According to banking sector experts a lot of dirt is being created regarding privatization of United Bank Limited (UBL). Every second day some kind of news or rumour hit newespapers headlines creating doubts about the transparency of the process being followed. The news that one of the bidders has expressed intentions to raise its bid or what has been talked about on one of the electronic channels is bound to delay the ultimate privatization of some of the strategically important entities. These analysts also say, "A free for all, scenario prevails at UBL". Therefore, the GoP must announce the name of successful bidder without any delay to maintain the credibility of the on going privatization process in Pakistan.

It is necessary to recap what has already happened. The three bidders who submitted the bids were: 1) Muslim Commercial Bank Limited (MCB), consortimum 2) a consortium of Bestway Holdings Limited of UK and Abu Dhabi Group and 3) a consortium of Union Bank Limited. MCB submitted the highest bid of Rs 8.5 billion. Others two submitted bids worth Rs 4.8 billion and Rs 4.5 billion respectively. Therefore, MCB emerged the highest bidder.

State Bank of Pakistan cleared all the three bidders but suggested to the Privatization Commission to ask the participants to improve their bids. MCB was prompt in raising its bid from Rs 8.5 billion to Rs 12 billion and the revised bid was accepted by the Commission. After the approval of revised funding plan by the central bank the Cabinet Committee on Privatization (CCoP), has to approve the transaction. Meanwhile, the central bank has issued a directive barring MCB from using depositors money for the acquisition of UBL.

Then there was a news that a company was willing to match MCB's bid. Interestingly that entity never participated in the whole bidding process. However, when MCB raised its bid, Bestway Holding - Abu Dhabi Consortium sent a fax indicating its intention to match MCB's revised bid. It was also reported in the local press that Bestway was willing to offer even higher bid. While all sort of news were spread, the Commission was asked to clarify its position. Efforts were made to even malign the Minister and his office for making a 'under the table' deal with MCB.

Therefore, it is necessary to make a dispassionate review of whatever has happened so far and what may emerge as a final decision. One must take into account that the GoP promised to follow a transparent privatization process. In the case of UBL, interested parties were pre-qualified and each participant also went through the due diligence process. One may raise a question, why the bids from other two participants were nearly half of what MCB proposed? Some analysts say, "We cannot swallow this bitter pill. Either the other two participants and their financial advisors could not work out a reasonable price or they submitted a ridiculously low bid only to get a wind fall."

According to the procedure, the highest bidder enjoys preemptive right and second highest bidder gets the chance only in case of refusal by the highest bidder. Since MCB had submitted the enhanced bid, the second highest bidder has no right to talk about enhanced bid. Bestway could only get a chance if the central bank rejects MCB's revised funding plan. Therefore, unless the central bank decides, any debate on this topic is of no consequence.

A potential hitch, which MCB may face, is the acceptance of its revised plan. However, sector analysts strongly believe that the chances of rejection of its plan are very low. At the best, it could be a hard bargain. It seems that MCB will never let this opportunity to slip away. It was apprehended that MCB might use depositors money to acquire 51 per cent shares and management control of UBL. The central bank has made this clear and told MCB explicitly not to use the depositors money.

However, some of the analysts strongly believe that MCB, in the worst circumstances, may face shortfall of a couple of billion rupee. In that case it may ask the central bank to allow it to use depositors money to that extent. They say that there may not be anything wrong because MCB's deposits exceed Rs 150 billion. As such whatever borrowing MCB does, its cost will reflect in its profit and loss statement. This cost is expected to shrink its spread.

However, it may be of some interest to say a few words about the merger of UBL into MCB. According to the law a bank cannot acquire majority stake in another bank. If such an acquisition takes place, a new merged entity has to be created. One of the key issues is that if UBL is merged into MCB a number of UBL branches have to be closed, due to too close proximity with the existing branches of MCB. This may lead to retrenchment both at workers and executives levels. The central bank must also look into this issue.

Transfer of majority shares and management control of UBL to MCB is not the end of the world. Those, who are very keen in entering into banking business in Pakistan, must not create hurdles in the privatization of UBL. Habib Bank (HBL) is another attractive entity. Bestway has already submitted EoI for HBL and should seriously participate in HBL's bidding.