KARACHI: Power Cement Ltd, which is the second largest plant in terms of capacity in the country’s south zone, has opted for the re-profiling of its outstanding long-term debt of Rs11.9 billion with a local syndicate of banks.

The debt re-profiling of Power Cement, which is a flagship company of the Arif Habib Group, will entail a reduction of four biannual principal repayments — falling due between July 2023 and January 2025 — from Rs1.19bn each to Rs119 million each. In addition, the exercise will reduce two biannual principal repayments — falling due in July 2025 and January 2026 — from Rs1.19bn each to Rs298m each.

The remaining principal amount of Rs10.8bn will be paid in eight equal biannual instalments of Rs1.35bn each from July 2026 to January 2030, the company told investors on Monday.

It said the debt re-profiling was triggered by rising inflationary pressures, high interest rates and depressed local demand.

Speaking to Dawn, JS Global analyst Muhammad Waqas Gha­ni said the company’s finance cost has gone up amid all-time high interest rates. “That has led to depressed profitability,” he said.

Meanwhile, annual demand for cement is expected to go down 16 per cent in 2022-23, he added.

Power Cement’s finance cost was Rs2.8bn for the first nine months of 2022-23, up 33.5pc from a year ago. Its pre-tax loss in the same nine-month period was Rs120.3m versus Rs372m a year ago.

The debt re-profiling will free up liquidity and have a positive impact on the company’s bottom line. When the loans eventually become due in later years, the interest part of the repayment will have likely come down because of its peg to the Karachi interbank offered rate, which is hovering at an all-time high these days. Lenders agree to a debt re-profiling only reluctantly. The exercise entails reduction in the interest rate and/or extension in the due date — an arrangement aimed at increasing a company’s chances of staying in business and eventually paying back its loans.

Mr Ghani said many other cement makers also face the problem of high finance cost. However, no other firm has so far opted for a debt re-profiling.

Published in Dawn, June 27th, 2023