The outcome of the recent sale of Habib Bank is that neither its timing nor price is seen to be favourable for the government of Pakistan and there is the possibility that this acquisition may become an unwelcome burden for the purchaser also.
Whether as a result of excessive zeal or intrigue, both principals appear to have received inadequate analyses in regard to their respective situations, with the only gainers being those involved in advising on and arranging this transaction.
Therefore, the clarification by the Federal Privatisation Minister that "nothing was hidden, everything was transparent" in the agreement to sell controlling interest in Habib Bank (HBL) and another by the secretary of this ministry that it was under "no pressure to sell the bank to the Aga Khan Fund for Economic Development (AKFED)" fail to shed light on the doubts surrounding this transaction.
Public concern does not centre on the modalities of the bidding but on the propriety of the sale itself, on why it was done in such a hurry, whether the accepted price was a fair price and, importantly, whether the purchaser will make a successful manager of this national asset.
The timing of this transaction remains perplexing. Was there no co-ordination with the finance ministry, which was known to be launching a Eurobonds issue less than two months after the bank was put up for auction?
No harm, but much gain, could have come from waiting. If the bonds issue turned out to be successful, then the confidence reposed in Pakistan's economy would have enabled the privatisation ministry to demand, and reasonably expect, a considerably higher price than merely the book value it was offered for Pakistan's second largest commercial bank.
Surely, the haste could not have been motivated by any urgent cash need in government for budgetary support.
In such an eventuality, the ministry would at least have insisted that the AKFED pay the full price of Rupees 22 billion up front, instead of accepting only half that amount in cash.
And if there was a need to raise cash for other reasons, a better option would have been to off-load Habib Bank's shares in the capital market, bearing in mind the successful experiences with OGDC and National Bank, both of which issues were heavily over-subscribed by a public starved of opportunities and eager to invest in well-managed companies.
Nor can one be convinced that there was IMF or World Bank pressure that the bank should be sold by a particular date because even if there was a prior commitment, these financing agencies would not hold Pakistan to a promise that was no longer relevant.
Any earlier agreement must have been made when the nationalised banks were merely instruments for institutionalised and politicised large-scale bad lending and the catalyst for the country's overall economic and corporate decline.
That such a situation no longer exists is a fact acknowledged not only by Pakistan's international creditors but also, significantly, the new ownership itself, which has confirmed it has "no plans to change the bank's management."
Consequently, it is mystifying why continued profitable management by the same team for state ownership should be considered undesirable.
And, if all else failed, the government always had the option of applying sovereign priorities to delay the sale of the bank, which exercises a strategic role in Pakistan's economy, no less perhaps than that of Pakistan State Oil, the privatisation of which has been repeatedly deferred, and rightly so, for reasons of its strategic importance.
Could it be that the sale was approved because the AKFED bid represented exceptional value? Not so, says former Finance Minister Ishaq Dar, who, speaking in the Senate, valued HBL at between Rs 100 Rs 150 billion.
Even allowing that Dar's figure may be a politically-motivated over-estimation, it cannot be ignored that, by selling the bank for only its net book worth, the privatisation ministry has failed to recover any value for the enormous goodwill that can be attached to an expanding, efficiently-managed and profitable 1700-branch banking company, with a cleaned-up balance sheet, that holds market share of more than twenty percent banking deposits and credit in an expanding market economy of a hundred and fifty million people.
In any case, the net result of the "restructuring" by the privatisation ministry's financial advisors leaves the people of Pakistan out-of-pocket by Rs 14 billion, when it is recalled that 18 billion rupees of public money was injected by the State Bank to "fill a hole" in HBL's balance sheet and, further, in December 2003, just weeks before the bidding, the finance ministry first authorised transfer of 9 billion rupees of HBL's bad debts to the CIRC and then issued another nine billion rupees worth of bonds to cover a tax liability to the CBR.
In defending the sale, the finance ministry has made two points that require correction.
