privatization of hbl

7/28/2019 privatization of hbl

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Privatization of HBL:

IntroductionHabib Bank Limited was established on August 25, 1941. At the time of incorporation,the Bank had a paid-up capital of PKR 2.5million. Following the creation of Pakistan,the head office of the Bank was shifted to Karachi in 1947. The earlyyears of the Bank were characterized by strong growth profitability, branches, deposits and advances. TheBankentered into the international market in 1951 and opened its first overseas branch inSri Lanka. Subsequently, theBank expanded its presence to Africa, America, Europe, Far East, South Asia and the Middle East.HBL was nationalized under the NationalizationAct, 1974 on January 1, 1974. During the early 1980s the Bankplayed its part ineconomic development and extended credit facilities to a number of sectors at subsidized

ratesunder various arrangements including export finance, local manufactured machinery,government borrowing forcommodity operations, mandatory production credit to smallfarmers and direct industrial investment.Habib Credit and Exchange Bank which wasincorporated in 1992 was a wholly owned subsidiary of HBL. Habib Credit andExchange Bank was sold off to the Abu Dhabi Group (UAE) by the PC in 1997 throughopen bidding.HBL is Pakistans largest commercial bank in terms of number of branches. It has anextensive network of 1,477 branches in and outside the country. With a deposit base of Rs 451 billion and an asset base of Rs 565 billion, it is second only to the state owned andlargest, National Bank of Pakistan. HBLs advances of Rs 329 billion make it the largestlender in the country.

Factors Leading to Privatization:1. Over staffing

HBL had a problem of over staffing.in the year 1996, more than 31000 employeesworked for HBL. This figure is inclusive of both clerical and non-clerical staff. Theover staffing caused shrinking of profits because of the salary and wages payable tothe staff that was not needed.

2. Political PressureThe economics policies of Pakistan had a trickle down effect on the policies of the

bank and thus the policies of the bank had to be synchronized with the policies of the

government. HBL was highly influenced by the policies of the government. Pakistani politics is in unstable arena, and policies are modified with the advent of every newoffice bearer. Thus there is lack of consistency. This inconsistency,according to the

proponents of the privitaziation decisions led to inefficiency . The intent behind the privatization decision was to make HBL an independent organization so that it could function and perform to its maximum potential.


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Pri va ti za ti on of HBL:Under the GoP reforms, efforts were initiated in 1996 to prepare the Bank for

privatization. As part of the privatization strategy, the GoP initiated the privatization of HBL in 2000. Through the defined process, 51% shares of HBL were acquired by theAga Khan Fund for Economic Development (AKFED) for a price of PKR 63.68 per

share and the management of the Bank was transferred on February 28, 2004.Furthermore, SBP holds 48.047 of the total paid up capital, and the remaining 0.953% isheld by National Bank of Pakistan (Trustee Department), Privatisation Commission,Government of Pakistan and SECP.Key initiatives introduced since privatization include(a) upgrading the IT and communication system (b)strengthening management andenhancing its capacity and (c) rebranding and repositioning the Bank in thedomestic aswell as in the international markets. As a result of these initiatives, the Banks core

banking systemhas been fully upgraded and as of December 31, 2006 271 branches areonline, while over 1,000 branches areexpected to become online by the end of 2007.

Ini ti al Pu bl ic Off er in g:

HBLs IPO was the largest-ever offering in the history of Pakistans capital markets witha transaction value of Rs12.16 billion, which was nearly twice the size of the secondlargest IPO - that of OGDCL. It was worth Rs6.88 billion offered in November 2003.This transaction potentially benefited 517,500 investors, the largest number ever in suchofferings. The offer was made in minimum lots of 100 shares to allow participation bysmall investors resulting in broad-based shareholding of HBL.

ENT ITY RA TIN G:The Bank has been assigned a long term entity rating of AA+ (Double A plus) and ashort term entity rating of A1+(A-One plus) with a stable outlook by JCR-VIS CreditRating Company Limited.

