HBL: a great asset lost

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 !!!!!!!!!!!!!!!!!!!

OGDCL shares divestment: floor price set at Rs 216

The Cabinet Committee on Privatisation approved the floor price for divestment of 10% GoP
shares of OGDCL. Finance Minister, Senator Ishaq Dar who is in Dubai attending IMF talks,
chaired the meeting in Islamabad through a telecom link, says a press release issued here on
Thursday. After detailed deliberations, the Committee accorded approval to a floor price of Rs
216 per share as recommended by the Privatisation Commission.
An approval was also accorded to a 3-day book building process "with floor price to be applied
prior to opening of book on November 6, 2014". As agreed with the Financial Advisory
Commission (FAC), book building was launched on November 5; and it would conclude on
November 7, 2014 at 10.00pm (PST). It may be added that the consortium comprising M/s
Citibank, Bank of America/Merill Lynch and KASB was appointed in April this year which is
acting as Financial Advisory Consortium (FAC) for the divestment of up to 10% GoP shares in
OGDCL through international and domestic capital markets.
Ishaq Dar said that complete transparency has been ensured throughout the process leading to
divestment of the OGDCL shares. The meeting was attended by Minister for P&NR Shahid
Khaqan Abbasi, Minister for Commerce, Khurram Dastgir, Minister for Law and Justice, Pervaiz
Rashid, Minister for Planning and Development, Ahsan Iqbal, Minister for Textile Industry,
Abbas Khan Afridi, Chairman Privatisation Commission, Mohammad Zubair, Advisor Finance
Division, Rana Asad Amin and other senior officials.