By Alia Stohy and Mahmoud Al-Qasas
The Carbon Holdings Company is planning to present its initial public offering (IPO) to the main stock exchange at the value of $2 billion. The company nearly resolved negotiations with four investment banks to put 35 percent of its shares on the market, despite the fact that it is contracted through the financial advisor to go on offer in early 2015.
Basil El-Baz, the head of Carbon Holdings, said in an interview with Daily News Egypt that the company intends to implement the IPO within the limits of $2 billion, which he regarded as the largest public offering that the Egyptian stock market has ever seen.
He added that the IPO process was intended to increase capital, and it is expected that important institutions and strategic investors and individuals will participate.
El-Baz also indicated that his company was deciding among local and international investment banks to manage the IPO process. The selection process is expected to take a long period of time, possibly more than a year, in order to guarantee that the bank is equipped for the task.
The head of Carbon Holdings also discussed a list of large expansions for his company encompassing six years, for which it requires funding of billions of dollars. This is what pushed the administration to consider the constraints of the stock market, which he considers a tool to obtain easy, sustainable funding which could fulfill their financial needs on an ongoing basis.
He remarked that Carbon Holding’s current capital has grown to $500 million, and there are plans to increase it to $1 billion before the middle of 2015. This expansion will be followed by several subsequent increases in the following periods, in line with the size of the mega projects planned for the future.
El-Baz also revealed two new projects which are included in the long-term future plan: first, the Egyptian-Japanese Petrochemical Company. This project represents an investment cost of $2.3 billion and aims to produce six thousand tons of methanol and two thousand tons of Ammonia.
He added that the company plans to start the project during the last quarter of 2020 and it will be established in the Suez region. Carbon Holdings holds 32.2 percent of the capital of the Egyptian-Japanese project and intends to contribute a controlling stake of 51 percent.
The second project represents a new phase for the Tahrir Petrochemical Complex, he said, and will constitute an investment cost of $1.2 billion. It will produce 220 thousand tons of polypropylene and refine 550 thousand barrels of crude oil a day. This phase will take place on land adjacent to the Complex.
El-Baz noted, “The most prominent project of interest to the company in the short and middle term is the Tahrir Petrochemical Complex, and after the completion of detailed studies, its investment cost will increase from $5 billion to around $6.5 billion.”
He also announced that the Carbon Holdings Company had signed with Hassan Allam Contractors and the Greek CCC company to compose a list of contractors for the Tahrir project. He pointed out that the agreement set the implementation period as 52 months, though construction was set to begin in the middle of 2015.
He also revealed an expansion in the funding base which includes five financial institutions instead of three. The Foundation for Italian Exports had agreed to lend $1,250,000,000 from the OPEC Fund for International Development and $2 billion was to be divided equally between the Korea Export Insurance Corporation and the Export-Import Bank of Korea.
The Export-Import Bank of the United States will also provide $1.4 billion, bringing the total amount of international funds to $4,650,000,000, though $2 billion will be obtained as payment for the rest of the project through institutions and local investors.
El-Baz justified the dependence on international financial institutions by highlighting their ability to finance large-scale projects on long-term repayment plans. This type of massive financial value would require the participation of around 40 commercial banks, which is difficult to achieve.
However, the head of Carbon Holdings hinted that the company would turn to local banks for funding certain parts of the project, especially domestic components and the construction. They expect to sign the financing contracts during the first quarter of 2015, on payment terms of 17.5 years.
El-Baz said that the company had signed export contracts guaranteeing the sale of 100 percent of the Tahrir Complex products, to achieve returns ranging from $7.5 billion to $9.5 billion annually. The capital rate of return ranges from 9-14 %, a fact which helped the process of negotiating with banks and international institutions to obtain the necessary funding.
The Tahrir Petrochemicals Complex is considered the largest Naphtha petroleum cracker factory in the world. It includes eight factories and will break down 3.5 million tons of Naphtha annually, and will produce 1.5 million tons of polyethylene, 880 thousand tons of polypropylene, around 350 thousand tons of petrol, 150 thousand tons of gas, 215 thousand tons of Butadiene and 100 thousand tons of HEXENE-1.
The project is housed on five million square meters in an industrial area, north-west of the Gulf of Suez. The buildings and factories will be built on 3 million meters and the rest of the space will be left empty in anticipation of any new expansions.
Carbon Holding’s manager said that he planned to build a power plant to provide for the electricity needs of the complex, with a production capacity of 300 MW.
The project is expected to provide around 20 thousand direct job opportunities during the construction period and will include 3.5 thousand workers after the project begins operations. Indirect employment is expected to include 50 thousand workers during the construction period, in addition to 25 thousand indirectly employed workers during the project’s working operations.
