TThe deal may help in getting the proceeds in foreign exchange but will have adverse impact on the on going process of privatization in the country


Sep 16 - 22, 2002

The GoP has accepted Rs 12.350 billion bid of Abu Dhabi-Bestway consortium for acquiring 51 per cent shares of United Bank Limited (UBL). The Privatization Commission (PC) has finalized the payment schedule and conveyed it to the successful bidder. The payment will be received in two installments. The first installment, due on September 13, would comprise of two components a foreign exchange component of US$ 90,188,320 and a local currency component of Rs 944,411,756. The second installment will comprise of US$ 86,719,538 and Rs 908,088,235, the due date was not announced. There may be all the applause for Privatization Commission, yet some apprehensions expressed by the analysts need dispassionate review.

It has been said that with the acceptance of Abu Dhabi-Bestway bid two objectives have been achieved: 1) receipt of proceed in foreign currency and 2) additional amount of Rs 350 million. However, the least attention was paid to the most important factor, loss of confidence of prospective bidders in the forthcoming mega transactions due to last minute change in the procedure. These transactions include Pakistan State Oil Company Limited (PSO), Habib Bank Limited (HBL) and Pakistan Telecommunication Company Limited (PTCL). Though, the PC sources still say that the laid down procedure has been followed, analysts do not agree with the rationalization.

The biggest objection is that the highest bidder enjoys the first right of refusal. Once Muslim Commercial Bank (MCB) had enhanced its bid from Rs 8.5 billion to Rs 12 billion, slightly more than the reference price, it should have been accepted. If the PC wanted the bid to be further enhanced, MCB should have been asked. However, the second highest bidder increased its bid from Rs 4.8 billion to Rs 12.350 billion. The highest bidder was asked to match the enhanced bid of Abu Dhabi-Bestway consortium. Had MCB decided not to participate in open bidding, as a protest for violation of the agreed procedure, there would have been no face saving for the PC. Even whatever has happened at open bidding seems very amusing, only Abu Dhabi-Bestway consortium pronounced the revised bid and the other two participants kept mum.

It was also said that with the acceptance of Abu Dhabi-Bestway consortium bid, the country would get additional Rs 350 million and the proceeds would be in foreign exchange. The reality is that full amount would not be received in foreign exchange. A sum of about US$ 177 million would be received in foreign exchange and the balance would be received in local currency. In the Abu Dhabi-Bestway consortium, each group has a 50 per cent stake. Abu Dhabi group consist of five eminent individuals from Abu Dhabi. The respective stake of Bestway Group is, Bestway Holding of UK (25%), Bestway Cement of Pakistan (15%) and Sir Anwar Pervaiz of UK (10%). While the country would get US$ 177 million, for all the year to come at least 85 per cent of the annual dividend paid would have to be remitted abroad. Therefore, the outflow of foreign exchange would be much larger than the amount received today.

Another point which needs further probing is the participation of MCB in open bidding without an out cry. Some analysts say, "With the outcome of sale of UBL one tends to get an impression that bidding is only a ritual because the ultimate transfer of the entities being offered for sale has been decided." This expression carries some weight because Bestway Group was pre-qualified for taking part in the privatization of HBL and it should have concentrated on it rather than insisting on taking over UBL. The well informed sources in Islamabad say, "The Bestway Group must have got the indication that HBL would go to another foreign group which has lately become very active in Pakistan by establishing and acquiring some financial institutions. Therefore, they pulled all the strings to acquire UBL."

It was expected that with the takeover of UBL by MCB, the ailing bank (UBL) may witness some major restructuring. However, with the transfer of UBL management to new buyer the process of restructuring may not be an easy task. In the past, State Bank of Pakistan was forced to inject additional capital to keep UBL solvent only because of its operational inefficiencies. The new buyer face a mammoth task and little knowledge about the factors impairing the performance of the bank, their initial bid was Rs 4.8 billion only.

Last but not the least, financial sector experts have been warning about the sale of local commercial banks to foreign investors. This policy has its own advantages and disadvantages. Can the central bank afford to be as harsh with the foreign banks as it has been with the local banks?