Pakistan’s Engro to Build $1 Billion Phosphate Plant

By Farhan Sharif

Oct. 15 (Bloomberg) -- Engro Chemical Pakistan Ltd., the nation’s second-largest urea maker, plans to build a $1 billion phosphate fertilizer plant in North Africa to feed demand in Pakistan and Western Europe. Shares rose.

“Pakistan produces a lot of nitrogenous fertilizer indigenously but we don’t have the raw material for phosphatic and potassium fertilizers,” Chief Executive Officer Asad Umar, said in an interview at his office in Karachi. “North Africa is the biggest hub of phosphate fertilizer in the world.”

Demand for fertilizer in rising in Pakistan, where farming accounts for one-fourth of gross domestic product and employs 45 percent of the workforce. Engro, which has spent $1.7 billion expanding into milk and consumer goods in the past three years, will join the Fauji Group in supplying Pakistan with fertilizer from North Africa.

“The expansion in fertilizer is very timely because of demand,” said Farhan Bashir, research analyst at Invest Capital & Securities Ltd. in Karachi, who has a “buy” recommendation on the stock. “Their diversification is a strength that mitigates the risk of investing in one area.”

Engro’s shares, which have more than doubled this year, rose 1.7 percent to 182.838 rupees at the 3:30 p.m. local time close on the Karachi Stock Exchange, after rising as much as 2.8 percent earlier. The proposed North African fertilizer plant will produce about 1 million metric tons a year, Umar said, almost three times more that Fauji’s joint venture.

Engro plans to invest $5 billion in the next five years to expand in areas including power generation and food exports, Umar said. It will seek funds for the growth in local and international equity markets, said Umar, 48, who joined the company in 1985 and was appointed CEO more than five years ago.

Financing Cost

“The worry is that the major expansion has increased the cost of financing,” said Nasim Beg, who manages 16 billion rupees in stocks and bonds at Arif Habib Investments Ltd. in Karachi. “Once the burden of cost of financing is clear, the company has potential to utilize the benefits of an agriculture-based economy.”

Umar expects revenue, which rose 21 percent to 10.7 billion rupees in the six months ended June 30, to double by 2011. He wouldn’t say exactly where the phosphate plant would be built, saying he’s considering “more than one country.”

Fauji Fertilizer Bin Qasim Ltd., Pakistan’s only di- ammonium phosphate producer, and Fauji Fertilizer Co. make 375,000 tons a year from a joint venture plant they started in Morocco last year, according to Atlas Capital Markets Ltd. in Karachi. Fauji Fertilizer Co. rose 3 percent to 109.09 rupees.

Urea Expansion

Pakistan uses 1.5 million tons of di-ammonium phosphate, a year, Umar said. The government forecasts the farm sector will expand 3.8 percent in the year ending June 30, compared with 4.7 percent a year ago.

Engro also plans to begin exporting urea to India next year. The company is building the world’s largest urea plant at Daharki, in southern Pakistan, which will produce 1.3 million tons and begin output in mid-2010.

The company plans to export milk and may start selling rice overseas next year, Umar said. Pakistan is the world’s fifth-biggest producer of milk and the fifth-largest rice exporter, according to the government.

Engro entered the consumer goods business in 2006 with the Olper’s brand of packaged milk and now also produces cream, a tea whitener and ice cream. Pakistan’s consumer goods market is led by units of Nestle SA and Unilever NV, the world’s largest and third-largest food companies.

“Pakistani rice is very high quality but sells at a discount against competitors because it’s not branded or marketed properly,” Umar said.

Engro’s energy unit, which is aiming to produce 4,000 megawatts of power by 2016 using coal from Thar, in southeastern Pakistan, should start up a 220 megawatt power generation plant by December, Umar said.

Pakistan plans to add a total of 5,000 megawatts of electricity to the national grid by 2013 after violent demonstrations against power outages broke out in several cities in past two years. Pakistan has faced power shortages of as much as 4,500 megawatts a day, or 30 percent of capacity, during the peak summer season since May.

To contact the reporter on this story: Farhan Sharif in Karachi at fsharif2@bloomberg.net.