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Rs l2 billion Right Shares issue announced by Habib Bank

By SHABBIR H. KAZMI
Jun 19 - 25, 2000

The Board of Directors of Habib Bank Limited (HBL) has decided to get the Bank listed at Karachi Stock Exchange and to also offer shares of approximately Rs l2 billion to general public. This was announced by Zakir Mahmood, president of the Bank at a press briefing after the Annual General Meeting on June 6, 2000. The Right Issue would be offered at par value of Rs l0 per share. This will double HBL's capital base to Rs 24 billion. State Bank of Pakistan (SBP) has already paid Rs 8 billion to HBL as subscription against issue of right shares.

Mahmood said the Right Issue would be offered to general public after listing at the Karachi Stock Exchange (KSE) and clearance from the SBP and Securities and Exchange Commission of Pakistan (SECP). The decision not to charge any premium will allow the investors to directly benefit and also create depth in local equities market. One may wonder how can the Right Shares of a nationalized bank be issued to general public?

According to some equities experts, this is possible once the existing shareholders relinquish their right in favour of general public. However, the first requirement would be to get the Bank listed at one of the three stock exchanges operating in the country. To resolve this issue the details have to be worked out by the Bank, SECP and the stock exchanges. Mahmood was confident that listing of HBL at KSE and issuance of right shares would be completed before December this year.

According to Arif Habib, Chairman, KSE the decision has come at an appropriate time. It would create depth in the stock market and revive the interest of both local and foreign investors in equities market in Pakistan. The HBL management has already sought a meeting with the KSE to discuss the details of its listing plan but no date has been fixed for the due diligence.

As regards selling of HBL shares to strategic investors as well as transfer of management, the decision would be taken by Privatization Commission in due course of time. However, the option to sell HBL after splitting it into two parts, domestic and overseas operations is not being considered. Such a split would have reduced its franchise value. It is the stance that has been supported by the successive governments. The objective to sell HBL, as single entity, can only be achieved by making the bank an attractive buy.

Therefore, first the balance sheet has to be improved to make it an fastidious buy for the strategic investor. To make the Bank financially strong, as one of the various steps, it was decided to make an additional provisioning of Rs 10 billion against doubtful debts for the year ending December 31, 1999. However, this should not be considered a bad reflection on the part of the management. It is the financial strength and all such provisions can be written-back, if recovered in due course.

Mahmood informed that overseas division of HBL is very strong — presence in 26 countries and at 52 locations. It was unfortunate that during last few years overseas operations were not up to the mark. Now efforts are being made to strengthen UAE branch network.

In the Board meeting several long standing issued were also discussed and resolved. These issues relate to the requirement to confirm to international accounting standards, to current and deferred taxation and to income accruals on public sector debt.

The Bank's share in Pakistan continues to grow and is estimated at 19 per cent at the end of 1999. Mahmood, while disclosing the figures about deposit and advances, did not provide the details. However, assured that details would be available within a week. HBL has been maintaining a balance sheet of around Rs 300 billion. In 1999 deposits grew to Rs 252 billion from Rs 239 billion a year-ago and advances to Rs l53 billion from Rs l36 billion. A point indicating strength of the Bank is that the capital adequacy ratio of 8 per cent has been maintained under the SBP requirement.

Mahmood informed that while efforts were being made to enhance lending to small and medium enterprises (SMEs), the Bank had also emerged as a major lender to mega size projects — simply because of its size. Lately HBL has provided funds, in billion of rupees, to Pakistan Telecommunication Mobile Limited (PTML), Dewan Farooque Motors and others. He also said that the requests for funds are more than the resources at the disposal of HBL. Most of the financing requests have been from textile, value addition sub-sectors, telecommunication and information technology. However, the Bank has not made any specific sectoral allocations. Each case is decided at its own merit — economic viability.