Aisha Steel Mills - The Company Background

Aisha Steel Mills Limited (ASML) was incorporated in 2005 to set up a steel mill in the downstream Industrial Estate of Pakistan Steel, Bin Qasim Karachi.

Three renowned groups ie "UNIVERSAL METAL CORPORATION JAPAN", "METAL ONE" (group company of Mitsubishi Corporation Japan) and "ARIF HABIB GROUP" have entered into a Joint Venture to run and operate the proposed steel mill.

Keeping in mind the market potential with the growing demand and non-availability of manufacturing facilities for value added steel products such as, Cold Rolled Coils (CRC) classified into Hard, Skin pass & Annealed, the Group envisages setting up a state of the art steel mill for manufacturing value added steel products to cater to the requirements of various segments of the industry.

The project will cater to the requirements of value added products used by various segments of the industry such as auto sector and engineering sector in Pakistan. At present these products are imported by the industry, therefore this project will serve as import substitute for the country.

The proposed steel mill offers the company a distinctive edge in the field for reasons such as, it shall be the largest steel mill in the private sector, and most importantly ASML shall produce CRC in thickness and grades not produced by Pakistan Steel and other local manufacturers thus creating a niche market for the company.

SPONSORS OF THE PROJECT

A.UNIVERSAL METAL CORPORATION:
Universal Metal Corporation was established in 1992 by Mr Hasib Ur Rehman the president of the company. The company deals in iron and steel sheet products and caters to the requirements of the local industry and export products all over the world.

The company has expanded its operations over the years with different kinds of products in steel. It offers reasonable prices to cater to the needs of a diverse group of clientele both in Japan and overseas with emphasis on quality. In 2004, the company acquired a custom bond warehouse license facilitating the shipping process.

THE RANGE OF PRODUCTS OF THE COMPANY ARE AS FOLLOWS:

-- Exporting Iron and Steel Coils & Sheets of:

-- Cold Roll

-- Galvanised

-- Galvanised

-- Galvalume

-- Tin Plate

-- Tin-free Steel

-- Color Coils and Sheets

-- Shear Processing of Color And GI Sheet

THE MAIN SUPPLIERS OF THE COMPANY CONSTITUTE THE FOLLOWING:

-- Metal One

-- JFE Trading

-- Rejino Kenzai

-- Suzufuji Steel Service

-- Kanekika - Nakao

-- Fujisawa Kouhan

SOME OF THE COUNTRIES TO WHICH THE COMPANY HAS BEEN EXPORTING ITS PRODUCTS ARE:

-- Pakistan

-- Bangladesh

-- Philippines

-- Thailand

-- Vietnam

B. METAL ONE:
Mitsubishi Corporation and Nissho Iwai Corporation (Sojitz Corporation) merged their steel operations in 2003 to form a new Company by the name of "Metal One" based in Tokyo Japan. Mitsubishi Corporation has a 60% stake in the company whereas Sojitz Corporation has 40%. Mr Satoru Oki and Mr Yoshikazu Uda shall be representing Metal One on the Board of Aisha Steel Mills Limited.

Metal One Corporation after the merger has skilfully integrated the two different set-ups and placed the focus of management on the reorganisation and unification of the two operating units for optimum managerial efficiency. The sales for December 2005 were approximately ¥2,576.6 billion.

METAL ONE RELIABLY AND EFFICIENTLY SUPPLIES STEEL PRODUCTS THROUGH ITS FIVE DIVISIONS:

Steel Plate, Tube & Construction Materials Division: It mainly deals in steel plates for shipbuilding and bridge construction, steel pipes for use in residences and chemical plants and construction materials for buildings, steel towers and civil engineering projects.

Steel Sheet Products, Automotive Steel Products Business: It supplies automotive steel products, including surface treated steel plates and sheets to auto manufacturers and parts makers in Japan and overseas, in addition to handling steel sheets for supply to manufacturers of electrical household appliances, containers and OA equipment and to secondary distributors including coil centers and official dealers.

Wire & Specialty Steel Division: It is engaged in both domestic and international trading of wire rods, specialty steel and related products. Stainless Steel Division: It is engaged in domestic sales and international trading of stainless steel; it also deals in titanium products.