Lea d Ma na ge r:Global Securities Pakistan Limited was appointed as the lead manager for the transaction.34,500,000 shares (5 per cent of the paid-up capital) of the HBL were offered at a priceof Rs235 (inclusive of a premium of Rs225 per share) and in case of oversubscription thecommission may exercise the Green-shoe option and offer an additional 17,250,000shares (2.5 per cent of paid-up capital).

Stock exchange:The OFSD has been cleared by the Karachi Stock Exchange (Guarantee) Limited (KSE),Lahore Stock Exchange (Guarantee) Limited (LSE) and Islamabad Stock Exchange(Guarantee) Limited (ISE), collectively referred to as the (Stock Exchanges). Allotment of shares would be through balloting and preference would be given to those applying for minimum lot of 100 shares. THE SUBSCRIPTION LIST was OPEN FOR FIVE (5) DAYS from July 26to July 31, 2007.Government of Pakistan offloaded its 5 percent holding in Habib Bank Limited (HBL).The government through the Privatisation Commission (PC) has announced its decisionto offload its 34.5 million shares of HBL, with a green shoe option of 17.3 million sharesexercisable in case of over subscription. At an expected offered price of Rs 235 per sharethe IPO will raise Rs 12.2 billion.


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Summary of Issue:

OBJECTIVE OF OFFER FOR SALE Main objective of this offer was to invite the general public to subscribe to the Banks shares for

broadening the ownership base, further strengthening the capital market and passing the benefits

of privatization to the common man.

Initial Public Offering:

INV ES TOR EL IG IBIL IT Y The following categories of investors are eligible to subscribe to the shares offered to the general

public:Pakistani Investor includes Pakistani citizen resident in Pakistan; Companies, bodies corporateor other legal entities incorporated or established in Pakistan (to the extent permitted by their constitutive documents andexisting regulations, as the case may be); Provident/pension/gratuity

funds/trusts incorporated in Pakistan (subjectto the terms of their respective Trust Deeds andexisting regulations).Non Resident Pakistani Investor Includes Pakistani citizen resident outside Pakistan; andPersons holding two nationalities including Pakistani nationality .

Share Capital

No. of Shares Pak Rupees %ShareholdingAuthorized

1,380,000,000 Ordinary shares of PKR 10/- each

13,800,000,000

Issued, subscribed and paidup issue for cash

690,000,000 Ordinary shares of PKR 10/- each

6,900,000,000

6,900,000,000The existing issued,subscribed and paidupcapital of the bank is heldas follows

351,900,000 Agha Khan Foundationfor EconomicDevelopment

3,519,000,000 51.00

331,524,002 State Bank of Pakistan 3,315,240,020 48.056,468,187 Islamic Republic of

Pakistan64,681,870 0.94

105,924 National Bank of Pakistan 1,059,240 0.011,886 PrivetisationComission 18,860 -


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Govt. of Pakistan1 Securities and Exchange

Comission of Pakistan10 -

690,000,000 Total 6,900,000,000 100

In case of oversubscription, the Offerer may exercise the Greenshoe Option, and offer upto17,250,000 (2.5% of Paid up capital) additional ordinary shares out of SBPs shareholding in theBank.

Conditions for Applications:

The shares would be offered lots of 100 and multiples of 100 up to 500 shares, thereafter multiples of 500shares. The marketable lot for trading in the Stock Exchanges will be 100 shares, allowing ease of entry

and exit to successful applicants of 100 shares. The application size of 100 shares would make thesubscription affordable for the common citizens and would allow them an opportunity to become ashareholder of one of the largest banks of Pakistan.The minimum amount of application for subscription of 100 shares is PKR 23,500/- both in thecase of physical transfer and transfer under book entry system.

Bas is of Allot me nt of Sh are s:

if the shares to be offered to the general public are sufficient for the purpose to accommodateall the applications, then all applications shall be accommodated.

In case of over/under subscription of shares by resident and/or non-resident Pakistaniinvestors, the investors of oversubscribed category will be allocated the shares of

undersubscribed category. If the Offer is oversubscribed in terms of number of applications (517,500 applications for

100 shares), the shares shall be allotted by conducting computer balloting in the presence of the representatives of the Stock Exchanges in the manner that balloting will be held among allapplications irrespective of the number of shares applied for and successful applicants will beallocated 100 shares each.

