Same old tricks: Habib Bank privatisation challenged, again

Petitioner is the same one who opposed the transaction in 2004.

ISLAMABAD/KARACHI:

The Supreme Court on Thursday issued notices to several parties in connection with a constitutional petition challenging the privatisation Habib Bank, filed by the Akhtar Hassan Khan, the same person who had challenged the transaction in 2004.

The court issued notices to the cabinet committee on privatisation, the chairman of the Privatisation Commission, the president of Habib Bank and the Agha Khan Fund for Economic Development (AKFED) after a petition was filed by former planning secretary Akhtar Hassan Khan, who alleged that the transaction was fraudulent.

Khan’s main bone of contention in this particular case is the fact that AKFED won the bid for Habib Bank despite the fact that it had not disclosed that other companies owned by it – specifically Serena Hotels – still had loans outstanding with Habib Bank.

Yet what looks like fraud to Khan does not seem to be an indication of malfeasance to others.

“On the face of it, [the grounds cited in this petition] do not seem to be referring to any actual fraud,” said Zahid Ibrahim, a corporate lawyer based out of Karachi.

According to Khan’s own lawyer, Muhammad Ikram Chaudhry, Serena Hotels had no more than Rs150 million in outstanding loans at Habib Bank in December 2003, when the government sold 51% of its stake to AKFED. Yet the Geneva-based philanthropic organisation paid over Rs22.4 billion to the government for its stake, far exceeding the outstanding loan.

An employee of Habib Bank stated that it is highly unlikely that there was any malfeasance on the part of the bank’s management in the loans to Serena Hotels. He added that, given the small size of corporate Pakistan, it would difficult for a bank to hide a fraudulent transaction from the central bank’s auditors.

This is not the first time Khan has challenged the Habib Bank privatisation. In January 2004, just days after the transaction closed, Khan filed two petitions with the Supreme Court, both of them alleging that the transaction was fraudulent and against the national interest. Neither petition has yet been successful, though the verdict on those cases is expected soon.

Khan has also challenged the valuation of the bank used in the transaction, stating that the sale price of the bank – Rs22.4 billion – was less than the Rs23.7 billion book value of the bank in 2003. However, what Khan does not seem to realise is that AKFED bought only 51% of the shares of the bank, not all of it.

The questioning of the valuation seems to be a consistent theme in Khan’s petition against the Habib Bank transaction. Chaudhry, his lawyer, claimed that the bank was worth Rs100 billion when it was sold but hung up the phone on The Express Tribune when asked about his valuation methodology.

The habit of suing the government for privatisation transactions has been viewed by many professionals associated with the corporate sector and the capital markets as having a negative impact on the economy.

“You’re just scaring off investors without any real grounds for interference. And that is something to be wary of,” said Zahid Ibrahim, the corporate lawyer.Others were even more explicit in their criticism of Khan and his petition. “These are just dumb desktop economists who use irrational arguments like ‘national interest’ to justify their positions,” said one former investment banker from Karachi who wished to remain anonymous.

Khan is certainly an economist who has consistently been opposed to privatisation. In 2003, he wrote a paper for the Pakistan Institute of Development Economics, an government-owned economics think tank based out of Islamabad, arguing against privatisation and specifically mentioning the Habib Bank privatisation as a transaction he was opposed to.



Published in The Express Tribune, September 16^th, 2011.