International Steel Operation Division: It is mainly engaged in global trading, using its extensive network, in addition to the export and import of semi-finished products, processed items and other steel products. However, it is not limited to dealing in steel products. It also provides strong backup for customer investments in new business initiatives through collaboration with other divisions in energy, machinery, projects and finance.

Energy Project International Business Department: It handles complete sets of steel pipes, materials and other equipment for use in natural resource energy projects overseas.

The company also works together with steel mills and distributors, augmented by the production, distribution and processing functions of some 170 Group companies within and outside of Japan, for one-stop satisfaction of all customer requirements. The functions and services offered by the company are depicted in the matrix below:

The company has been selected as one of the Top 25 Companies by Karachi Stock Exchange for all the four years, since its listing. The group owns a whole range of financial services companies like securities brokerage (Arif Habib Ltd), asset management (Arif Habib Investment Management Ltd) and commercial bank (Arif Habib Rupali Bank Ltd).

Arif Habib Investment Management manages seven open and close end mutual funds with around PKR 20 billion worth of funds under management. The group continues to invest in making the financial sector a more conducive and efficient industry in order to benefit the economy further.

The Arif Habib family is the major shareholder of Arif Habib Securities Limited and has jointly made industrial investments in a number of companies such as Thatta Cement Company Ltd, Pak Arab Fertiliser Ltd, Fatima Fertiliser Company Ltd andSukh Chayn Gardens . The group has also committed to be consortium partners in acquisition of Javedan Cement. The total worth of the group is approximately PKR 20 billion.

The Group Chairman, Mr Arif Habib has served as the President / Chairman of the Karachi Stock Exchange six times in the past, and has been instrumental in introducing a number of reforms including introduction of Central Depository System, computerised trading and risk management system.

He is the Founding Member and Former Chairman of the Central Depository Company of Pakistan Limited. He has served as Member of the Privatisation Commission, Board of Investment, Tariff Reforms Commission and Securities & Exchange Ordinance Review Committee.

BOARD OF DIRECTORS: The Board of Directors of ASML in their individual capacity bring with them extensive experience and expertise which shall benefit this new entrant in the steel industry.

THE BOARD COMPRISES OF THE FOLLOWING INDIVIDUALS REPRESENTING THEIR RESPECTIVE GROUP:

A.UNIVERSAL METAL CORPORATION JAPAN:

-- Mr. Hasib-Ur-Rehman

-- Mrs. Aisha Rehman

-- Mr. Kunihiko Miki

B. METAL ONE CORPORATION JAPAN:

-- Mr. Satoru Oki

-- Mr. Yoshikazu Uda

C. ARIF HABIB GROUP:

-- Mr. Muhammad Arif Habib

-- Mr. Muhammad Akmal Jameel

THE PROJECT OVERVIEW:

The existing business environment created by economic reforms and the Pakistan Government's intention to privatise the steel industry has paid dividends with new entrants coming into the fold. Aisha Steel Mill Ltd (ASML) incorporated in 2005 intends to take advantage of just that with establishing a state of the art steel mill near Bin Qasim.

The company shall primarily be engaged in manufacturing value added steel products such as, Cold Rolled Coils (CRC) classified into Hard, Skin pass & Annealed and its thickness ranging from 0.15 mm to 2.00 mm The Raw Material for the processing will be Hot Rolled Coils of specified grades to be imported by the company from Japan and other countries. The production capacity of the proposed project will be 220,000 MT.

ASML's project is of huge proportions since the company would be the first ever to manufacture CRC on such a large scale in the private sector of Pakistan. With increased steel consumption linked to economic development, the growing demand and non-availability of thinner profiles and auto grade steel manufacturing facilities in Pakistan and investor friendly policies of the Government of Pakistan, ASML's proposed project could not have come at a more opportune time as all these factors shall play a vital role in the company's progress.

The proposed steel mill shall primarily be catering to the automobile, engineering and construction industry of Pakistan, all of which are witnessing a boom in their respective areas. The positive factors in all these three industries shall significantly increase ASML's share in the market.

