Aga Khan Fund invests Rs3.47b into HBL

The Aga Khan Fund for Economic Development (AKFED), a Switzerland-based organisation holding majority controlling stakes in Habib Bank Limited (HBL), has announced an additional investment of Rs3.47 billion in the bank. This investment will be made through the acquisition of additional shares available for trade at the Pakistan Stock Exchange (PSX).

The Fund is utilising its accumulated dividend income in the country to make this investment, which could not be repatriated to its headquarters abroad due to low foreign exchange reserves in Pakistan. This marks the second buy-back exercise conducted by the Aga Khan Fund in the past three months. Previously, the Fund acquired HBL’s stocks from the retail market (PSX) worth Rs3.53 billion using the same accumulated dividend income.

Stock market investors have responded positively to this new investment decision, causing HBL’s stock to soar by 5.74% to a 14-month high at Rs102.20, with a volume of 18.67 million shares traded at PSX. At the current share price, the majority shareholder could potentially acquire another 2.31% shareholding, equivalent to 33.97 million shares, using the available fund of Rs3.47 billion.

The buy-back trend has been observed among several listed companies at PSX recently, particularly after their share prices declined significantly due to the massive economic slowdown and partial closure of many industrial units. This buy-back approach has been favourable for both company owners and general investors, as share prices are expected to rebound alongside the gradual recovery in economic activities, particularly after Pakistan secured the International Monetary Fund (IMF)’s $3 billion loan programme in June 2023.

According to HBL’s annual report for 2022, AKFED held a 51% stake (748.09 million shares) in the bank in both 2021 and 2022. The shareholding is likely to have increased in 2023 following the first buy-back worth Rs3.53 billion announced in May 2023. In a notification to PSX, HBL’s company secretary stated, “Aga Khan Fund for Economic Development (AKFED) has informed Habib Bank Limited (HBL)…of its intention to acquire additional shares of HBL from the open market by utilising the accumulated dividends that have not been repatriated, amounting to Rs3,472,172,945.”

Regarding the previous buy-back of shares by the Fund, Topline Research commented, “The move comes as the State Bank of Pakistan (SBP) does not allow repatriation of dividends due to the low level of foreign exchange reserves, we think. However, the regulator allows funds to be used within Pakistan to avoid net outflow of US dollars.”

Pakistan’s foreign exchange reserves have improved significantly to a two-month high import cover at $8.2 billion, thanks to the latest inflows from the IMF and friendly countries like Saudi Arabia and the United Arab Emirates (UAE). This is a substantial improvement compared to the less than $3 billion in reserves in the recent past.

While Pakistan has taken measures to strengthen its foreign exchange reserves, foreign investors are yet to be allowed to repatriate profit and dividends to their headquarters. The government has urged foreign investors to reinvest their earnings in the domestic economy to support the country’s economic growth.

Foreign investors had sought clarity from the government on the repatriation of profit and dividend income to their headquarters and proposed various solutions to address the foreign exchange crisis in the country. However, the government’s response on the matter remains unknown.

According to the latest data from the central bank, the overall repatriation of profit and dividends to foreign headquarters by global investors operating in Pakistan slumped by 80% to $331 million in the previous fiscal year ended June 30, 2023, compared to $1.68 billion dispatched in FY22.

Despite the recent economic slowdown, banks operating in Pakistan have continued to register notable growth in their profits, mainly due to significant lending to the cash-strapped government for budgetary support at a historical high interest rate of around 23%.

Furthermore, many banks have earned substantial revenues from the rupee-dollar exchange business as the local currency continues to depreciate against the US dollar amid high demand for the greenback over the past several years.

Published in The Express Tribune, August 3^rd, 2023.

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