Pakistan OKs Habib Bank’s 51% Stake Sale To Aga Khan Fund
Pakistan on Thursday approved the sale of 51% management stake in Habib Bank Ltd., the country’s second-largest commercial bank, to the Aga Khan Fund for Economic Development for over $389.7 million. The approval for sale, which is Pakistan’s biggest strategic transaction so far, came after Monday’s bidding in which Geneva-based Aga Khan Fund bid the highest. “The Cabinet Committee on Privatization has approved this transaction,” a finance ministry spokesman told Dow Jones Newswires. Habib Bank holds a 20% market share of Pakistan’s banking sector, with 1,425 branches in 26 countries and a deposit base of over 328 billion rupees ($1=PKR57.45) at the end of 2002. Its after-tax profit rose 83% to PKR2.03 billion, in the year ended Dec. 31, 2002, compared with the previous financial year.
The official said the Aga Khan Fund will pay 26% of the sale value upfront, while the remaining amount will be paid in two-year time with interest rate equal to London Interbank Offered Rate, or LIBOR, plus 2.5%. The Habib Bank sale is part of Pakistan’s ongoing privatization program. Last year, the government sold a controlling stake in United Bank Ltd. to a group of investors from the U.K. and the Middle East for $208 million. After Habib Bank’s privatization, Pakistan’s 80% banking will be run by the private sector. The winning bidder, Aga Khan Fund for Economic Development, already owns a micro-finance bank and two insurance companies in Pakistan. Information available on its Web site said the Fund operates a network of affiliates with more than 90 separate project companies, employing over 15,000 people and controlling assets of more than $1 billion.
Good move…Hafiz Sheikh is pushing privatisation in a big way. In 3 years Mush’sprevious Minister for privatisation only managed the sale of UBL Bank..while this one has managed to bring in something like 600 million dollars for the Pakistani economy. link
They’ll be offloading Allied Bank shares in January as well..
They’re putting up Karachi Shipyard for sale this year. I hope this helps improve our ship building capability. Hopefully joint ventures with the ship builders in Spain/UK/Italy will follow.
There’re reports of Pakistan developing a ship yard at Gawadar too!
The Aga Khan and his people have made major contributions to the development of Pakistan and have made positive changes to its economic structure.
I am sure they will do a good job and bring some efficiency and value to its shareholders in the near future, however its underlying intentions must be made clear.
This Agha Khan group is already handling the Serena Hotel chains pretty well. Although banking is different ball game, but going by the level of professionalism in Serena, i'd HBL is in good hands.
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*Originally posted by ChthonicPowers: *
This Agha Khan group is already handling the Serena Hotel chains pretty well. Although banking is different ball game, but going by the level of professionalism in Serena, i'd HBL is in good hands.
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How many Serena Hotels are there in Pakistan? Handling six hotels in Pakistan doesnt make them good bank managers. Only time will tell how they manage.
How many Serena Hotels are there in Pakistan? Handling six hotels in Pakistan doesnt make them good bank managers.
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Prince Agha isn't going to be managaing the bank by himself, in case you didn't know. He has the resources to bring in the best professionals to do the job for him. Thats why I mentioned the example of professionals in Serena.
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*Originally posted by Spock: *
Only time will tell how they manage.
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Prince Agha isn't going to be managaing the bank by himself, in case you didn't know. He has the resources to bring in the best professionals to do the job for him. Thats why I mentioned the example of professionals in Serena.
Thanx for stating the obvious.
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Runnings a few hotels and a bank are two different games.
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*Originally posted by Zakk: *
How so CM?
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State run entreprises, theortically look out for the common man and dont have to make profits. Not private firms. Oligoplies allow for unfair competition practices, that is where a majority of cartelization happens. With only a few banks in Pakistan, they can easily abuse their market power. I would prefer perfect competition in such important sectors.
