M&AS PAVING WAY FOR BANKING GROWTH
SHABBIR H. KAZMI
Jan 3 - 9, 2011
One of the landmark transactions in the banking industry taking place in late 2010 is acquisition of 20 paving way for growth stake of Abu Dhabi Group (ADG) by Bestway Group at Rs80 per share. With this acquisition, Bestway's holding in United Bank Limited (UBL) increased to 51 paving way for growth while ADG's holding reduced to below 10 paving way for growth.
UBL's management has clarified that the deal only changes the shareholding within the consortium and there is no change in the board of directors. Thus Bestway is not required to announce public offer under substantial Acquisition of Shares and Takeover rules.
UAE's Minister for Higher Education and Scientific Research Shaikh Nahayan Mabarak Al-Nahayan will continue as Chairman and Sir Anwar Pervez as Vice Chairman of the Bank with an unchanged Board of Directors until October 2011. Earlier, ADG had appointed Morgan Stanley as Advisors for this sale. An initial offer of Rs70 per share for purchase of 24.5 per cent shares of UBL was received from Mian Mohammad Mansha, Chairman Nishat Group and MCB Bank. Reportedly, subsequently the offer was revised to Rs75 per share. Bestway Group had the first right of refusal under the joint venture agreement, which was duly exercised.
In another landmark transaction, first of its kind of deal, BankIslami has signed to acquire housing finance portfolio of Citibank amounting to Rs953 million. It is the first time a commercial bank has acquired mortgage assets of another bank. This transaction is likely to open door for other similar transactions enabling banks to acquire entire business or product lines. The added significance of the transaction is that this is the first time an Islamic bank has acquired business of a conventional bank. The transaction will be viewed closely by Islamic banks and regulators around the world, as globally Islamic banking industry is more liquid than their conventional counterparts, thereby creating an alternate route of deployment of liquidity and further accelerating the growth of the Industry. Speaking on the occasion Hasan Bilgrami, President of BankIslami, said, "This acquisition will serve as a milestone for the Islamic banking industry in Pakistan and elsewhere". Acquisition of the housing portfolio is in line with BankIslami's growth strategy in this segment, he said Citibank's housing finance customers will now be required to switch over to Islamic mode of financing. "The transition for the customers to BankIslami will be made easy and convenient," said Hasan.
During 2010, the central bank approved the scheme of amalgamation of Atlas Bank with and into Summit Bank, formerly Arif Habib Bank. In its sanction letter, State Bank of Pakistan directed Summit to comply with conditions stated in its order while implementing the scheme of amalgamation. According to the information, the central bank has asked Summit to meet any shortfall in minimum capital requirement from its own resources as a consequence of this merger. Under the requirements, Suroor Investment, the consortium will inject fresh equity of at least Rs2.5 billion through issue of right shares of Summit Bank. It may be noted that the board has already approved valuation and swap ratio for the issuance of 0.45 share of Summit Bank for one share Atlas Bank.
Suroor Investments, a Dubai based group, has acquired a majority stake in Atlas Bank. Earlier, it acquired a 60 per cent stake in Arif Habib Bank - now Summit Bank. Interestingly, the group also has a stake in Dubai Islamic Bank.
Summit Bank will double its branch presence in the country to 80 branches. And, once MyBank transaction is completed the number will jump to 160. One of the quantum issues in the banking industry is generating low cost deposits. With 160 branches, Summit Bank will be well placed to compete in the retail segments. Going by September 2010 figures, the combined entity will have an asset base of Rs67 billion and deposit base of Rs51 billion. Both Atlas and Summit have higher than average ADRs at 84 per cent and 68 per cent respectively. The combined ADR still stands at 74 per cent. Some 250 employees took a golden handshake as a result of the merger and many more may be shown the door once operations at Summit Bank are rationalized to profitable levels. A strategic business plan to revive the operations of the two ailing banks is expected to be finalized. Management will have to resolve the issue of toxic assets especially in the retail and SME sectors. Program based lending in the SME sector at Atlas Bank has seen significant NPLs. Even after the merger of MyBank and Summit the asset size will be around Rs103 billion. Industry experts say that an asset base of less than Rs150-200 billion may not be enough to compete in the market.
Faysal Bank has announced acquisition of Royal Bank of Scotland. The merger has been completed in record time - within three months of acquiring controlling interest. All RBS Pakistan branches have been converted and branded as Faysal Bank. This acquisition has expanded Faysal Bank's footprint to over 200 branches, with combined business assets of over Rs250 billion, further strengthening its balance sheet and placing it amongst the top ten banks in Pakistan. Naved A Khan President Faysal Bank commented, "This merger will enhance our geographical footprint, customer base and product suite. In addition, we will have multiple touch-points for customer convenience. Our focus continues to be on customer satisfaction and providing world class service."
This merger will result in potentially greater career and development opportunities for employees of the combined entity. Faysal Bank's strategic plan envisages sustained optimal growth, which will be fast tracked with this merger. This strategy will be augmented in 2011 with several planned branch openings and new product offerings.
According to sources familiar with the matter, Faysal Bank has been eyeing RBS for the prestige factor as well. RBS is a globally recognized brand name and has some of the best human capital in Pakistan in terms of banking talent. But, the two banks also have very different cultures, a factor that may be cause for some strife once the merger of the two organizations begins. Standard Chartered Bank faced similar cultural clashes after its acquisition of Union Bank.