Multinationals Buying Pakistani Companies to Grow
By Riaz Haq
CA
Two multinational giants acquired two Pakistani companies in just the last week as part of their growth strategy to establish presence in Pakistan.
Dutch dairy giant FrieslandCampina acquired 51 % of Karachi-based Engro Foods Limited, the second largest dairy producer in Pakistan. In the same week, Turkey's Arcelik announced purchase of Dawlance, Pakistan's market-leading home appliance maker. Both cited opportunity for double-digit growth in the emerging market as the main reason for their acquisitions.
Pakistan's Emerging Market Upgrade
Earlier in June, Morgan Stanley announced its decision that Pakistan's MSCI shares index will be upgraded from frontier to emerging market status . Karachi Stock Exchange KSE100 Index has rallied 14% in 2016, making it Asia's best performing market so far this year in anticipation of the MSCI announcement.
Pakistan Dairy Market
Pakistan is the third largest milk-manufacturing country in the world, with 38 billion liters on an annual basis, according to Retail Detail of Europe . FrieslandCampina wants to take advantage of the shift to packaged dairy products in Pakistan: not even 10 % of milk consumption comes from processed and packaged milk in Pakistan, but FrieslandCampina expects that to change in the near future.
“Thanks to this well-organized and very successful company, we have obtained a strong position in the Pakistani dairy market. A growing middle class is switching to processed and packaged milk in Pakistan and Engro Foods provides a platform to build on. This acquisition will contribute to the value proposition we want to give our member dairy manufacturers. We will also help develop the agricultural industry in Pakistan with our extensive knowledge on the dairy manufacturing process and thanks to our Dairy Development Program", CEO Roelof Joosten said.
To tap into the Pakistani market, FrieslandCampina is buying 51% of Engro Foods at an estimated price of $448 million, a securities filing said on Monday. Topline Securities said Engro Corporation will generate cash of around Rs 47 billion, part of which will most likely be invested in energy-related projects with a higher rate of return, according to a report in Pakistan's Express Tribune newspaper .
Home Appliance Demand in Pakistan
Pakistan's $3-billion home appliance market is experiencing double digit annual growth. It has attracted the attention of China's Haier , a multinational giant that recently acquired American General Electric's home appliance business.
Haier has eight industrial complexes, two of which are foreign--one in the United States, and one in Pakistan, according to Xiaofei Li, the author of "China's Outward Foreign Investment: A Political Perspective" . In these Special Economic Zones, Haier does localization to suit the needs of the consumers. For the Pakistani market, Haier especially designed a washer that can hold 15 long gowns at one time. There are many more such Special Economic Zones envisaged as part of the CPEC (China-Pakistan Economic Corridor) . It will be essentially an industrial corridor spanning almost the entire length of the country from the Arabia sea coast to the Karakorams where it enters China via the Karakoram Highway (KKH), the world's highest paved road.
Pakistan's privately-held Dawlance is also a major player in the country's home appliance market. It is Pakistan's leading refrigerator and microwave brand, No. 2 air conditioners and No. 3 in the laundry category. In 2015, it reported $221 million in revenue and $45 million in EBITDA (earnings before interest, taxes, depreciation and amortization), according to Nikkei Asian Review .
“Pakistan is the sixth most populous country in the world with a population of 200 million people. In particular, its young population and growing economy make it an enticing prospect as a market in the region. With the acquisition of Dawlance in Pakistan, Arçelik will employ a total workforce of 30,000 worldwide and will have a global production base of 18 manufacturing facilities, including Turkey, Romania, Russia, China, South Africa and Thailand. “Our acquisition is also a powerful example of south-south cooperation, representing a technology and know-how transfer between developing countries,” said Fatih Ebiçlioğlu, the head of the Consumer Durables Group of Koç Holding that controls Arcelik, according to Turkey's Hurriyet Daily News .
Summary
Smart money is starting to flow into Pakistan again as the world recognizes the country's tremendous economic potential as a growing emerging market. Investors and businesses are looking to profit from the expanding Pakistani economy backed by growing middle class consumption and rising Chinese investments in energy and infrastructure .
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