So it seems Shandong Yongtai Paper Mills has finally conceded defeat. In a notice sent to the PSX on December 11, the China-based company agreed to sell their 40% stake in their joint venture Roshan Sun Tao Paper Mill to the other party in the venture, Pakistan-based Roshan Packages, which owns the remaining 60%. Once the sale happens Roshan Sun Tao Paper Mill will finally become a 100% owned subsidiary of Roshan Packages.
This is exactly the outcome Shandong Yongtai Paper Mills did not want. But this is what happens when you lose a lawsuit to wind up your joint venture. The company has no choice now except to sell its subsidiary shares in the venture to Roshan Packages.
Profit has previously covered this story, but we will recap it nonetheless. The Roshan Group can trace its history to 1959, when Dr Aijaz Hassan Qureshi returned from Germany where he completed his PhD, and started Urudu Digest. In 1989, the business decided to pivot, and enter the fruit export business, focusing on selling Pakistani mandarins around the world. That business was named Roshan Enterprises, and came to become the dominant commercial interest owned by the family by the early 2000s.
Because of the company’s high volume export demand, the Roshan Group decided to set up an in-house packaging unit in 2002. This was known as Roshan Packages Limited, and it was designed to create corrugated packaging for the fruit export business, but then quickly began to serve other consumer good companies as well. Its clients included large FMCG brands, such as: PepsiCo, Unilever, Lotte Kolson, Continental Biscuits (Kraft Foods’ local affiliate), Tapal, and Coronet Foods, among others.
In a sense, Roshan Packages was started off as a backward integration project for Roshan Enterprises. But it seemed the group liked having control over supply chains. If Roshan Group could make packaging, why not also make the paper as well? And that is how the idea for Roshan Sun Tao Paper Mill came about, which was, in essence, a backward integration project for Roshan Packages.
Roshan Sun Tao Paper Mills was incorporated in Pakistan as a private company in January 2016, and it was meant to be a joint venture with Shandong Yongtai Paper Mills, based in China. The company wanted to raise Rs4 billion in capital for the joint venture to set up a manufacturing facility that produces liner and fluting, two essential inputs for its corrugated paper manufacturing division.
To do this, one year later, in January 2017, Roshan Packages decided to go public on the Pakistan Stock Exchange. The idea was Roshan Packages would raise part of its capital through its IPO on the PSX. As it stood, Roshan Sun Tao Paper Mill was going to be financed with Rs2.4 billion in debt raised from Dubai Islamic Bank, Meezan Bank, and Askari Bank, with the remaining Rs1.6 billion coming from the two joint venture partners: Roshan Packages and Shandong Yongtai Paper Mills.
Now, the company was scheduled to begin production by the middle of 2019. But this never materialized. That is because on May 11, 2018, Shandong Yongtai Paper Mills announced that it was going to sue Roshan Packages in the lahore High Court, and that it wanted the entire joint venture to be dissolved.
Now Roshan Packages was nonplussed. As it pointed out both in its petition to the High Court, and also in its annual reports, that it seemed a little strange that Shandong Yongtai Paper Mills would do such a thing. After all, Roshan Packages held a 60% majority stake, while Shandong Yongtai Paper Mills held only 40%. It was unclear how a minority stakeholder could force the other’s hand like this.
“The subsidiary’s legal counsel is of the opinion that winding up of the corrugated paper segment is not likely to happen as the Holding Company is the main shareholder and the main concern of the investor is to return its investment for which a mutually beneficial mechanism would be established,” noted Roshan Packages.
Unfortunately, this legal battle meant that the mill never started production – though that did not stop Roshan Packages from sending out announcements to its shareholders through notices to the PSX that it was “on track” to complete the production facilities.
Roshan Packages argued that Shandong Yongtai Paper Mills had breached substantial terms of the shareholder agreement, and that if Shandong Yongtai Paper Mills wants to exit the joint venture, it would have to sell its shares back to Roshan Packages.
It was a position that the Lahore High Court agreed with. On October 22 2020 – a full two years later- the matter finally came to rest. The court sided with Roshan, and also ruled that Shandong Yongtai Paper Mills had to pay the legal expenses incurred by Roshan Packages (indicative that the court believed that the lawsuit filed was frivolous).
Which is how we now end up here. Two years later, Shandong Yongtai Paper Mills got the result that they had spent two years fighting against. Roshan Sun Tao Paper Mill will continue to exist, will not be terminated, and Roshan Packages will finally get its wholly owned subsidiary. It is now up to Roshan Packages to prove that it can actually begin production on that new paper mill after all, now that all legal drama has been dismissed.
I hate paywalls.
me too