Firstly, its belief that this privatisation will upgrade the potential of Pakistan as an investment destination is not tenable.
The reality is that the privatisation ministry, having received no offers from any serious international banking interests, was restricted to short-listing only two bidders, neither with any experience of owning or managing an operation with the spread of HBL.
In such a situation, the prudent course would have been to postpone the sale, so as to analyse and ascertain the reasons behind this lack of interest and to implement the corrective measures needed to make the bank, and Pakistan's investment climate, an attractive proposition.
Instead, by processing this complex transaction within forty-eight hours on the strength of only two bids, there is the impression not only of a distress sale, but one that may not have been completely above board.
Secondly, by saying that it finds comfort in the fact that HBL will be efficiently run now that it has become "international," the Finance Ministry not only undervalues the capabilities of Pakistani banking professionals but also ignores the several recent instances in the developed world of incidents of financial fraud by large corporations in connivance with major banks.
These tell us that corporate governance and business ethics are no better overseas than here in Pakistan.
Of course, the fact that the main interested party was the AKFED no doubt placed the decision-makers in a quandary.
There is not a better friend of this country or a more welcome investor than the Aga Khan, who is held in the greatest esteem, by both government and people, for his sincere and unselfish services to this country.
The successful track record of the non-profit Aga Khan Foundation in the areas of rural and community development and its efficient management in the delivery of education, health and social services is well known and much appreciated.
But these qualities may not suffice for the management of a complex, transnational institution such as Habib Bank, in the light of the fact that the AKFED does not possess successful banking, even commercial experience, whether in its home base of Europe or in any other major financial markets.
In Pakistan too its several industrial ventures under the umbrella of IPS have been shut down for not being managed properly.
This is not surprising, because the AKFED's core competence is that for a profit development agency for creating economic capacity and opportunity in specific regions of the developing world.
Such an ethos is the very opposite of commercial banking and it would be interesting to learn what arguments were used by the financial advisors to convince the AKFED into committing its reputation and funds towards an enterprise that represents uncharted territory for the AKFED.
Apart from this, there is reason for concern on two other counts. First the new board may not be able to successfully resist political pressures or stay aloof from "crony capitalism."
Already there are ethical problems with the AKFED nominees on the board, one being closely connected with a securities brokerage firm that is a financial advisor to the privatisation commission and another being a legal advisor to several corporate borrowers of HBL.
Nor is confidence gained in the knowledge (from the Swiss Magistrate's judgement delivered against Benazir Bhutto) that the meeting of Jens Schlegelmilch with Asif Zardari, which led to the Cotecna-SGS connection, was facilitated at the residence of a personage close to the very top of the AKF hierarchy.
Second, in Pakistan the AKF is known to be deeply involved in executing the education-changing reform agenda of foreign governments, for some of whom it also implements and monitors many other social-objective programmes.
Post 9/11, it has been entrusted by the Pakistan government with the task of preparing a new syllabus and conducting examinations for an alternate secondary level education.
Through its control of a major insurer, the AKF already has a substantial presence in Pakistan's urban financial sector. It's widespread at the grass-roots level, is strengthened by the AKF Micro-Finance Bank, which is one of the agencies responsible for administering US aid small business loans in Pakistan, and which also operates in Afghanistan, where HBL was issued a banking licence a few days after the announcement of its sale to AKF.
With control of Habib Bank, in selected geographical areas the AKFED will be in possession of a combination of financial power and mind-control influence not equalled in South Asia by any private enterprise since the East India Company.
Without for a moment doubting the AKFED's good intentions, the fault-lines inherent in such a situation should not be underestimated, especially the possibility that other interested actors can infiltrate and misuse this organisation for non-commercial objectives.
Importantly, as experienced in many other underdeveloped societies, perhaps also in the charged political atmosphere of Pakistan the perception that any particular community or organisation exercises financial power disproportionate to its size may result in its becoming the focus of envy and unwelcome attention.
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