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Engro Corporation Delisting

Engro, originally founded as Esso Fertilizer in 1965, was established to utilize natural gas discovered in Dharki for fertilizer production, leading to significant foreign investment and a public listing. The company has faced high taxation due to Pakistan's corporate tax structure, resulting in a substantial tax burden on profits transferred between subsidiaries. To mitigate these issues, Engro Corporation has been delisted from the Stock Exchange and rebranded as Engro Holdings, which now owns its subsidiaries.

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28 views1 page

Engro Corporation Delisting

Engro, originally founded as Esso Fertilizer in 1965, was established to utilize natural gas discovered in Dharki for fertilizer production, leading to significant foreign investment and a public listing. The company has faced high taxation due to Pakistan's corporate tax structure, resulting in a substantial tax burden on profits transferred between subsidiaries. To mitigate these issues, Engro Corporation has been delisted from the Stock Exchange and rebranded as Engro Holdings, which now owns its subsidiaries.

Uploaded by

syedsuhaibharoon5
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Engro was founded as Esso Fertilizer in 1965.

The Standard Oil Company, established by corporate titan


John Rockefeller, discovered natural gas in Dharki.

The decision to build a fertilizer plant stemmed from the need to utilize the natural gas found in Sui in
1952. This discovery led to the creation of a pipeline from Sui to Karachi, which was the first city in
Pakistan to receive gas. Selling gas directly to consumers was a novel idea at the time, and constructing
a pipeline for a smaller gas field would have been economically challenging. Instead, Esso chose to
establish a fertilizer plant, since they could not sell gas directly but could use it as a raw material for
fertilizers.

During the 1960s, the Green Revolution increased demand for fertilizers significantly. A $43 million
investment was made, which was the largest foreign direct investment (FDI) at that time, roughly
equivalent to $2.5 billion today. In 1968, the company went public and changed its name to Exxon.
When Exxon decided to exit Pakistan in 1991, its employees purchased the shares from the company.
Later, in 2003, Dawood Hercules Fertilizers acquired 38% of the company’s shares.

Regarding group ownership, Hussain Dawood does not directly own Engro. Instead, he holds shares in
Dawood Hercules, which owns 40% of Engro Corporation, and this corporation, in turn, holds the
majority of all its subsidiaries.

Group Taxation

In Pakistan, companies that operate as a group, where one company owns several others, face high
taxation. This is primarily due to the fact that profits earned by subsidiaries (smaller companies under a
parent company) are taxed when they are transferred to the holding company, leading to double
taxation. Consequently, it becomes expensive for businesses to operate under group structures.
Although the government provides some benefits, such as allowing losses from one company to be
offset against the profits of another, the overall tax burden remains significant.

The corporate tax rate in Pakistan is 29%, which Engro Corporation used to pay. When dividends were
distributed to the shareholder Dawood Hercules, an additional 15% income tax was also levied, resulting
in an overall tax burden of 44%.

Engro Corporation has paid Rs 57.3 billion in dividends to Dawood Hercules, who has then paid around
Rs 15.6 billion in taxes.

In contrast, the United States has a different approach to corporate taxation. Instead of taxing dividends
multiple times, the US tax system offers relief mechanisms, such as reduced tax rates on dividends,
which helps ensure that corporate earnings are not unfairly taxed at several levels.

To address these taxation issues, Engro Corporation has been delisted from the Stock Exchange, and
Dawood Hercules has been rebranded as Engro Holdings, which now owns the subsidiaries.

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