If the Offer is oversubscribed in terms of amount only, then allotment of shares shall be madeinthe following manner:

All applicants will be allotted 100 shares each. If the balance amount is sufficient to accommodate all applications for 200

shares, then all such applicants will be accommodated first. If all applicationsfor 200 shares cannot be accommodated then balloting will be held amongtheapplications for 200 shares only, viza viz.

R EFUN D OF S UBSCRIPTION M ONEY TO U NS UCCES SFU L A PPL ICAN TS The Offerer shall take a decision within ten (10) days of the closure of the subscription list as towhich applications have been accepted or are successful and refund the money in case of unaccepted or unsuccessful applications within ten (10) days of the date of such decision, asrequired under the provisions of Section 71 of the Ordinance.


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M INIMU M S UBSCRIPTION As this is an Offer for Sale of Shares by the Government of Pakistan, there will be no minimumsubscription amount for allotment of shares. The subscription amount received against the Offer will be accepted upto 34,500,000 shares or upto 51,750,000 shares if the Greenshoe option isexercised in full.

DI VI DE ND PO LI CY :

The rights in respect of capital and dividends attached to each ordinary share would be the same.The Bank in ageneral meeting may declare dividends but no dividends shall exceed the amountrecommended by the Directors.Dividend, if declared in the general meeting, shall be paidaccording to the terms of the provisions of theOrdinance. The Directors may from time to time

pay to the members such interim dividends as appear to the Directors to bejustified by the profitsof the Bank. No dividends shall be paid otherwise than out of the profits of the Bank for theyear or any other undistributed profits. No unpaid dividend shall bear interest or mark-up against theBank.The Bank has already declared interim dividend of 20% for the financial year endingDecember 31, 2007 . I ncome distribution will be subject to the deduction of Zakat at source

pursuant to the provisions of Zakat and Ushr Ordinance, 1980 (XVIII of 1980).Dividend distribution to the shareholders will be subject to withholding tax at the rate of 10% for all shareholders as per the finance bill, 2007. The tax shall be deducted at source and shall bedeemed to be full and final liability in respect of such profits.

CAPITAL VALUE TAX & WITHHOLDING TAX ON SALE/PURCHASE OF SHARES :Following charges are applicable on sale and purchase of securities:a) 0.02% Capital Value Tax will be charged on purchase of all shares, Modaraba certificates andinstruments of redeemable capital as defined in the Ordinance

b) 0.01% Withholding Tax will be charged on the sale value of all shares, Modaraba certificatesand instruments of redeemable capital as defined in the Ordinance.

DEF ERRE D TAX AT IO N :Deferred tax is recognized using the balance sheet liability method on all temporary differences

between the amounts attributed to the assets and liabilities for financial reporting purposes andamounts used for taxation purposes. Deferred tax is measured at the tax rates that areexpected to

be applied to the temporary differences when they reverse, based on the laws that have beenenactedor substantively enacted at the reporting date. A deferred tax asset is recognized only tothe extent that it is probable that future taxable profits will be availableagainst which the asset can

be utilized. The Bank booked Net Deferred Tax Asset amount to PKR 2,726 million as of December 31, 2006 and PKR 2,783million as of March 31, 2007.

Pre mi um and Jus ti fi ca tio n of Premiu m:This Offer is being made at a price of PKR 235/- per ordinary share of PKR 10/- each, inclusive

of a premium of PKR 225/- per share and transfer fee . The premium of PKR 225/- per share onPKR 10/- per share is adequately justified, based on the following considerations:

a) HBL has the largest branch network and highest advances amongst the banks in Pakistan. HBLalso ranks second largest in terms of asset and deposit base.

b) HBL underwent capital restructuring in 2004. The Bank issued right shares amounting to PKR 8,000 million and subsequently reduced accumulated losses up to PKR 13,278,495 million


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against its paid up capital of PKR 20,178,495 million. The Bank also reduced its authorized sharecapital from PKR 30,000 million to PKR 13,800 million.

