Privatisation Commission: Too low a floor as CCoP says Rs166 per share for HBL

Government set to offer its 41.5% stake in bank; book building to begin today.

ISLAMABAD:

In a surprising move, the Cabinet Committee on Privatisation (CCoP) on Monday set the floor price at just Rs166 per share for offloading its remaining 41.5% stake in the country’s largest financial institution, the Habib Bank Limited (HBL). 

When compared with the price range recommended by the Privatization Commission (PC) Board, the CCOP’s decision would cause a potential loss of up to Rs14.6 billion to the exchequer, as the Rs166 share price will fetch only Rs101.1 billion. The cabinet body’s meeting was chaired by Minister for Finance and Privatisation Ishaq Dar.

The CCOP’s determined minimum price was far lower than the price range of Rs170 to Rs190 per share, which was worked out by the PC’s board. Financial advisors had recommended Rs160 per share price, which the board termed low given the nature of the transaction, said a senior official of the PC.

He said the financial advisors ignored the strength of the company and benefits the buyers of these shares will receive. After the transaction, the free float of HBL will increase from the present 7.5% to 49%.

The government has hired a consortium of financial advisors comprising Credit Suisse, Deutsche Bank, Elixir Securities and Arif Habib Limited.

At the price of Rs170, the government’s earnings would have amounted to Rs103.5 billion, while at Rs190 these were estimated at Rs115.7 billion.

Out of the 609 million shares on offer, which represent 41.5% of the government’s stake in HBL, 250 million are base shares. The other 359 million will be available once 250 million shares are fully subscribed by the investors. The book building will begin today (Tuesday) and will continue till April 10.

The State Bank of Pakistan has waived off the restriction of holding only up to 5% of the total stakes aimed at facilitating big investors. Still, the success of the transaction will depend whether the International Finance Corporation of the World Bank Group, Commonwealth Development Corporation (CDC) and Agha Khan Fund for Economic Development take part in the bidding.

During the PC’s meetings with the potential investors, foreign investors like Everest Capital, Prusik Investment Fund, CDC, and Capital R showed their intentions to buy shares at Rs170 per share. Investors usually remain conservative in their meetings aimed at getting lucrative deals. Some domestic institutions valued their shares up to Rs180.

The CCOP’s price was even lower than Monday’s trading price of Rs185.62 and also lower than the 52-week lowest of Rs169.4 per share.

Given the financial strength of HBL, the government needed to adopt an aggressive marketing strategy, said an equity market analyst who is also involved in policymaking in one of the three stock markets.

He said instead of giving discount, the government should have set the floor price at a 5% premium of last day’s trading. The analyst was of the view that the government determined the floor price keeping in mind the book value of the HBL.

The weighted average price of last one month was Rs189.16 per share, which was fully reflected in the PC Board decision but ignored by the CCOP. The weighted average price of last two months was Rs195.53 per share and of last three months it was Rs201.55 per share.

The government’s ability in achieving the budgetary target of roughly $2 billion hinges on successful completion of the HBL transaction, which is expected to generate 60% of the total budgetary target.

It will be the fourth capital market transaction since June last year. The government has already divested its shares in Allied Bank Limited, Pakistan Petroleum Limited and United Bank Limited, earning Rs68 billion in the process.

Published in The Express Tribune, April 7^th,  2015.

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