Pakistan will seek to offload its entire stake in Habib Bank and raise up to PRs101.1 billion ($992.7 million) later this week, potentially making it the largest share sale in the country’s privatisation drive.
The government currently owns 41.5% of Habib Bank and will seek to sell it all — up to 609.3 million shares — on Friday, according to a term sheet seen by FinanceAsia.
The base deal consists of 250 million shares, representing 17% of the bank’s outstanding capital, which would net the government $407.3 million. An exercised upsize option would tack on an additional 359.3 million shares, or $585.4 million.
Credit Suisse and Deutsche Bank are handling the sale, which has a floor price of PRs166 per share, representing a 10.6% discount to the April 3 closing price of PRs185.62. Habib Bank, which has a market capitalisation of PRs272 billion, currently has some 1.47 billion outstanding shares.
The bookbuild will last until the end of the week with pricing scheduled for late Friday. Any shares not sold by the government will be subject to a 12-month lockup, while company executives will have a six-month lockup.
Sources close to the deal said the deal has already drawn demand from a number of global long-only institutional investors and hedge funds.
They also noted the reasonably large size of the deal given how little Habib trades each day — its daily average trading volume is 85,500.
“The secondary offering will help improve Habib’s trading activity at the local bourse and will help in efficient price discovery,” according to a research note from Topline Securities. “Habib’s weight in the KSE-100 Index and the MSCI Frontier index will also improve significantly.”
Biggest of the year
If successful, the Habib privatisation will be Pakistan’s largest equity capital markets deal ever. There has only been one other deal in the country this year, KES Power’s $62 million follow-on offering of shares in K-Electric on January 30, according to Dealogic data.
Performance-wise, the bank’s shares are down 18% so far this year, considerably worse than the MSCI Pakistan Index, which is down 7% year-to-date. It is trading at 7.3 times its expected 2015 earnings.
Allied Bank, Bank Alfalah, National Bank of Pakistan, and United Bank Limited are all trading at slightly lower 2015 price-earning ratios, ranging from 5.1 times to 6.8 times, Topline research shows. Only MBC Pakistan is trading higher at 9.3 times.
Most analysts are bullish on Habib ahead of the share sale, highlighting its strong deposit base, large branch network, and ability to generate low-cost deposits. Habib Bank has a capital adequacy ratio of 16% and, as such, will be one of the beneficiaries of improving macro-led credit growth, Topline analysts said.
Habib is also the market leader in Pakistan in terms of branches and deposits — it has a total branch network of 1,600 out of a total industry network of 10,273 and a deposit base of PRs1.52 billion, or 18% of total industry deposits.
Habib’s focus on retail banking has enabled its deposits to grow at a five-year compound annual growth rate of 17%, compared with an industry average of 14%, Topline said.
And although credit growth from 2010 to 2014 halved to a CAGR of 6% compared with the previous five-year period due to Pakistan's slowing economy and energy crisis, credit growth from 2015 to 2017 is forecast to average 14% a year, the research added.
Habib’s net income last year grew 24.6% to PRs92.6 billion compared with 2013.
Privatisation drive
This deal comes nearly 10 months after the government’s successful secondary share sale in United Bank in a block trade last June, which allowed the government to raise $387.9 million after selling its remaining 241.9 million shares at PRs158 per share.
That was the country's largest ECM transaction last year, ahead of Pakistan Petroleum’s $155 million follow-on offering in the same month and Allied Bank’s $143 million secondary share sale in December 2014, Dealogic data shows.
However, the government was not successful in all of its ECM transactions last year, scrapping a 10% sale in Oil & Gas Development in November after investors only purchased half of the 323 million global depository receipts on offer. At the time, it was seen as a blow to the country’s attempts to kick-start its economic revival plan.
The Habib share sale, if successful, will undoubtedly be a relief as the country continues to re-open its capital markets amid a spate of reforms.
Nawaz Sharif, who was sworn in as the country’s prime minister for a third time in June 2013, controls almost half the seats in parliament, which allows his Pakistan Muslim League N-party to govern without a chunky coalition partner. That gives it more freedom to implement a reformist agenda.
Since inheriting a troubled economy, energy crisis and worsening security situation, the government has cut subsidies and eliminated some debt from the electricity sector. It also negotiated a $6.6 billion deal with the International Monetary Fund to prevent a default.
The country’s fiscal deficit stood at a record 8% in 2012. It has since dropped to 6% and the government is targeting 4.8% deficit by 2015.