c) HBL is the only Pakistan based bank with significant international operations. The Bank has39

branches, 2 subsidiaries, 2 Affiliates and 2 representative offices in 23 countries outside Pakistan.

d) In February 2004, the GoP made a strategic sale of 51% of the shareholding in the Bank at a price of PKR 63.68 per share (price has been adjusted for restructured capital base) and handedthe management to the successful bidder AKFED. Since then, the Bank has shown exceptional

progress as evident from its increasing deposit base, growth in advances and improving net profits.

e) Advances have increased at a CAGR of 23.37% from PKR 178,917 mn in FY 03 toPKR335,958mn in FY 06.

f) Deposit base increased at a CAGR of 8.38% from PKR 345,436 mn in FY 03 to PKR 439,724mn in FY 06.

g) Total equity has grown at a CAGR of 31.26% from PKR 23,485 mn in FY 03 to PKR 53,112mn in FY 06.

h) Despite increasing competition, profits increased at a CAGR of 52.66% from PKR 4,013 mn inFY 03 to PKR 14,276 mn in FY 06.

UNDERWRITING :Underwriting is required for public offerings where a premium is being charged.This Offer hasnot been underwritten.

COMMISSION TO THE BANKERS TO THE OFFER:A commission at the rate of 0.25% of the amount collected on allotment in respect of successfulapplicants will bepaid by the Offerer to the Bankers to the Offer for services to be rendered bythem in connection with this Public Offer.

BRO KE RA GE :For the Public Offering, the Offerer will pay brokerage to the members of the Stock Exchanges atthe rate of1.00% of the value of shares (including premium) actually sold through them.

Oversubscribtion:The Initial Public Offering (IPO) of shares in Habib Bank Limited (HBL) has been over-subscribed by Rs6.40 billion or 52 per cent with the bank receiving Rs18.60 billion against the

public offer of Rs12.20 billion. Analysts hold a consensus view that the public response to thestock has been overwhelming. Given the huge number of applications received, each applicant,who wins at the ballot to follow, would be entitled to no more than 100 shares.

The government had made an IPO of 7.5 per cent shares (including green shoe option of 2.5 per cent) out of its holding of 49 per cent in the bank. The total 51.75 million shares were offered atRs235 per share. The IPO has been billed as the largest-ever offering in Pakistan in regard to bothvalue and number of shares offered.


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The offer for sale of shares of Habib Bank Limited at the Karachi Stock Exchange has been 1.7 times oversubscribed, as it attracted over 428,000 applications worth Rs 18.638 billion, much higher than the government's target of Rs 12.14 billion. The offer attractedover 387,000 applications for 100 shares, 21,000 applications for 200 shares, 3,600applications for 300 shares, 1,824 applications for 400 shares, 14,200 applications for 500

shares, and 1,193 applications for over 500 shares. The government is selling 34.5million shares at Rs 235 per share. It would fetch Rs 8.107 billion. If the governmentexercises its green shoe option, it would sell another 17.2 million shares. As a result thegovernment will be selling 51.7 million shares and fetching Rs 12.149 billion. The IPOtook place from July 26 to July 31. Allotment of shares would be done through balloting.

B AN KE RS TO THE IS SUE:Domestic Bankers1. Habib Bank Limited2. MCB Bank Limited3. United Bank Limited

4. Allied Bank Limited5. Bank Alfalah Limited6. Habib Metropolitan Bank Limited7. Bank AL Habib Limited8. Soneri Bank Limited9. Standard Chartered Bank Pakistan Limited10. NIB Bank Limited11. PICIC Commercial Bank Limited12. Bank of Punjab13. Bank of Khyber 14. KASB Bank Limited15. JS Bank Limited16. ABN AMRO Bank 17. Askari Bank Limited18. Faysal Bank Limited19. Saudi Pak Commercial Bank Limited20. Deutsche Bank AG

Overseas Bankers

1. Habib Bank Limited, Bahrain2. Habib Bank Limited, Oman3. Habib Bank Limited, UAE4. United Bank Limited, Bahrain5. United Bank Limited, UAE


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EXP EN SE S OF TH E OF FER FO R SAL E OF SHA RE S :The expenses of this Offer are estimated not to exceed PKR 177,445,500 of whichthe l is t ing fees of the Stock Exchanges and appl icat ion processing fee of SECPshal l be borne by the Bank whi le expenses to the Offer sha l l be borne by theOfferer.

