KARACHI, May 8: The State Bank is formulating a policy for sell-off of the Allied Bank of Pakistan (ABL) which would be made public at an appropriate time, SBP sources here said.
ABL has been on the privatization agenda for a long time but the equity holding of the bank employees/business groups created legal hassles that made the sell-off very difficult. Now, the central bank has been entrusted with the responsibility for ABL sale.
Official sources here said the key issue is that the ABL’s capital has been eroded by huge losses and a buyer has to be found willing to invest for a bail-out. The buyer can bring equity investment and the government can retain its share holdings of 49 per cent. Other share-holders will also not be disturbed. And the buyer can thus pre-qualify for the sale.
With the bank’s capital in the negative territory, huge losses and a past record of fudging of accounts, ABL is difficult to sell but the simple approach of equity investment with transfer of management may eventually turn out to be an attractive proposition for the buyers, say analysts.
The government-appointed bank management declared on Wednesday that it has doubled its operating profits from Rs838 million in 2001 to Rs1705 million in 2002 but the pre- and post- tax profits, that could instil more confidence in the prospective buyers, were not revealed.
The new approach for sell-off, said a source, would be a departure from the previous one as adopted in the case of United Bank. It provoked widespread criticism because UBL, a bank on the verge of collapse, was sold for Rs12.5 billion after injection of Rs30 billion for restructuring.
In a different approach, sources said, the prospective buyer would be required to restructure ABL and make it viable. If a local bank acquires the ABL, it may be merged as has happened in case of weak banks and financial institutions bought over by their stronger peers in the private sector. This has also been the preferred course in case of Mehran Bank and NDFC, and perhaps could be followed in the case of ICP.
Meanwhile, as the market reports indicate the SBP is now sounding out half a dozen banks, whether they would be interested in the ABL. These include Askari, one of the fastest growing private bank backed by the country’s largest industrial empire. A source in Askari said that they were looking at an option of acquiring stakes in the bank.
SBP sources neither confirm nor deny whether 5 per cent stake has already been sold to PICIC Commercial Bank, as the market reports go. And a senior banker says that the ABL shares may be sold to half a dozen banks. The UBL has been also approached, say insiders and it is mulling over the issue but as a reluctant candidate.
As it would appear from the State Bank’s moves, a policy for sell-off would be formulated after a feedback from the market has been obtained and the appetite of the buyers is ascertained.
In the expressions of interest submitted in the past to the Privatization Commission, the only serious and acceptable bidder was the Union Bank which has lost interest because of delays/problems involved in the ABL sale. Instead it has rapidly expanded by acquisition of American Bank, Emirates and American Express Cards. Union Bank chairman Shaukat Tareen says that he is no longer interested in ABL and is now focusing on organic growth. Next month, he says, the bank will open a branch in Colombo. Approval for the branch has been obtained by central banks of both Pakistan and Sri Lanka.
Apart from the banks, a business house, Dawood Group is also toying with the idea of entering into Islamic banking business and as market reports go, it is also looking at the ABL option. Husain Dawood, a director in State Bank, is seeking opportunities to expand his business. The Dawood group has acquired 28 per cent stakes in Engro Chemicals and struck a bargain with Employees Group to work as partners in the company.
It may be recalled that the Privatization Commission has recently informed the IMF that privatization has been slow mainly due to limited investors’ interest. The government also told the Fund that given the lack of bidders, it may go for negotiated sale in some cases. Instead of bids, ABL sell-off may come about through negotiated sale. If that happens, the State Bank would be required to keep the transaction transparent, says a corporate boss.
Some trade associations had recently urged the Privatization Commission to include FPCCI/ chamber representatives in the ABL privatization process.
The sources here said that no one can hold more than five per cent shares in any bank without prior approval of the State Bank. And those who have holdings in excess beyond the prescribed ceiling in the ABL may retain or sell their shares in the market. It means that all these share-holders stand disqualified from acquiring management stakes in the ABL.