at a cheap valuation so they are intending to buy it."

However, Rauf added, the move would have harmed the Pakistan auto sector had the company decided to shut down its operations in the country.

"However, de-listing is a negative development for PSX, as the bourse does not have large companies in the first place."