Pakistan and China sign $600 million Joint Venture for Tyre Manufacturing Unit in Pakistan

KARACHI: The Sino-Pak Tire Manufacturing Joint Venture is “an import substitution opportunity” that seeks to leverage Pakistan’s locational advantage as well as growing market for vehicle tyres, said Dr Xu Peng, Managing Director of InvestTarget – the investment bank and private equity fund which is the largest investor in the consortium.

The company will aim to produce five to six million pieces every year, 2-3m of which will be for trucks and buses and 3-4m for passenger cars. “We will start with the trucks and buses segment” Peng says, “because nobody is producing these in Pakistan and there is growing demand.” With Daewoo as the local partner, there should be no difficulty finding the first customer.

He declined to go into the financial details, saying those are confidential at this point, but told Dawn that the project has a debt equity ratio of 70-30. “Real returns will be very attractive,” he replied when asked details on returns on equity and total investment. “There is no local truck tyre manufacture, and for passenger tires we will aim for higher end, radial tires which are mostly imported into Pakistan.”

He envisions some export potential, mostly to Central Asian countries and some to African states. “We don’t know exactly how much but rough calculation says half of our output will be for Pakistan’s market and the rest for export.”

On the cost of doing business concerns in Pakistan, he said “We have looked at the numbers carefully, and have local partners who know the market well. The cost of doing business may not be lower than China, but the location advantage of being in Pakistan will help reduce transportation cost.”

“I have worked with Haier” he says, “and they have been quite successful here.”

MSD Tire and Rubber is their local partner with the wholesale business, he points out when asked how they intend to develop a presence domestically. “They have quite good reach in the market, in due course we will work with other partners as well.

“Daewoo is a very influential brand and working with them will be a good signal to the market that we are bringing a reputable brand. Last year, Doublestar (a partner in the consortium) acquired Kumho, the Korean company. We are confident we will be able to develop the local market, curbing smuggling will be important and the government has to give us the protection we need.”

The project is still deciding between Gwadar and Karachi for the site. “Gwadar is a free economic zone and a seaport, so that gives it a bit of an advantage” Peng says. “But Karachi is also a seaport with a mature infrastructure, though there is no free economic zone here. Travel distance to the markets to Lahore, Rawalpindi, Faisalabad and so on is much easier from Karachi.”

“Whatever we decide, it will be close to the sea so we can open up export markets.”

He wants to hit breakeven within 3 years, given the import protections and that there is no TBR (Truck Bus Radial) tyre producers in the country, “depending on how we finance the project”. At the moment there are two big financiers, himself and another from Hong Kong.

They hope for groundbreaking by mid 2020. “Right now we are finalising hiring, training timelines. We aim to hit one million TBR in the first year for production and distribution.”