MCB GDRS PUT PAKISTAN ON WORLD EQUITY MARKET MAP

Govt planning to float GDRs of NBP, HBL, UBL and KAPCO

SAHMIM AHMED RIZVI, Bureau Chief, Islamabad
Oct 23 - Nov 05, 2006

The impressive launch of MCB global depository receipts (GDR) and enlisting of its share at the prestigious London Stock Market has put Pakistan on the world equity market map. "Through our privatization programme and other measures to attract direct foreign investment (FDI) we have already placed Pakistan impressively on the international financial map," said Dr. Ashfaq Hassan, PM's Adviser on Finance and Debt Management.

Talking to PAGE at his office in Islamabad, Dr. Ashfaq said that over subscription to MCB GDR by over 4 times showed the level of confidence the international investors have in our economy. "This is international recognition of economic growth and stability of Pakistan," he added.

The listing of MCB's Global Depository Receipts (GDRs) at the London Stock Exchange makes it the first ever entry of a Pakistani entity in the prestigious bourse. Earlier, the GDR offering had received an enormous response, with the demand exceeding 700 million dollars from over 50 investors globally. However, the bank preferred to raise only 150 million dollars through the issue of GDRs, each of which was priced at $ 17.40 equivalent to Rs. 1056 underlying four equity shares (Rs.264 per share).

Dr. Ashfaq Hassan claimed that ground was prepared, as the government has established its relationship in the international financial market through successful launch of three euro bonds by the State Bank of Pakistan. He said that MCB initiative must be complimented to timely encash the international environment.

This is the first initiative by a bank in the private sector and the lead given by the MCB is likely to be followed by other commercial banks in the private sector in the country. As for as the public sector is concerned the government is planning to offer for sale through GDR its shares in National Bank of Pakistan, Habib Bank, UBL and KAPCO. Preparation for enlisting OGDC at London Stock Exchange is almost complete and the task will be completed by December this year. "We are hoping for an equally good response," he added.

The 60 odd one-to-one and group meetings held during the road shows arranged by MCB advisor to the issue (Merryl Lynch and Khadim Ali Shah Bokhari Associates) must have provided an opportunity for familiarizing a wide group of emerging market funds with the Pakistani economy, its banking scene besides MCB's own merits. Pakistan's economy is very much internally driven and is one of the least geared to global growth and can act as a hedge against a negative development in OECD markets. Banking sector consumer loan stock at only 3.9 percent of GDP (despite a surge in the last few years) is still less than half of India. The acquisition of Union Bank in August by UK headquartered Standard Chartered Bank having very strong presence in Asia must have also instilled confidence in MCB among potential investors, especially, when SCB paid 5.6 times the value for a Pakistani banking entity, whose assets are only one tenth of MCB.

Despite all the above positives, one needs to appreciate that it was still not an easy sale. MCB Bank is an entity based in a country which is more in the news for terrorism than having one of the best performing stock markets in Asia for the last two years, offering untapped scope for pension money waiting to be channelised. Overseas investors in this country have earned an average return of 25 percent or more on their investment consistently for decades despite the political turmoil and law and order problems. But it is so sad that due to our geo political situation, we are lumped by the media with Afghanistan and not with China and India for investment opportunities. It is crucial that we encash the investment momentum generated due to MCB's GDR listing by quickly awarding a mandate to sell government stakes in other banks.

While eulogizing the MCB-GDR listing it is also important to note that successful launching of GDRs by a certain enterprise also depends on the state of the economy of the country, particularly its solvency or ability to honour its foreign obligations in future. Seen from this perspective, the buyers of MCB GDRs must have calculated that the present and the future governments of the country will continue to follow the principles of sound economic management and would not mishandle the economy as in the past. Keeping this in view, it becomes doubly important for the authorities in Pakistan to overcome the emerging weaknesses in key areas of the economy and keep their house in order. Failing this, the long-term expectations attached to such initiatives would not materialize.

 

PROFITABILITY OF BANKING SYSTEM

(Billion Rs)

Profit before tax

CY00

CY01

CY02

CY03

CY04

CY05

Mar-06

PSCBs

3.9

0.2

10.9

16.1

14.2

22.8

6.6

LPBs

(0.6)

5.0

11.9

23.8

31.0

60.5

16.7

FBs

3.7

5.0

6.6

7.1

7.2

11.6

3.5

CBs

7.0

10.3

29.4

47.0

52.4

94.9

26.7

SBs

(2.5)

(9.2)

(10.4)

(3.3)

(0.4)

(1.1)

(3.0)

All Banks

4.5

1.1

19.0

43.7

52.0

93.8

23.7

Profit after tax

PSCBs

1.8

(4.6)

4.8

9.4

8.0

15.5

4.3

LPBs

(3.5)

2.0

6.4

14.8

21.8

41.1

11.2

FBs

1.4

2.4

4.2

4.2

5.8

8.0

2.4

CBs

(0.2)

(0.2)

15.3

28.4

35.6

64.6

17.9

SBs

(2.6)

(9.5)

(12.4)

(3.7)

(0.9)

(1.3)

(3.0)

All Banks

(2.8)

(9.8)

2.9

24.7

34.7

63.3

14.9

SOURCES: STATE BANK OF PAKISTAN
Public Sector Commercial Banks (PSCBs), Specialized Banks (SBs), Local Private Banks (LPBs), Foreign Banks (FBs),