The response is excellent as both local and international investors have
shown confidence in HBL’s management and in the capital market of
Pakistan. But that’s no wonder because when you sell the goose that laid
golden eggs, opportunists will grab it with both hands. The over
whelming interest of investors to bid in the growing stock with
lucrative dividend yield was quite expected.
The government disinvestment under the name of privatization has
now yielded $1.69 billion after adding $1.1 billion gained from HBL to
$680 million earned through selling UBL, ABL and PPL.
It’s good for the stock market as the selling of HBL will
increase the free float in the market. Government sold 609 million
shares at the strike price of Rs168 per share to earn Rs102 billion. Not
all the shares sold will become part of the free float as buying by
sponsors and some others will not come in to market for trade. Let’s
assume 30 percent (out of 42%) of HBL’s share will become part of the
free float and that will increase the stock’s free float from exiting
1.5 percent of KSE100 to six percent. It may help the stock market
create space in regional indices as HBL may come into the MSCI frontier
market index.
But what is all this for? It will not make the stock market a
darling of foreign investors overnight; it may not resolve the chronic
fiscal imbalances or mitigate balance of payment woes to take the
economy into high growth trajectory. It’s rather a counterproductive
strategy to strip off assets for a state whose future liabilities are
growing. Pakistan’s fast growing youth calls for building state’s
resources. Selling the remaining shares in an already privatized and
well-managed company is an irrational approach.
The capital gain booked on it will become part of the SBP’s
profits and that will become part of non-tax fiscal revenues. The fiscal
deficit may be reduced by 0.3 percent in FY15 and foreign exchange
reserves will increase by $764 million as the rest of $242 million are
sold to domestic players. It is good for meeting IMF’s target in coming
quarters and to secure its own funding, the IMF has been a proponent of
selling HBL.
But is it good for the government in the long term? Will this
bring positive implications on the fiscal deficit in years to come? No!
HBL has a dividend yield of seven percent and growing – if the
government was so much in need of money to finance its deficit and
foreign inflows to build reserves, it could have issued a bond in
international market at a cost which is less than the dividend yield of
HBL.
HBL is older than Pakistan and has always remained amongst top
banks in the country. Eleven years back, the government privatized the
bank by selling 51 percent strategic holding to Agha Khan Group. At that
time, its market value was Rs22 billion ($389 million), now the bank’s
market capitalization is Rs269 billion ($2.7 billion) – having increased
sevenfold.
The privatization in a deregulated regime has reaped fruit. Its
disinvestment now will boost government’s non-tax revenues and the
fiscal deficit will be low on accounting books in the immediate year
followed by forgone dividends in years to come.
Here’s the simple math; the government earned approximately $70
million from HBL’s dividends in CY14 and it gained $46 million from the
blue chip company in the previous year. The cumulative annual growth
rate of HBL’s dividend from 2008-14 is 25 percent. Let’s assume that the
dividend income will grow by 18 percent in coming years. Even after
adjusting five percent rupee depreciation every year; in eight years the
cumulative dividends would have crossed the total amount received
today. Isn’t selling HBL an irrational decision?
Government will suffer as revenue streams are going to be disposed off !!!!!!!!!!!!!!!!!!!
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