Pakistan textile sector going through speculations with surge of foreign interest

Pakistans textile sector is going through speculations these days with a lot of hearsay has been circulating in the market for the last couple of weeks, about foreign buyers vying for numerous textile operations in the country and with the rumors mill working overtime. But, the news that is creating the most buzz this week is a Chinese investor attempting to woo one of the largest composite milling operations in the country.

From the market sources, it seems that most millers are largely unwilling to sell outright. Textile analysts at brokerage houses second this opinion, saying that Chinese buyers have been looking for straight up buy-outs. But, at a time when the sectors prospects are at an all-time high, a few millers are willing to give up their ownership.

In an ideal situation, the Chinese would, of course, prefer setting up their own composite units in the country, especially since none of the other low cost destinations present the kind of fundamentals Pakistan does. However, this would take some time as the development of the SEZs, at the behest of the Special Export Zone Act, will still take some time.

In the meantime, their best option is to look for majority stakes and management options within local mills with the right fundamentals. Recall that although the GSP+ access suggests enormous scope for export expansion within textiles, the reality is a little different.

This column has already pointed out that the two sectors that will be the primary beneficiaries of the GSP+ will be the home textiles and garment sectors-both of which will enjoy maximum gains in margins. And, therefore, one can expect foreign buyers to look for synergies with firms that are active within those two sectors-preferably those which already have established contacts with buyers in the EU.

It is now confirmed that Chinese investors have been actively pursuing a number of local mills that fit this bill. The sources reveal that buyer interest in Artistic Denim and Indus Dyeing is very high, with a number of Chinese investors pursuing both. Additionally, with a very attractive Masood Textile already out of the running, buyers are also being drawn to value-added players such as Feroze Textile (makers of terry products) and Fazal Textile (sister company to Gadoon).

Whether any of these deals go through or not is another matter! But, there is no denying the fact that the countrys textile landscape has never been this vibrant or teeming with possibilities.

According to a research note by KASB Securities, the textile sector on the whole has already recovered by nearly 48 percent in the last three months. Nobody exactly knows which mills are going to be bought out, scrip for all the prospective players had seen active gains as of close of trading hours yesterday.

However, the recent surge of foreign interest in the sector has also brought about a textile stock rally at the local bourses.