Merger plan for two more leasing companies ready: Minimum capital requirement
By Dilawar Hussain
KARACHI, Feb 4: Mergers and Acquisitions (M&A) activity in the leasing sector has intensified as companies scramble to meet the minimum capital requirement as well as to grow tall and strong so as to face fierce fresh competition from commercial banks.
Capital Assets Leasing Corporation Limited (CALCORP) announced on Wednesday that a shareholders’ meeting would be held on February 21, to approve the ‘Scheme of Arrangement’ for amalgamation of business with International Multi Leasing Corporation Limited (IML). According to merger agreement—which is subject to the approval of Lahore High Court and a nod from the regulators—the two leasing companies would combine to create ‘Calcorp Multi Leasing Limited’. Shareholders in IML would be offered shares in CALCORP in the swap ratio of one-for-one and IML would be dissolved without winding up.
If the merger goes through, it would be the sixth successful tie- up among leasing companies, which would reduce the total number of listed leasing companies from 34 to 28. The five earlier mergers were between: Mercantile Leasing and Universal Leasing; Pakistan Industrial Leasing and Trust Investment Bank and Ghandhara Leasing and Al-Zamin Leasing Modaraba. Corporate marriages that took place within the same group in the leasing sector were between Ibrahim Leasing with Ibrahim Modaraba and Atlas Lease with Atlas Investment Bank.
In September last year, the marriage between Security Leasing Corporation and Lease Pak Limited was called off almost at the altar, following disagreement over the swap ratio. Market reports suggests that Security Leasing is now on a look out for another suitable match.
Basheer Chowdhry, Vice chairman, Leasing Association of Pakistan (LAP) told Dawn that the urge to merge had been piqued as much by the need to raise minimum capital to the required level of Rs200 million, as also to face the growing competition from commercial banks. But he felt that it was a competition between unequals, since banks could lease out at 11-12 per cent and even 10 per cent to corporate clients due to their low cost funds, whereas it was not viable for leasing companies to enter a lease contract at a markup of below 15 per cent.
Under the circumstances, he said, it was difficult for leasing companies to seek out fresh business and margins had eroded. Basheer Chowdhry—who also heads Al- Zamin Leasing Modaraba—said that a delegation of LAP had called on the governor SBP, Dr. Ishrat Husain to air their grievances. “The Governor sympathised with our view but said that he could do nothing in the face of the policy of fair and open competition,” Chowdhry said, adding that the banking regulator advised leasing companies to look for fresh pastures in other areas.
Things remaining unchanged, it looks like leasing companies would have to swim harder to keep afloat in a sea of competition. Those with larger equity base and stronger asset portfolio would be able to obtain funds at attractive rates and perhaps make decent profits.
In the financial year ended June 30, 2002, leasing sector reported growth of 15 per cent to Rs65 billion; earnings of all leasing companies combined improved 1 per cent— not accounting for the mammoth loss of Rs82 million returned by NDLC. Vice Chairman LAP affirmed that results were fairly good this year.
But, for all that, leasing companies do not cut a pretty picture on the stock exchange. Only eight of the 29 listed companies had declared dividends in 2002 and even in the current bull market, fewer than four have managed to maintain stock prices above their par value.
