A DILEMMA OF PRIVATIZATION: NATIONAL FIBRES LIMITED

Abstract

This paper examines the case of National Fibres Limited; a public sector unit was financed by National Development Finance Corporation (NDFC) and Islamic Development Bank (IDB), Jeddah. The unit was the first man made fibre plant of the country, and had various technical and marketing problems since inception i.e. 1981-82.NDFC and IDB Jeddah revive the unit by providing technical and marketing inputs, and also converted their long term loans into equity so that the unit could service its loans, and have sufficient cash flow for operation. By the year 1992, the unit became healthy. Its pretax profit was RS.131.00 million, and was in the process of Balancing Modernization and Rehabilitation (BMR).The unit was privatized and handed over to the Schon Group on February 02, 1992, despite the fact that the group only paid 50% of the bid price (Rs.73 5 million) and for the balance 50% it arranged a bank guarantee through HBL. After the takeover by the Schon Group, the NFL's financial health deteriorated. By the year 1996, the unit had a loss of Rr.285.000 million along with the accumulated liability of more than Rs.1 .00 billion.In view of the above, the minority equity holders and creditors through the High Court of Sindh took the control of the management of the company on December 05, 1997 with the objective of revival / rehabilitation. This was the first time in the history of the Pakistan that a unit was taken over by the minority-shared holders under section 292 of the company ordinance 1984. To receive the project, the new management had by NDFC, prepared a comprehensive rehabilitation plan consisting of debt equity swap, rescheduling of existing debts and the provision of additional funds for Balancing, Modernizing and Rehabilitation (BMR). The rehabilitation plan of NFL is the focus of this study.Keywords: Public sector, Private sector, Privatization plan, stakes holders, Polyester fiber and polyester yarn.