ALLIED BANK SOLD TO IBRAHIM GROUP

The successful bidding is expected to usher in a new era of growth and financial stability for the institution

By SHABBIR H. KAZMI
Aug 02 - 08, 2004

The State Bank of Pakistan (SBP) has issued Letter of Acceptance (LoA) to Ibrahim Group, offering the highest bid of Rs 14.2 billion for acquisition of 325 million shares of Allied Bank of Pakistan (ABL). According to terms and conditions of LoA, full amount has to be paid within 30 days. On receipt of full payment, management control of the Bank will be handed over to Ibrahim Group. Earlier scheme for reconstruction of ABL was approved by the GoP and bidding was held on July 23, 2004.

The bidding was conducted in two phases. The representatives of media opened the sealed bids submitted by five pre-qualified bidders. Based on the sealed bids, three highest bidders Viz. 1) Ibrahim Group (Rs 13.013 billion), 2) NDLC-IFIC Bank (Rs 9.6 billion) and 3) Askari Commercial Bank (Rs 9.1 billion) amongst the five were allowed to participate in the open bidding. Ibrahim Group raised the bid to Rs 14.2 billion in the open bidding.

ABL with a deposit base of around Rs 118 billion is the fifth largest bank of Pakistan and has a network of 746 branches. The transfer of management of ABL to a strategic investor will turnaround the bank and usher in a new era of growth and financial stability. Tawfiq A. Husain, Deputy Governor of SBP has termed the successful bidding of ABL beneficial both for the organization as well as for the banking sector. Husain also said that the SBP under section 47 of Banking Companies Ordinance, 1962 carried out the reconstruction of ABL. The central bank took every possible measure to ensure transparency in the reconstruction process and to bring in quality investors while providing level playing field to all the investors.

It may be recalled that the SBP started the process of reconstruction of ABL by inviting expression of interests (EoIs) in July 2003. Twelve parties submitted their EoIs. After scrutiny, SBP invited nine parties to submit Statement of Qualifications (SoQs). In response, seven parties submitted SoQs, which were allowed access to Data Room. The Prequalification Committee that included representatives of SBP short listed five parties for their continuing interest in the bidding process. These were Askari Commercial Bank, NDLC-IFIC Bank, Consortium of Ibrahim Group, Pak Kuwait Investment Company and Consortium of Jahangir Siddiqui Investment Bank.

In another deal, Askari Commercial Bank bought 16,376,106 shares of the Bank, which is subject to Sindh High Court approval and also submitted 50% payment amounting to Rs 417.754 million. Fateh Textile Mills, Goharullah and others have challenged the auction of these shares on grounds that under the Banking Companies Ordinance, 1962 no banking company can accept its own shares as security while advancing loans/advances and as such the entire agreement was void.

WAY FORWARD

The successful bidding of ABL is expected to usher in a new era of growth and financial stability for the institution. However, there is a need to probe the reasons which led to its virtual disaster. A point to be noted is that the last annual accounts were released for the year 1999. One could only guess what had happened since then. According to an analysts, "There are claims that the shares have been sold for Rs 14.2 billion but the SBP would hardly get any thing. The only consolation is that the SBP will not have to inject more funds to save the bank from virtual bankruptcy."

According to another analyst, "The non-release of annual accounts of ABL since 1999 also raises questions about the attitude of regulators. The SBP must explain the position. One of the reasons for mounting loses seems to be no control on expenditure. Along with this, the huge quantum of non-performing loans talks a lot about the imprudent acts of the management of ABL. Deposits as well as shareholders of ABL must be explained the reasons for not releasing the annual accounts for the last four years."

Allied Bank is the first Muslim bank established on the territory that became Pakistan, established on December 3, 1942 as the Australasia Bank at Lahore with a paid up share capital of Rs. 0.12 million under the Chairmanship of Khawaja Bashir Bux, the Bank had attracted deposits, equivalent to Rs. 0.431 million in its first eighteen months of business. Total assets then amounted to Rs. 0.572 million. Today, Allied Bank's paid up capital & reserves amount to Rs.565.7 million, deposits come to Rs.101.554 billion and total assets equal Rs.121.164 billion.