Expense category Rate Amount PKR Comission to the Bankersto the Offer*

0.25% 30,403,125

Brokerage to theMembers of the Stock exchange*

1.00% 121,612,500

Securities and exchangeComission of PakistanProcessing fee

100,000

Listing Fees and Charges

of the Stock exchanges

1,685,000

Pinting and Publication of OFSD, Printing of sharesCertificates, TransferDeeds and shareApplication Forms*

4,344,875

Fee for ComputerBalloting*

3,300,000

Advertising, marketingand roads Shows

15,000,000

Other Miscellaneous

expenses

1,000,000

Total 177,445,500*Represents maximum possible expenses relating to the subscription amount inclusive of green shoe option.

Analysis

Pre -IPO an d Po st -IPO Ana ly si s:

Year 2011 2010 2009 2008 2007 2006Period 12M 12M 12M 12M 12M 12MRatios Unit of

Measurement

EarningPerShare

Rs. 18.82 15.58 13.50 13.18 14.62 17.46


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Price-earningRatio

Times 6.25 7.27 7.04 15.23 18.53 0.54

Dividend Yeild

% 0.06 0.06 0.06 0.03 0.01 N/A

Dividend inPrice

Rs. 7.00 6.50 6.00 5.50 4.00 0.00

DividendPayout

% 0.37 0.42 0.44 0.42 0.27 0.00

SharePrice

Rs. 131.0 137.4 140.7 324.9 324.9 0.00

Critical Analysis:

OGDC HBLRatio Unit of

Measurement2011 2010 2011 2010

EarningperShare

Rs. 14.77 13.76 18.82 15.58

Price-EarningRatio

Times 10.30 9.08 6.25 7.27

DividendYeild

% 0.04 0.04 0.06 0.06

Dividend Rs. 5.50 5.50 7.00 6.50DividendPayout

% 0.37 0.40 0.37 0.42

SharePrice

Rs. 185.00 147.00 131 137


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Current Situation:Last Trade 103.15 ( 2.12) Day's Range 101.40-104.50Trade Time May 22, 2013 Volume 444,900

Previous's Close 101.03( 0.53) Previous's Range 100.95 102.00Avg Volume (3M) 129,020 3M Range 87.96 - 116.89P/E 5.48 1Y Range 87.96 - 122.50

EPS 18.82 Dividend7.00Highest324.95 (on Mar 07, 2008) Lowest49.25 (on Jan 27, 2009)

REC OMME ND AT IO NS :

1- If HBL had offered its shares at more than 235 rs. than the equity would have been much stronger.

2- SECP hasnt evaluated the financial soundness of HBL so the share holders(investors) have to perform this exercise this by them self.

3- The green shoe option must be taken into account and more favorable results well be seen.

4- HBL should move into the international stock exchange to enhance their situationand increase their good will.

Conclusion:-The overall data shows that the privatization of HBL was a fruitful one for thegovernment, stock exchange and for the state as well. It helped in solving the problems of the bank. The financial position of the bank got better as the company was sent into theIPO. The financial stats show that the growth trend of HBL was in upward direction.The Bank has been assigned a long term entity rating of AA+ it shows that the

performance of HBL improved immensely. The pre & post IPO analysis also shows thatthe bank grew. Even on the analysis with OGDC it shows that HBL is earning more per share. After that if we see that justification of the premium we come to know about many

plus points of HBL. Those all point shows that how extraordinary performance is showed by HBL, which is one of the leading commercial bank in Pakistan. One of the findingsfrom the whole data analysis, one can say that privatization can lead towards prosperity.There are clear facts and figures stated which support this conclusion.

Documents

privatization of hbl