The initial impression that the PML-N government would put on the auction block ‘big ticket’ companies, including PPL and OGDC, is fading away. The focus appears to have shifted to banks.

“Comparative ease in valuations, verifiable balance sheets that attracts foreign investors, and low level of resistance by anti-privatisation lobbies makes selling off banks less cumbersome,” says a source privy to the privatisation process.

The ball was set rolling with the sale of the government’s residual holding of 19.8pc in United Bank Ltd for $387m, followed by the divestment of the remaining 10pc shareholding in Allied Bank Ltd.

The Privatisation Commission (PC) and other stakeholders are now preparing to strike a bigger deal: selling 41.5pc shares in Habib Bank Ltd — the country’s biggest bank. HBL, which according to Arif Habib Research, “is the top pick within the banking sector due to its strong earnings growth, capital strength, and balance sheet quality. It is well-placed to benefit from an economic recovery given its fortress-like book size and higher sustainable return on equity”.

Instead of offering all of the government’s remaining 41.5pc, or 609.3m HBL shares in one go, the PC intends to test the waters by offering 250m shares through the book-building process. The commission’s chairman, Mohammad Zubair, disclosed the modus operandi last week. By disposing off the entire 609.3m shares, the commission hopes to lap up Rs129bn.

A significant feature of the HBL deal is that the government is weighing options to approach the State Bank of Pakistan and the finance ministry to waive the restriction of sale of no more than 5pc of the stock to a single buyer. The ‘integrated international book-building exercise’ envisaged by the consortium of financial advisers of the HBL deal — the Deutsche Bank, Credit Suisse, Arif Habib Ltd and Elixir Securities — stipulates that the remaining 359.3m shares of the bank would be available under a ‘green shoe’ option.

The process of selling state-owned enterprises through ‘book building’ instead of offering large portions of shares through IPOs has robbed low net worth individuals of the fortune that they made through past IPOs

“Those shares will be available consequently upon demand by the buyers and for offerings to the International Finance Corporation (IFC),” says a PC member who asked not to be named. He claimed that no preferential treatment would be given to any party and that all would have to first go through the book-building process. He would also not confirm if the commission sought to waive the 5pc limit to accommodate the IFC.

Several delegations are preparing to launch road-shows in foreign markets. The KSE would reportedly dispatch a large group of brokers, major investors and top-tier managements of blue-chip companies to conduct overseas road-shows on February 28.

HBL’s free-float is a tiny 10pc, which makes ‘price discovery’ a difficult task. “The inflow of $1.36bn into the stock market from sale of the banks shares’ would greatly expand the free-float, which would also raise HBL’s weightage in the KSE-100 index,” says a senior investment analyst.

However, in all the current hustle and bustle of privatisation, small investors have reason to sulk. The process of selling state-owned enterprises through ‘book building,’ instead of offering large portions of shares through initial public offerings, has robbed low net worth individuals of the fortune that they made during the previous term of this government, when sales were accessible to the public through IPOs.

Ordinary people filing applications for government offerings in OGDC, PPL and NBP had made astonishing sums of money as the prices of those stocks spiralled upwards. Everyone agrees that at a time when private companies are hesitant to come up for listing and when equity values are at their peak, the government should offer the same opportunity to local small investors that it is keenly offering to foreign and high net worth individuals.

Another noteworthy point is that unlike in the past, the government has to face, if at all, a muted opposition to the privatisation process. PPP Senator Saeed Ghani, who is also a former labour leader, told Dawn that “in the case of HBL, since the controlling shares have already passed into the hands of private owners, we are observing the transparency or the sale of the remaining stock”.

But he expressed disenchantment with the selling of both profit- and loss-making state-owned enterprises (SOEs). “Already 169 SOEs have been disposed off in the last 22 years, but to what advantage?” Senator Ghani believes that the sales only benefitted the buyers and did nothing to improve the health of the national economy.

Yet, the party now in power had promised in its manifesto “to identify and pursue privatisation of public sector enterprises”. An official leaning towards the ruling political party said “we are just doing what we had promised to the people”.

Published in Dawn, Economic & Business, February 16th, 2015

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