State run entreprises, theortically look out for the common man and dont have to make profits. Not private firms. Oligoplies allow for unfair competition practices, that is where a majority of cartelization happens. With only a few banks in Pakistan, they can easily abuse their market power. I would prefer perfect competition in such important sectors.
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With all due respect, there are several flaws in that argument.
1) National Bank of Pakistan is the most profitable bank in Pakistan, even though it is with the govt.
yet
2) the service at National Bank is one of the worst you'll find around. Nothing compared with the domestic private banks, let alone foreign banks. Trust me on this. I am doing an internship with UBL and they still have to catch up with Union Bank(domestic private) in terms of service, even though the bank was privatised in 1999. UBL did earn the second highest profit after National Bank this last year.
3) We have a very strong SBP regulating the banking sector and bank's profits had swelled to record levels even before the HBL was privatised. I dont see the problem of cartels arising in the banking industry. The SBP has been very vigilant, to the level that it monitors the Clearing and OBC departments very closely.
4) You also have to factor in the huge non-performing loans these banks had accumulated over the years. The govt. had to inject Billions of Rupees into HBL before its balance sheet showed a good picture. Same goes for UBL. In fact UBL was taken over by SBP sometime in 1999 after it forwarded too much. It was privatised after a clean up job. Sure the argument can be made that if HBL is performing very well now with low non-performing loans, why privatise? But I guess we just have to, given that at some point in future the corrupt politicians will be back and the lesser the banks under govt. the fewer the chances of more non-performing loans.
5) Number of banks operating in Pakistan is fairly adequate. In fact some years back, the SBP realised that the no. of banks in Pakistan was more than what was needed and wanted to reduce their number. I dont know if it actually followed up on that.
5) The current banking structure is as close to perfect competition as you will get anywhere, atleast in this region. The interest rates are low so the banks are going all out to create new products to lure in customers. This is why you see major thrust in consumer financing. The SBP is also pushing banks to start mutual funds in Pakistan. There are other examples too: Debit Cards, ATM, major initiative for Credit Cards, This had never happened before. Earlier the banks mostly sat on their bums eating off the interest from govt. papers.
So even though 80% of banking sector is now with the private sector, there is no reason to worry abt mal-practises. As long as the SBP is doing its job, the customer in Pakistan is fine.
Look at the US and the vitamins Cartel for roughly 10 years. If it can happen there, it can easily happen in the US. I am also in favor of 100% privatization, not 49% or 51%. And of course selling its stocks off as well.
I am sure Dr. Ishart andall other SBP governors know all too well about the cartels etc and have studied them in more details than any of us here can claim to. Lets hope such a situation can be averted.
I agree with you that the govt. should sell off all its stake in the banks, and through the stock exchange. But just thinking from the govt.'s point of view, I suspect there are two reasons for them not to do so:
1) The $12bn. reserves aside, ours is still a poor govt. Maybe by selling only 51% shares the govt. wants to earn some money through dividend etc. Best of both worlds. The responsibility of management is gone and all you do is collect your taxes and the dividend money. Plausible?
2) Our govt. currently holds 40% of the shares being traded in the market. By inundating the market with, say shares of OGDCL or NBP, it might cause erosionin the market value of the NBP/OGDC share . More supply than demand. Thsi practise of only offering a limited amount of shares worked very well for the govt. when it only offered 5% of OGDC's shares. The share was oversubscribed 7 times over. When it comes into normal trading and hits, say 72 and then the govt. offers it at a marginal discount, it still earns heck of a lot more than what it could right now. (Rs.32/ share to be exact)
State run entreprises, theortically look out for the common man and dont have to make profits. Not private firms. Oligoplies allow for unfair competition practices, that is where a majority of cartelization happens. With only a few banks in Pakistan, they can easily abuse their market power. I would prefer perfect competition in such important sectors.
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Exactly, and some of the private and semi-private banks operating in Pakistan are a good example.
I hope this helps improve our ship building capability. Hopefully joint ventures with the ship builders in Spain/UK/Italy will follow.