The Company has planned to raise funds through an Initial Public Offer in order to achieve its hard line business plan. This inter alia includes: i) repayment of up to PKR 1.49 billion to financial institutions as against its financial obligations, and (ii) payment for acquisition of its subsidiary company i.e. Wateen Solutions (Pvt.) Limited (formerly National Engineers (Pvt) Limited) at a price of PKR 1,234.18 per share amounting to PKR 490 million. The 397,027 shares of the face value of PKR 100 each of Wateen Solutions (Pvt.) Limited (formerly National Engineers (Pvt.) Limited) (“WSPL”) are being purchased from Mr. Jahangir Ahmad. Break-up value per share of WSPL as on June 30, 2009 is PKR 425.11/-.
Wateen Telecom Limited had sold the said 397,027 (49%) shares of WSPL to Mr. Jahangir Ahmad during the Fiscal Year 2008-2009 at a price of PKR 131/- per share. Break-up value per share of WSPL as on June 30, 2008 was PKR 550/-.
4.21.1 Retirement of Loan obligation
The Company, while foreseeing growth perspectives, decided to expand its operations by introducing more equipment to its fleet. The equipment has been procured through well known suppliers both locally and abroad. The orders for the equipment were awarded to some of the key suppliers including Motorola and Huawei Technologies. Total cost of the equipment was PKR 1.469 billion. The Company has opened LCs with two banks namely Atlas Bank Limited and Standard Chartered Bank Limited. Currently,
all the LCs have been opened and shipments for the required equipment have been made to the Company. Details of the LCs which were retired (bank wise) are as follows:
With Atlas Bank Limited
1 ABKIMP104/451/08 Realcom Int'l C-band Antinnas 22.10.2008 3,635 82 299,524 Operational 1
2 ABKILC104/008/09 Premier Industries OFC 07.05.2009 - - 10,578 Operational 2
3 ABKILC104/011/09 L T Engineering OFC 15.05.2009 - - 27,780 Operational 3
4 ABKIMP104/220/09 Comtech VSAT Equipment 16.07.2009 418 83 35,130 Operational 4
373,013
2 451010019271-A Motorola Inc. MW Equipment 24.02.2009 309 83 25,836 Operational 6
3 451010003402-A Huawei Technologies DWDM Equipment 10.10.2007 2,641 83 221,751 Operational 7
4 451010011689-A Motorola Inc. Eltek Battries 20.03.2008 684 84 57,456 Operational 8
5 401010002672 Motorola Inc. Eltek Cabnits 09.06.2007 458 84 38,550 Operational 9
6 451010021231-A Huawei Technologies WiMAX BTS Site Equipment
16.05.2009
102 84 8,568 Operational
10
7 451030000109 Huawei Technologies DWDM Equipment 18.07.2007 1,522 84 127,862 Operational 11
8 451010023033-A Motorola Inc. CPEs/USBs 29.07.2009 3,813 84 320,319 Operational 12
9 451010024185-A STM Networks INC VSAT Equipment 03.09.2009 559 84 47,023 Operational 13
10 451010004777-A Motorola Inc. Sun Servers 03.11.2007 83 84 7,041 Operational 14
11 451010022150-A Huawei Tech. Investment
Co. Limited ONS/NMS/BWS 30.06.2009
1,063 84 89,355 Operational
15
12 451010013231-AP Huawei Technologies DSL Equipment 16.05.2008 1,014 84 85,245 Installed 16
1,096,717
Grand Total 1,469,731
NOTES:
1 04C-Band Antennas & Remote Antennas with complete accessories;
