April 28, 2008	Monday	Rabi-us-Sani 21, 1429

PEOPLE cannot be blamed if they have develop insatiable appetite for controversies. Many privatisation deals in the past were found to be less transparent than desirable. In extreme cases like the sale of Pakistan Steel Mills, the apex court intervened and annulled the transaction altogether.

It might not be another trick to fool the public, but the deal concluded on the first day of April stoked some controversy. A consortium that was earlier on referred to as Shaukat Tarin group sealed the deal of the takeover of Saudi-Pak Commercial Bank. In formal notification, a consortium of International Finance Corporation (IFC), Bank Muscat, Nomura International and Sinthosis Capital, acquired 85.10 per cent equity at Rs29.30 per share. This was the rate at which the share of Saudi-Pak Commercial Bank was traded in the market at that point. In all, 425.61 million shares were sold. The market price is not the price at which the strategic investors normally get control and management of the sold units.

Immediately after acquisition, the new management headed by Shaukat Tarin issued Right Share at par value of Rs10 per share to raise additional capital for fresh injection in the company. On this account, the company reportedly raised a hefty Rs4 billion. However, increase in the total number of shares in the company diluted the market value that came down by Rs9 to settle at around Rs20.

The controversy that ensued in media primarily focused around three points:

* The level of transparency of the transaction for which there was reported to be a bidder with a better offer.

* The safeguards to protect the interest of the minority shareholders who collectively own 14.5 per cent equity in the bank but are typically too weak individually. Many of them might not be in a position to gain from the Right Offer but would loose if they wish to exit as their shares lost about one third of the market value.

* Issues surrounding the government’s stakes in the bank and reasons for not routing the transaction through the Privatisation Commission.

The financial circles and the banking higher-ups were cautious, not ready to comment publicly on the deal. Most bankers reached over phone said they expected the management of the bank to clarify their position over issues raised in the press. “The silence of the bank is lending credence to criticism besides encouraging detractors who are not too happy with the takeover”, said a financial expert.

“With reputable global financial institutions involved, I see little chances of rules being flouted or procedures bypassed. After acquisition it is the prerogative of the board of directors of a company to take decisions in what it perceives to be the interest of the entity. To me putting in more capital or raising it in the market is perfectly fine. In this case, no exception was made and all shareholders were offered the option of right shares so if anything people bought more shares at a discounted rate”, said a retired banker.

“May be, he needed to depress the share value to attract investors who knew about the holes in the balance sheet of the bank. For him, it was a smart strategy for he succeeded in getting commitments from difficult foreign investors”, he said.

“That is the beauty of the opaque deals. You make a killing and come out clean. The perpetrators command respect for their skills. They do not necessarily violate the law but target the spirit of the law by finding ways to evade them”, said a critic of the transaction.

On the merit of the deal, when reached by Dawn, the State Bank of Pakistan responded in writing via e-mail: “The Board of Directors of SPIAICO selected the consortium after following the due process and keeping in view the regulatory requirements. Regarding processing at the SBP, clear procedures have been laid out for acquisition of five per cent or more shareholding by the prospective investor in banks. The consortium and SPIAICO sought all the requisite approval from the SBP for the acquisition transaction”.

On the issuance of right shares immediately after the acquisition at par value instead of market value, the State Bank e-mailed: “The State Bank of Pakistan as a regulator requires banks to comply with the Minimum Capital Requirements (MCR) set for the purpose. Saudi-Pak Bank has opted to issue right shares to its existing shareholders to meet the shortfall in MCR. Regarding permissibility of right issue, any company including a banking company has to comply with legal requirements as laid down in Companies Ordinance, 1984”.

Over the concern about the sidelining of the Privatisation Commission the State Bank’s position as conveyed to Dawn was: “The decision to make new strategic investments or divest any existing strategic investment requires approval of the board of directors of the institution subject to compliance with legal and regulatory requirements. SPIAICO, which has equal shareholding of Pakistan and Saudi governments, acquired Saudi Pak Commercial Bank in September, 2001, after approval of its board of directors and divested their shareholding after approval of their board in March, 2008”.

Mr Tarin when approached over telephone by Dawn brushed aside all accusations as baseless. “If they smell a rat, it is their problem. We have done nothing wrong so we see no need for any explanation”, he said.

He told Dawn that there was a lawyer who was trying to paint a perfectly sound financial deal controversial. He said that the person is acting on behalf of some law firm Notin Rose. This firm, he said, was hired by Shamil Bank of Bahrain for recovery of a defaulted loan. The defaulter JK Ammar Group of Faisalabad had some shares in Saudi-Pak bank. He said that the company did try to block the deal but the Lahore High Court turned down their petition.

He sent in a copy of the advice he secured on the issue of the involvement of the Privatisation Commission. At the end of a long advice, his attorney has noted: The decision to sell these shares by Saudi-Pak, therefore, did not require the sanction of CCI. Further, as CCI had not formulated any policy in this regard, such a sale would not be in violation of Article 154 of the Constitution.

Naved Qamar, Minister for Privatisation, has not been briefed so far and was not able to make a comment off-hand when reached over telephone in Karachi last week. The minister promised to forward his view on the issue from Islamabad on Monday, however they never reached us.

Another financial expert felt that Mr Tarin was shrewd enough for regulators besides being a calculated player. “He handles his affairs in cool clinical fashion”.