PRIVATIZATION OF HBL

The Privatization Minister, said that this transaction will prove a milestone in Pakistan privatization process

From SHAMIM AHMED RIZVI, Islamabad
Jan 05 - 11, 2004

The Board of Privatization Commission (PC) has recommended to the Cabinet Committee on Privatization that the bid offered by Aga Khan Foundation for Economic Development (AKFED) for 51% shares of Habib Bank Limited (HBL) may be accepted. The cabinet committee, which could not meet Dec. 31 as scheduled may meet later, is most likely to accept the recommendation despite some criticism on the press and strong reservation expressed by some sectors who have successfully moved a motion in the Senate to have a debate on the subject.

The AKFED has offered the highest of Rs.22.40 billion (about $ 389 million) for acquiring 51 strategic stakes along with the management of the HBL. The second bidder, the Supreme Council for Economic Affairs of the State of Qatar offered Rs. 21.99 billion for the transaction. The Central Insurance Company Limited of Hussain Dawood, the 3rd pre-qualified bidder (out of 19) did not turn up causing surprise to all. The Minister for Privatization Dr. Hafeez Sheikh termed AKFED offer an attractive and better then the reference price which was not disclosed by the Minister but this correspondent has learned on good authority that it was fixed at about Rs. 22.1 billion. With this transaction about 80 percent of banking sector will go to the private sector.

Appearing jubilant, the Privatization Minister, said that this transaction will prove a milestone in Pakistan privatization process as it would set the ball rolling for other major transaction. "Habib Bank Privatization is a milestone that would send signals to the prospective investors setting a good momentum for the privatization and initial public offerings (IPO's) of various state-owned enterprises", the minister said adding that the government would offer the remaining stakes in the Habib Bank through a public offering in consultation with the new operator.

One, however, fails to find any reason for being so jubilant on having an offer of Rs. 22.409 billion in view of the fact that the bank has consumed over Rs. 22.5 billion of the national kitty since 1999 for achieving a turn around in its balance sheet. In addition to this there is big portfolio of non-performing loan of Rs. 33 billion about which the minister said, "some of the non-performing loans (NPLs) have been separated while some were left with the bank". The minister was hesitant to mention the amounts to be so earmarked. This correspondent has, however, learnt from his sources that NPLs amounting to about Rs. 16 billion will be taken over by the government and Rs. 17 billion will be left with the bank apparently in 49% plus 51% ratio. This will bring the total cost to the national kitty to Rs. 38.5 billion (Rs. 22.5 + 16 billion). If original paid up capital of HBL of Rs. 12.18 billion added the total public investment on bank will come to Rs.50.23 billion. The 51 percent shares even at value of a share should bring more than the MCB deal was perhaps the best as it fetched above Rs. 50 per share agsinst the face value of Rs.10/- only.

The local partner of the 19 parties Maryna (Private) Limited of Canada which was not pre-qualified, announced at a press conference in Lahore that they were ready to pay Rs. 35.5 billion for 51 percent stakes in HBL. According to them their auditors had assessed the total value of the present assets of HBL at Rs. 71 billion.

The HBL established in August 1941 in Bombay operated very successfully in the private sector till its nationalization in 1973. The HBL is second largest commercial bank of Pakistan having a countrywide and international branch network. It has full service license covering commercial, retail banking, consumer and investment banking activities in Pakistan and in 26 (twenty six) other countries in the world where it has its branches. HBL has an intensive domestic network of 1425 branches with a market share of over 20 percent. It has 48 branches working in 26 countries spread over Europe, USA, Middle East, Far East and Africa. It operates 3 fully owned subsidiaries namely Habib Bank Financial Services (Pvt) Ltd., Karachi, Habib Finance International Ltd., Hong Kong and Habib Finance Australia Ltd., Sydney and two joint venture namely Habib Nigeria Bank Ltd (40 percent) and Hamalayan Bank. In additional the HBL owns 90.5 percent shares in Habib Allied International Bank a bank incorporated in UK besides two representative offices in Iran and Egypt.

Out of 19 parties who had filed expression of interest (EOIs) only three were pre-qualified. The other investors who had expressed interest for the purchase of HBL included parties from Canada, USA, UK, Saudi Arabia, Yemen, Qatar and UAE. In the light of the fact that the PC has arranged the sale of strategic shares of HBL without hiring the services of a financial advisor the level of interest generated is really commendable.

After huge injection of public money during the last 3 years, the HBL for the first time in a decade showed an after tax profit of Rs. 2.1 billion this year. Some critics of privatization argue as why the bank should be sold when it has started showing profit. This argument is not tenable as for over a decade the bank was running into losses because of its exploitation by politicians. It has shown profit this year because it has remained free of political manipulation for the last 3 to 4 years and surplus manpower was reached from 31,000 to 19,000 after a high cost golden handshake scheme. "In the light of our past experience we cannot be sure that the present situation will continue after politician coming into power. This transaction will save the national kitty from losses in future. The government has recovered the cost of 51% shares and still hope to share profit against its 49% per cent share. State cannot and should not do business; as such it is a good riddance."