KEY PARTIES INVOLVED SUPPLIERS:

THE COMPANY HAS DECIDED TO ACQUIRE THE PROJECT PLANT AND MACHINERY FROM THE FOLLOWING FOREIGN SUPPLIERS: All these companies offer an ideal choice of suppliers as they have a vast experience of supplying plant and equipment in the field of integrated Steelworks including Cold Rolling Plants.

They have substantial experience and expertise in the international arena. Their major projects covering the overall operations and the management of steel mills have been in countries like China, Korea, Vietnam, Myanmar and Iran etc.

A brief overview of the suppliers' experience and expertise is provided hereunder whereas the detailed profiles are attached as Annexure to this Information Memorandum.

JP STEEL PLANTECH CO: JP Steel Plantech Co (Steel Plantech) was formed April 01, 2001 by consolidating the resources of four Japanese leading integrated iron and steel builders namely, Kawasaki Heavy Industries, JFE Engineering, Hitachi Zosen and Sumitomo Heavy Industries.

It has a proven record in helping the Japanese Steel industry to lead the world in production, technology and product quality by offering a full range of iron-and steel making plants and equipment and innovative technologies.

Steel Plantech has specialised experience in offering various plants and equipment for integrated steelworks and for any product line. It supplies steel mill equipment on unit basis as well as a total production process on an integrated basis. The steel Plantech alliance represents not only equipment and engineering supply but also a long history of successful steel mill operation and management. The detailed profile is attached as an Annexure to this Information Memorandum.

HOTANI COMPANY LIMITED, JAPAN: Hotani was established in 1973 with Mr Setsuo Hotani as the President and is a Japan based company. Hotani comprises of a group of companies which includes the following;

-- Hotani Shoji Co Ltd.

-- Hotani Kiko Ltd.

THE GROUP DEALS IN THE FOLLOWING MAIN AREAS OF PRODUCTS:

-- Mono-filaments

-- Industrial Products Engineering & manufacturing of Machines Hotani since its establishment has expanded its operations to USA, Europe and Asia.

THE KEY SUPPLIERS OF THE HOTANI GROUP ARE:

-- Mitsubishi Corporation

-- Hitachi Limited

-- Toyobo Co Ltd.

-- Itochu Corporation

-- Metax co. Ltd.

-- Pacific Random co. Ltd.

-- Tokyo Sanjyo Co Ltd.

TANISAKA IRON WORKS LTD: Established in 1928, the company has expanded its facilities for the manufacture of wire drawing machine and reduction gears. The company has primarily concentrated on the manufacture of machinery for secondary wire products and secondary steel sheet products and has acquired a distinctive edge over the years for Nail Making Machine, Thread Roller (Rolling Machine), Headers, Barbed Wire Machine, Wire Drawing Machine, Sheet Corrugating Machine and Continuous Sheet Galvanising Line.

The company not only caters to the requirements of the domestic users but has also supplied machinery for international projects in various parts of the world. It has strong clientele base both within the country and abroad.

THE MAIN FACILITIES AT THE COMPANY ARE SUMMARIZED BELOW:

-- Multi-Center

-- Plano Miller

-- N.C. Fine Vertical Boring Machine

-- Horizontal Boring Machine

-- Radial Boring Machine

-- Vertical Machining Center

-- Horizontal Machining Center

-- Vertical Milling Machine

-- Horizontal Milling Machine

-- N.C. Lathe

-- Face Lathe

-- Surface Grinding Machine

-- Shaft Grinding Machine

-- Internal Grinding Machine

-- Crank Shaft Grinding Machine

-- Gear Grinding Machine

The detailed profile is attached as annexure to this Information Memorandum.

EBNER - INDUSTRIE OF ENBAU:

Founded in 1948 and based in Austria, EBNER has decades of experience of designing and building heat treatment facilities. It is one of the leading manufacturers world-wide of heat treatment facilities for the steel, copper, and aluminium semi-finished products industries and has been offering its products in more than 50 countries.

The company manufactures continuous and batch-type furnaces featuring cutting-edge technology, ie systems delivering maximum performance and optimum anneal results.

