LAHORE, Sept 25: At least two “investors from the financial industry” have shown interest in the acquisition of Crescent Standard Investment Bank Ltd (CSIBL), whose board of directors and management was suspended and an administrator appointed in the first of its kind move by the SECP on Aug 30 after the detection of gross financial irregularities in its affairs.
“We want to save the bank in order to protect the interests of its depositors as well as creditors by selling to some prospective buyer. We have been approached by a couple of prospective buyers interested in acquiring the bank, who were given an honest and thorough briefing on the current health and future prospects of the bank,” CSIBL administrator Badr-Ud-Din Khan told Dawn on Monday.
However, he did not say whether the prospective buyers who had contacted him were individuals or institutions. Nor did he give their names. “What I can tell you at this stage is that the prospective buyers are from the financial industry,” he said in response to a question.
Mr Khan said it would not be in the interest of the bank’s depositors and creditors to sell its assets to pay them off. “There is gap between the (total estimated value of) bank’s assets and liabilities (towards depositors and creditors). If we sell the assets, everyone will be a loser. Hence, we are trying to revive the bank by selling it to a prospective buyer so that everybody emerges as a winner,” Mr Khan added.
He said the bank’s accounts (for the year 2005) were being audited so that the investors interested in acquiring it get “credible information” about its financial health. “Our immediate objective is to preserve the bank’s assets from further erosion, retrieve an amount (of more than Rs1.5 billion) from the sponsors transferred to the group-owned companies, and get its accounts audited. It is being done for the benefit of the bank’s depositors and creditors as well as whosoever acquires the bank,” he said.
CSIBL is sponsored by the Crescent Group of Companies that owns the bank’s majority shareholding of 51 per cent.
Mr Khan said he had held a meeting with the institutional investors/creditors of the bank last week and tried to convince them to forgo the interest being incurred by the company on the loans obtained from them to “stop bleeding of its assets and resources”. “I’ve told them very candidly that it was not possible for the bank to pay them off their loans or the interest incurred on them in the present scenario. When the things improve and some prospective buyer acquires the bank, injecting fresh capital in it, everyone will be in a position to recover his or her money. Since none of the investor/creditor objected to the proposal, we’ve taken it for granted that they also subscribe to the proposal,” he said. According to him, some 80 per cent of bank’s expense was on account of interest accrued on its loans (obtained on very high rates).
In reply to a question, Mr Khan said the sponsors (the Crescent Group) had “offered to cooperate” in the effort to revive the company. “We’ve asked them to pay back the amounts transferred (by them) to their group-owned companies so that the bank could be sold and revived for the protection of interests of all stakeholders. However, nothing has so far been done on their part.” He did not say if the SECP or the bank intended to take some legal action to make the sponsors return the bank’s money. “We shall keep putting pressure on them and ask them verbally to pay back (the depositors’ money),” he quipped.The SECP took the unprecedented action after months of investigations into its affairs, which revealed deliberate violation of the legal requirements and serious financial irregularities, including illegal maintenance of parallel accounts, concealment of the bank’s assets, unauthorised massive funding of the group owned companies, and unlawful investments in real estate and stock market, etc.
The former management was afforded all the opportunity to address issues concerning the viability of the company itself. But no measures were initiated, or commitments made to the regulator honoured. The SECP effort to engage the sponsors and management in an effort to revive and recapitalise the bank was frustrated by their deliberate non-cooperative stance.
The regulators had detected irregularities in the bank’s financial affairs in October last year. The company was found to have borrowed from other institutions to the tune of Rs5.5 billion, the amount which was nowhere reflected in the bank’s official accounts.
During the investigations it was discovered that the previous management was maintaining a separate, parallel set of accounts for these loans to hide the company’s actual losses. Besides, it was found that these loans, obtained on as high interests rates as 25-55 per cent, were invested in violation of the rules and regulations governing NBFIs in the stock market and real estate through the sponsors’ group owned companies. Thus bank’s resources were misused by the sponsors for the benefit of the group owned companies, and at one point in time its exposure to the group companies equalled Rs3.703 billion or 240 per cent of the bank’s equity.
The sponsors were also told by the regulators to recover Rs1.5 billion from the group owned companies. But they did not take any step to rectify the situation. Its CEO Anjum Salim illegally used the bank’s resources to the tune of Rs100 million to the personal advantage of his own and his brother Altaf Saleem, a former federal minister in the previous military government and the incumbent head of the Earthquake Relief and Rehabilitation Authority, for paying off their liabilities.
The bank’s current assets are valued at about Rs8 billion against its liabilities of Rs9.5 billion, showing a gap of Rs1.5 billion. Individual depositors have a stake of Rs1.60 billion in the bank.