2 Optical Fiber Cable;
3 Optical Fiber Cable;
4 VSAT-Networking Equipment;
5 Outdoor CPEs;
6 MW Equipment Microwave Transmission Equipment used for backhauling of BTS
7 DWDM Equipment Cards , Racks Patch cords, Boards;
8 Eltek Batteries 155AH Battery bank having 4 batteries of 12walt each;
9 Eltek Batteries 155AH Battery bank having 4 batteries of 12walt each;
10 WiMAX BTS Site Equipment Four sector DAP including BCU;
11 DWDM Equipment Cards , Racks Patch cords, Boards;
12 CPEs/ USBs Customer premises Equipment of different type e.g.
USB, indoor, outdoor etc;
13 VSAT Equipment;
14 Sun Servers
15 OSN/NMS/BWS Including Computer Aces, sun server machine, software etc; 16 DSL Equipment;
4.21.2 Acquisition of subsidiary
Wateen Solutions (Pvt.) limited (formerly National Engineers (Pvt.) limited)
Wateen Telecom acquired the System Integrator (Value added reselling, professional services and managed / hosted network solutions as defined under section 4.4.4) from National Engineers through its wholly owned subsidiary Microtech Links (Pvt.) Limited (currently, known as Wateen Solutions (Pvt.) Limited “WSPL”) in January 2007 whereby initially Wateen purchased 100% of the assets and then sold 49% of the shares in Wateen Solutions to the founder Mr. Jahangir Ahmad through a business purchase agreement dated 30 December 2006 and a supplementary agreement no. 1 dated 18 April 2007.
The said 397,027 shares of the face value of PKR 100 each of Wateen Solutions (Pvt.) Limited (formerly National Engineers (Pvt.) Limited) (“WSPL”) are being purchased from Mr. Jahangir Ahmad. Break-up value per share of WSPL as on June 30, 2009 is PKR 425.11/-. Wateen Telecom Limited had sold the said 397,027 (49%) shares of WSPL to Mr. Jahangir Ahmad during the Fiscal Year 2008-2009 at a price of PKR 131/- per share. Break-up value per share of WSPL as on June 30, 2008 was PKR 550/-.
It is also important to note that Mr. Jahangir Ahmad was employed by the Company from 1 January 2007 to 31 December 2009.
Wateen Solutions has provided excellent financial returns posting a profit after tax of PKR 361.6 million on a revenue of PKR 1 billion in 07/08 (with a dividend payment of PKR 345 million) giving Wateen a 254% return on net investment. In 08/09 Wateen Solutions again provided strong financial return with profit after tax of PKR 265 million on revenue of PKR 1 billion and as at 31 December 2009 the company had retained profits of approx. PKR 357 million for potential distribution of dividend.
Based on the strong performance to date, management forecasts for the business, the potential for leveraging this business line for both product expansion and geographic expansion internationally and a unique positioning for Wateen to bundle traditional telecom services with systems integrator / VAR / PS / MNS it was decided to purchase the balance 49% from Mr. Jahangir Ahmad to consolidate a 100%
ownership as approved by the board during the board meeting dated 19 November 2009.
Shareholding structure of WSPL is as follows:
Shareholder Shares Amount (PKR) percentage
Wateen Telecom Limited 413,212 41,321,200 50.99%
Mr. Jahangir Ahmed 397,027 39,702,700 49.00%
Others 20 2,000
-Total 810,259 81,025,900 100%
4.21.3 Financial highlights
2009 Rupees
2008 Rupees
2007 Rupees*
Revenue 996,834,189 1,019,668,776 73,425,146
Gross profit 299,689,174 435,624,408 40,605,115
Operating profit 243,175,381 366,565,422 7,035,187
Profit after taxation 265,202,783 361,589,074 3,476,297
Total assets 1,181,504,766 655,849,718 238,098,405
Total liabilities 815,178,481 209,758,447 153,596,208
Paid up capital 81,025,900 81,025,900 81,025,900
Shareholder equity 366,326,285 446,091,271 84,502,197
Return on Equity 72.40% 81.06% 4.11%
Breakup value per share (PKR) 452.1 550.6 104.290
Earnings per share (PKR) 327.3 446.3 4.29
* National Engineers business was acquired on 1st January, 2007, hence the figures for financial year 2007 represent 6 months operations from Jan to June 2007
The following considerations applied while negotiating and finalizing the value and deal structure:
• Retained profits as of 31 December 2009 stand at circa PKR 357 million which in effect would otherwise be payable as dividend in due course under agreed 100% dividend payout practice
• A well reputed external valuer was engaged to advise on potential valuation ranges. Their report suggested a range of PKR 912 million to PKR 2.1 billion based on comparable earnings multiple and a range of PKR 5.6 billion to PKR 8.4 billion while using DCF valuations
• Wateen’s own evaluation of ‘payback period’, return to investors, earnings multiple / EPS impact to Wateen on 100% consolidation and performance to date
• This transaction will have a positive impact on Wateen’s EPS