EBNER OFFERS THE FOLLOWING PRODUCT RANGE TO ITS CUSTOMERS:

-- Steel

-- Bright annealing facilities for non - alloy and low - alloy grades

-- Bright annealing facilities for high - alloy grades such as Cr and CrNi grades -- and special alloys

-- Aluminium

-- Annealing furnaces with/without process atmosphere for aluminium and aluminium alloys

-- Ingot reheating and homogenising furnaces for aluminium and aluminium alloys

-- Solution heat treatment and aging furnaces for aluminium alloys

-- Copper Alloys

-- Bright annealing facilities for copper, brass, bronze, special alloys and - materials. The detailed profile is attached as annexure to this Information Memorandum.

PERFORMANCE GUARANTEES: The selected supplier shall be required to furnish a performance guarantee. The specifics of the guarantee shall be to provide smooth operations of the equipment for 24 months after commissioning but shall not cover any wear and tear borne in the process of any violation, over load and any change in the structural design made by the management.

INSTALLATION & ERECTION: Installation & Erection of the project will be carried out under supervision of Project Management Consultant who will also carry out "Total Engineering" of the Project. A number of project management consultants such as, JGC-Descon, NES PAK, Aaleem Associates from Pakistan, POSCO Korea, Lengipromez Russia, etc are being considered and preliminary discussions with them are underway.

Final selection will be done after signing of formal contracts with plant suppliers. The Project Management Consultant would be responsible till commissioning of the Project and successful performance tests of the project.

CURRENT STATUS OF THE PROJECT:

LAND: The land for the project has already been purchased. Pakistan Steel has allocated 50 acres of land measuring 242,000 sq. yrds at the Downstream Industrial Estate, Pakistan Steel, Bin Qasim.

SUPPLIERS AGREEMENT: The agreement with the suppliers of the Project Plant & Machinery has been finalised by the management.

L/C OPENING: The management is planning to open L/Cs for procurement of plant & machinery tentatively by the end of April 2007.

IMPLEMENTATION PLAN:

THE TENTATIVE IMPLEMENTATION SCHEDULE OF THE PROJECT IS AS FOLLOWS:

THE PRODUCT PROFILE: The proposed product range the management envisaged to market shall comprise of the following category of CRC having thickness ranging from 0.15 mm to 2.00 mm:

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Full Hard 10,000 Tons
Annealed & Skin Pass 210,000 Tons
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PRODUCT DESCRIPTION: CRC is a product manufactured from hot rolled descaled (pickled) coils by cold reducing to the desired thickness, generally followed by annealing and temper rolling. If the coil is not annealed after cold reduction it is known as full hard.

CRC is supplied for either exposed or unexposed applications where bending, welding, forming, or moderate drawing is involved. Cold rolled steel is available in coil, sheet or strip in various gauge ranges, widths, and hardness.

ANNEALED & SKIN PASSED: The basic raw material used for manufacturing cold rolled coils will be imported as the HRC produced by Pakistan Steel is not sufficient to cater to the total domestic requirement, hence substantial quantity of HRC is continued to be imported. Moreover, ASML is designed to produce high quality CRC for auto & allied industry for which locally produced HRC is not upto the required standard.

GLOBAL STEEL PRICE INDICATORS: ASML shall be importing all of its raw material (HRC) from abroad; hence the chart below depicts the price changes witnessed in some of the major HRC producing countries of the world.

RAW MATERIAL SUPPLIERS: The management of ASML shall be procuring raw materials for manufacturing CRC from abroad. With fast expanding international market, ASML shall not be approaching any one supplier but would acquire the materials from different sources.

USAGE TYPE USES COLD ROLLED COILS:

-- Cold Rolled Coils are used for the production of enamelled wares, bicycles. Steel fabrication, steel containers, drums, barrels, jerry-cans, vehicle and bus bodies, steel furniture, machinery parts, products and appliances, oil and gas appliances etc.

PROSPECTIVE CUSTOMERS: Cold Rolled Coils manufactured by ASML shall primarily be supplied to Automobile Industry, Engineering Industry, and Construction Industry of Pakistan. All these three industries have witnessed an upward turn in their respective markets thus increasing the demand for value added steel products like CRC.

For instance the deregulation of the automobile industry has seen a surge in local manufacturing of cars along with the increased production of spare parts in the country, which shall substantially increase the demand of CRC in the country.