According to El-Baz, the Tahrir Complex project represents a major shift in the industrial sector. He considers this to be, in its essence, the shift of local industries towards manufacturing and away from their focus on importing. Originally, the dependence of imports was due to a lack of availability of intermediate inputs for production. This limited the majority of Egyptian industries to assembly operations in the past.
He stressed that after the transition from assembly to production and manufacturing, the Egyptian economy will see an unprecedented leap. This is what the project aims to achieve, by way of creating all raw materials and intermediate inputs in the production process.
The head of Carbon Holdings expected that the new Petrochemical complex will increase the value of Egyptian exports by around 25 percent based on its current value, which is circulating at the rate of EGP 150 billion annually.
He added that the new complex can compete globally and provide for the needs of the country through producing important products. It will offer competitive value and increase the worth of industrial output in the country, in addition to integrating with major regional companies.
Carbon Holdings was granted a contract worth $3.6 billion last December, allying it with the German firm Linde and the Korean company SK to establish factories that will be included in the Tahrir complex. The Korean company is building three factories for polyethylene worth $900 million, while the German company is establishing the Naptha cracking plants and the production of propylene, benzene and Albitadin. SK is considered one of the largest petrochemical companies in Korea and owns four Naphtha cracking plants in Ulsan, South Korea.
Additionally, the Italian company Maire Tecnimont joined with Dutch Archirodon Group N., and signed a contract for the construction of facilities and installations outside the site, which included the power plants and water desalination units, tanks of crude oil and products, and pipes and cables in the industrial complex.
A study of the project has been undertaken to recover between 10 and 15 percent of the annual investments. The payback period of investments on these types of projects ranges between five to seven years after the start of initial operations.
Basil El-Baz expects to begin working on the first company project, an Ammonium Nitrate and Nitric acid factory owned by the Egyptian Hydrocarbons Company, before the end of 2014. This project will produce 370 thousand tons anually. Ninety-three percent of the factory has already been completed, and it has entered the testing phase.
He estimated the investment cost of the factory to be around $500 million, which is funded with $170 million in capital and $330 million from Egyptian banks, the Commercial International Bank, and Ahli United Bank in Egypt and Bahrain.
El-Baz explained that the Ammonium Nitrate project has contracts to sell its products for 17 years. Carbon Holdings relies on the marketing of its products far in advance, which is included in the project’s financial plan. It offers this to banks for financing and in order to increase its attractiveness, and takes into account that the selling prices are linked to global price indicators at the time of export.
Carbon Holdings has contracted with an international company to provide raw ammonia to the factory, either domestically or internationally, especially now that the feasibility study is based on the purchase of raw materials and the sale of products at global prices.
The Carbon Holdings Company also seeks to restart the Oriental Petrochemicals company after it acquired about 67 percent of its shares. The company had been closed for a long time due to the unavailability of crude propylene which the company relied upon for producing polypropylene in the plastics industry.
El-Baz said that the Oriental factory was reliant on Libya to provide it with crude propylene, but the repercussions of the Libyan revolution led to a halt in production for a Naphtha cracking factory in Ras Lanuf. This factory had been fulfilling 60 percent of the company’s needs on an annual basis while the available raw material was only available in Asia. However, the increase in the cost of transport and shipping indicates a decrease in the feasibility of reopening the factory.
The total production capacity of the Oriental Factory reached 160 thousand tons annually, and it requires 180 thousand tons of the raw material. El-Baz mentioned that the Carbon Holdings Company was seeking to add a new production line for the factory to add capacity ranging between 350 and 400 thousand tons.
He added that, at the time of its establishment in 2011, the Oriental Project had appropriate production capacity, but polypropylene factories now generally do not produce less than 350 thousand tons. This requires the additional line to increase the factory’s production to 500 thousand tons, in light of the company’s intent to rely on economies of scale.
El-Baz discussed the economic situation in the country and the extent of its investor appeal, and said that the Egyptian economy was still strong and had succeeded in overcoming the challenges that it had faced in the past few years, to a large extent. He attributes this success to its strong purchasing power.
He added that the Egyptian economy urgently needs guidance to correct its path. This can only come with the strength of consumption, he believes. El-Baz went on to explain that no economy will grow without an increase in production and local inputs. This would solve the crisis of the increasing volume of Egyptian imports, and instead, shift to an increase in exports.
El-Baz emphasized that any investment opportunity that is supported by detailed, comprehensive feasibility studies which include expected returns, production sales contracts for the project, funding directives and specifics about the period of implementation, will succeed in terms of its international marketing. This is what helped his company in terms of marketing the Tahrir Complex project, for which he managed to obtain the necessary funding without difficulty.
Lastly, El-Baz mentioned that the Carbon Holdings Company was established by local contributions, which exceeded 50 percent of its shares. A number of regional companies and financial institutions from the UAE and Saudi Arabia contributed to it, and among these, two companies that are included on the Emirati and English stock exchange.