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The sale of sick units an update         

CIRC is far behind the target approved.


Oct 01 - 07, 2001

The sale of irretrievable sick unit is far behind the target set by the Corporate & Industrial Restructuring Corporation (CIRC) and approved by the then Chief Executive in March last. The CIRC was assigned the task of selling 868 such units through open public auction and complete the work within a year. It has so far been able to dispose of only 13 sick units for Rs. 215.5 million only.

In March last the Chief Executive Gen. Pervez Musharraf had approved the sale of 868 sick units through open public auctions. These units in the private sector were identified by the Corporate Industrial Restructuring Corporation (CIRC) in consultation with the concerned banks as these units closed for years, owe over Rs.107 billion to the nationalized commercial banks.

After a detailed presentation to the Chief Executive, also attended by Ministers for Finance, Industries, Privatization, apart from Governor State Bank and Secretary General Finance, the Chief Executive of CIRC, Mr. Tariq Hamid told newsmen that a priority list of 92 units has been prepared for the auction of which will start from next month. These units owe over Rs.12 billion to United Bank, Habib Bank, National Bank and NDFC. We will take six to eight units monthly in the market for sale and complete this process within this year. "We are beginning with the worst units", Mr. Tariq Hamid claimed.

He said the CIRC will take over these assets from the government owned banks and financial institutions at their book value and in return the government will issue bonds to these banks at the time of privatization of the unit or after three years of take-over, whichever is earlier. The bonds at the book value of units will have 5-year maturity period with government guarantee at a profit fixed by the federal government from time to time in accordance with State Bank rates, he said.

The Corporate and Industrial Restructuring Corporation (CIRC), during the last six months, has auctioned 13 units and fetched Rs.215.5 million. In all, it put to auction 18 units but five could not be sold. Out of the 13 units sold so far, four units belonged to Habib Bank Limited (HBL), three each to National Bank of Pakistan (NBP) and the Agricultural Development Bank of Pakistan (ADBP) and one unit was of the Industrial Development Bank of Pakistan (IDBP).

Initially, the CIRC had selected 101 cases for the process from six banks and financial institutions, namely the National Bank of Pakistan (NBP), United Bank Limited (UBL), Habib Bank Limited (HBL), Industrial Development Bank of Pakistan (IDBP), National Development Finance Corporation (NDFC) and Agriculture Development Bank of Pakistan (ADBP). The CIRC became operational after promulgation of two ordinances, in September and November last year. Under the ordinances the original borrowers are given the chance to settle their dues within 30 days or otherwise the CIRC starts executing cases through high courts.

The strategy to auction the irretrievable sick industrial units having been approved by the Chief Executive was seen as a last ditch attempt by the government to solve the twin problem of sick industries and non-performing loans of the NCBs/DFIs which constantly threatened their operational liability. It appeared that the creditor banks and DFIs have not been able individually to change the management of the sick units owing sizable amounts of loans through open auction in the market. This may be due partly to the fact that the task requires concerted action by the management of the banks and that would destabilize their daily working as the number of defaulting units has been increasing rapidly in each bank. In this contest creation of a single specialized institution like the CIRC is the right step to exclusively attend to the task.

From slow pace of work assigned to CIRC it appears that not many buyers/investors both domestic and foreign are not coming forward as was initially expected. It was hoped that some overseas Pakistanis may enter the scene to buy suitable enterprises from among the sick units Additionally, foreign investors from the Middle East countries may also be interested in exploring the opportunities to make investments in relatively medium scale amounts. These expectations, however, did not prove correct.