FWBL sold to UAE entity for $14.6m

Cabinet clears first privatisation under IGCT Act; signing to take place today

ISLAMABAD:

Pakistan's federal cabinet on Thursday approved the sale of its 100% stakes in a state-owned small commercial bank for $14.6 million (Rs4.1 billion) to a United Arab Emirates government-nominated entity under a negotiated deal.

Besides selling the entity for $14.6 million, the government has also allowed the new buyer to meet the total minimum capital requirement of Rs10 billion for the bank over a period of five years. The bank's equity as of December last year was Rs3.2 billion, and the buyer will inject Rs6.8 billion more to meet the minimum requirement.

Headed by Prime Minister Shehbaz Sharif, the federal cabinet approved the sale of its entire 82.64% shareholding in the First Women Bank Limited (FWBL) to a UAE government-nominated entity, International Holding Company (IHC), according to government officials.

The Privatisation Commission did not officially comment on the development, but a senior official said it was a "small ticket item but an important development due to the market position of the buyer." The Prime Minister's Office also did not disclose the details of the deal, keeping it under wraps.

Officials said the UAE entity had valued the bank at Rs5 billion ($17.7 million). At this value, the government will receive $14.6 million (Rs4.1 billion) for its 82.64% stake. Despite being a small transaction, the deal holds significance as it marks the first sale under Prime Minister Shehbaz Sharif's government.

The deal has been approved under a government-to-government (G2G) framework agreement by the Inter-Governmental Commercial Transactions (IGCT) Act, 2022. The law exempts competitive bidding for such sales, though the Privatisation Ordinance of 2001 mandates it for state assets. The sale purchase agreement is expected to be signed today (Friday) in the presence of the prime minister.

The IHC is not a majority-government owned firm and is a private entity but the government has concluded the transaction under the IGCT law that was meant for negotiated deal with the foreign governments. The senior government functionary said that the law only requires the involvement of a foreign government and there is no restriction to strike negotiated deals only with the majority-government owned firms.

Sheikh Tahnoon bin Zayed Al Nahyan chairs the IHC, which holds assets worth around $240 billion across 1,300 subsidiaries in sectors such as asset management, healthcare, real estate, marine, technology, financial services, food, and utilities.

Defending the low price, the government functionary said the Rs4.1 billion valuation was higher than the Rs3.7 billion reference price approved by the Cabinet Committee on Inter-Governmental Commercial Transactions (CCoIGCT) on Tuesday, chaired by Deputy Prime Minister Ishaq Dar. Instead of taking the maximum Rs3.4 billion under the market multiples formula, the financial adviser determined the Rs3 billion value through a weighted average of three different valuation methods.

The Pakistan Democratic Movement (PDM) government had enacted the IGCT law to fast-track sales of state assets to Gulf nations for raising funds and avoiding sovereign default. However, no major transaction has been completed so far. In 2023, the PDM government signed long-term concession agreements with AD Ports of Dubai for managing berths at Karachi Port.

The First Women Bank Limited was established in 1989 to promote financial inclusion for women, though it also performs regular banking operations. As of December 2023, its total assets stood at Rs65.9 billion against liabilities of Rs62.8 billion. It was placed on the privatisation list in 1994 and took 31 years to privatise under this negotiated deal with a singl buyer. The central bank has stopped issuing new commercial banking licences, giving the buyer a unique opportunity to expand FWBL without needing a new licence. The Rs4.1 billion sale price was slightly above the bank's Rs3.2 billion net equity.

The Privatisation Commission has so far failed to sell major loss-making entities such as power distribution companies and Pakistan International Airlines (PIA). Officials, however, hope that PIA could be sold by the end of November, though reports suggest the process may take longer.

The sale of the First Women Bank marks the fifth attempt at its privatisation. FWBL operates 42 branches across 24 cities. Its minor shareholders include Habib Bank Limited (5.78%), MCB Bank (5.78%), and smaller stakes by Allied Bank, National Bank of Pakistan, and United Bank Limited. The new buyer plans to increase branches to 200 in the medium term. The IHC has been allowed to immediately retrench up to 10% of the total workforce, but the remaining employees cannot be laid off for at least a year and a half year, according to the government officials.